Market Segmentation

Market segmentation is a well-established topic, detailed in many books, seminars, and courses. I don’t want to reinvent the wheel, so I will simply walk you through an example of market segmentation and distill the best practices from it so that you can apply them in your own business.

Shootsac manufactures lens bags that allow photographers to carry their lenses. Anyone who uses or owns a camera with interchangeable lenses i.e., a digital single-lens reflex camera, is a potential customer of Shootsac. Saying it differently, the owners of DSLRs are Shootsac’s target market. Shootsac’s lens bag has two key differentiating factors: 1) The bag’s slim design, made of neoprene, wraps around the photographer's body, allowing her to wear the bag while shooting, hence providing easy access to expensive lenses, and 2) An interchangeable bag flap/cover lets the photographer change looks based on her mood and/or the occasion. This allows a photographer to feel good and confident about her presence on the job. It further allows her to showcase her favorite brand and communicate her sense of style.

The differentiating factors for the lens bag are very clear. Now, let’s see how they meet the needs of a customer. The first fact to realize is that not every DSLR owner really needs easy access to her lenses while shooting, but professional photographers do. Thus, Shootsac's first market segment is professional photographers, because they will value the utility of the bag in their professional environment.

Looking at the second differentiating factor, style, intuitively tells us that women will be the right market for this feature because they care more about their appearance and accessories as a way of communicating their presence. They will be more open to the concept of changing the bag cover often to match their clothing. Women will buy more different covers as compared to men, who will appreciate the feature but will only buy a couple of standard covers. Hence, female photographers could be Shootsac's second market segment.

How about going a little deeper? We can combine the two arguments to reach an even more targeted market segment i.e., professional female photographers. This market segment will value both differentiating factors of the lens bag.

But wait! Not all professional photographers really need to carry their lenses or change them frequently. For example, portrait photographers don’t care about changing lenses. They are in their studios or are on the set with their equipment properly laid out. Hence, the first differentiating factor of the lens bag, easy access, doesn’t have the same value to all professional photographers. The next step, then, is to identify professional photographers who value the easy-access feature of the bag. Wedding and event photographers need to change their lenses frequently. They will value this feature more than other professional photographers e.g., paparazzi or wedding photographers, who often have to change lenses and really don’t have enough time to leave their spot, change lens and come back . Therefore, more focused market segments for Shootsac are: female professional wedding photographers, and female professional event photographers. Both of these markets will value the differentiating factors of the bag and will readily buy it at a base price of $179. Additional covers cost $35 to $55 apiece.

Shootsac did exactly this. After slicing its markets in niches, the company became a big fish in a small pond. This small pond allowed Shootsac to create a ton of positive buzz—approximately five to ten blogs posts appear a day about Shootsac in a professional wedding photographer network, mostly written by women—and generate repeat business through word-of-mouth marketing with virtually no marketing budget.

This example illustrates how market segmentation can create a powerful competitive advantage for a company. The example also draws attention to the fact that selecting markets is one decision that affects all of your future decisions e.g., what message you need to communicate, to whom and how. For example, Shootsac has a message for customers who value utility—“Pack your camera bag for transporting, load your Shootsac for shooting”— and quite a different message for people who value style—“It is finally possible to be a photographer without looking like one." The markets you select also dictate how and where to sell your products. Intuitively, one may think that the ideal place to sell this lens bag is where digital single-lens reflex cameras are sold, right? Yes, DSLR prices are down and people buy them from big box electronic retailers or specialty camera-stores; however, you will hardly find "professional" photographers in those stores. If Shootsac is targeting female professional wedding photographers, then it might not be a good idea to sell the bag in a retail environment.

Therefore, the very first step to developing an integrated multichannel selling model that will result in a higher market share and undivided customer loyalty is to clearly define target markets. As the Shootsac example shows, the steps are:

Articulate your key differentiating factors
Clearly define all the differentiating factors of your products and services as compared to industry or niche competitors. These differentiating factors could be features of your products or the soft elements of your offering e.g., generous payment terms; on-time delivery; small orders; exceptional after-sales support; money-back guarantee, etc.

If you don’t have any differentiating factor, man, are you in trouble! Use one of the tools described in the Next Practices section to find your groove.
Identify market segments
Some people will value few things more than others. Hence, the goal is to identify prospects and group them based on attributes of your offerings that they value most.

Note 1: demographic targeting i.e. gender, age, HHI is the partial answer of segmentation. Behavioral segmentation is much better approach for word-of-mouth marketing. Combining these two i.e. First Behavioral than demographic segmentation will deliver the best results.

Note 2: The segmentation methodology also affect how your sales organization is/will be structured.

Once you identify all groups, map them into the North American Industry Classification System (NAICS). This is important on many fronts. For example, in the real world, all research data is categorized by industries; it would be really time-consuming and expensive to find research data for unorthodox market segments. Similarly, as the saying goes, birds of a feather flock together. You will find word-of-mouth marketing plays a major role when you start targeting your market based on leading industry standards.

If your market segments are too large—for example, manufacturing or high-tech—subdivide them into smaller segments. For manufacturing, categories could include automotive, aeronautics, electronics, etc., while for high-tech they could include software, networking, Voice-over Internet Protocol, hardware, etc.

Now that we understand how to segment a market, let's go back to the task in hand i.e. prioritizing the market.

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