3 Signs Your Market Segmentation Might Suck

I think most start-up execs don’t really believe in segmentation.
Sure, if I ask for their segmentation they dutifully blow the dust off
a fairly nice looking slide that shows what markets they are
targeting.  Then I look at the customer list and the two things don’t
line up whatsoever.  The execs know they’re supposed to have a
segmentation that describes their target markets but they don’t
actually believe that following that segmentation is going make them as much money as they will if they ignore it.  Then it becomes kind of a chicken and egg thing.  Execs don’t
believe that the segmentation is important so no time is spent on it
and it ends up being either too broad, too ill-defined or both.  Then
because the segmentation is so weak, it doesn’t get used to drive
marketing/sales/product strategy and basically becomes completely ignored
unless some pesky investor asks for it.  Who wants to follow a crappy segmentation?  I sure as heck don’t.

The fact of the matter is though that for the vast majority of companies, there is no way they can meet the needs of a very broad market right out of the gate.  In order to be successful they need to narrowly define the business problem they solve which includes defining who has that problem.  I will get more into what I think a decent segmentation looks like in my next post but here are a few signs that you might have a problem with the segmentation you have today.

3 Signs that your Segmentation Might Suck:

  1. Your target market is “Financial Services”. I see this one a lot.
    Do you know how massive Financial Services is?  It’s huge.  In fact it
    accounts for about 50% of all IT spending world-wide.  When people say
    that they usually include Insurance, Retail Banking, Investment
    Banking, Asset Management, etc, etc.  Do you really think that a
    teller’s problems are anything like an Investment banker’s problems at
    the moment?  Better yet are the companies that say “We only have 3
    segments: Financial services, Manufacturing and Retail!”  Fantastic.
    We’ve established that you aren’t selling to your immediate family (oh
    wait, I could probably call that retail), but otherwise we are good to
    go!
  2. The majority of your revenue comes from outside your chosen segments
    – This is like your friend that says she reads Philip Roth but her
    bookshelf is full of Harry Potter books.  Your friends will still think
    you’re cool if you sell to the Transportation vertical (as long as
    you’re sized your market properly) and what’s more if you really *are* selling there wouldn’t it make sense to say so in your marketing materials?  Wouldn’t it make sense for your product plans to line up with what Transportation customers want rather than building something for a vertical you have never actually sold into?  It would!  Unless of course your
    revenue comes from every vertical under the sun which brings me to the
    next point….
  3. There is no discernible pattern to the companies you get your
    revenue from
    – Sometimes this is due to the segmentation including 14
    verticals (including financial services) but generally this simply due
    to a “take your victim as you find them” (as one sales exec I worked
    with called it) sales strategy where any revenue is good revenue,
    segmentation be damned!  I could go on and on about why this might be a
    good short-term strategy (and frankly, might even be the best one in
    some cases) but longer term it is going to cause you heaps of problems
    both in terms of an undifferentiated product strategy and direction, paper-thin marketing spend across segments,
    lousy customer service and support because your staff can’t be an expert at everything, and most importantly, revenue growth as your competitors become experts in slices of your market while you are left being kinda, sorta, but not really, good at everything.

My next post I will talk about some simple ways to get your
segmentation started without having to go back and get your PhD in
Marketing (even though I can’t imagine *anything* more fun than getting
a PhD in marketing, except maybe pouring hot sauce into my eyes) and how to spiff up what you already have so you aren’t starting from scratch.

18 thoughts on “3 Signs Your Market Segmentation Might Suck”

  1. I think there are a lot of execs period that don’t really believe in segmentation, big companies included.
    Customer segmentation and targeting is hard work and doesn’t necessary immediately translate into ROI. Therefore in the short term, it is something easy to ignore…

  2. Hi Josh,
    Thanks for the comment. I agree with you. I think there is a misunderstanding of the value of doing decent segmentation and also many execs have never seen anything except lame, non-actionable segmentation. It doesn’t surprise me that segment focus ends up happening more by accident than by design.
    April

  3. I worked in a company that had some good software and some smart folks that solved hard problems. They were small, about $5M in revenue and they were in Financial Services, Health Care, Government, Automotive, Transportation, Retail, and, ahhhh, Anything for a buck. When I tried to adjust the strategy to focus the company on a segment or two, the long time CEO always came to 2 arguments. 1. We can’t afford to turn down business? 2. We can’t afford to put all our eggs in one basket.
    He couldn’t get his head around the amount of effort and expertise to took to solve specific problems and to be able to communicate with buyers.
    How do you convince a the leadership of a small company to push for what seems like a counter-intuitive strategy of focus, where you have to say no to potential buyers?
    Rob

  4. Hey Rob,
    Thanks for the comment and that is a great question. I am going to get into it on the next post because I think there are some ways to get things moving in that direction but it will take me more space to talk about it.
    April

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  7. Hey Dr. Jim – particularly now that portions of financial services are in the tank and there is an anticipated increase in spending on “Healthcare”, I am starting to see this one a lot too!
    April

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  10. Hi Josh,
    Thanks so much for the comment. I love the idea of customer usage segmentation (and sometimes this is a lot like a segmentation based on the business problem, but not always obviously). The tricky part is whether or not you can identify and target customers by usage. Segmentation in order to be actionable needs to tell you where the best places are to hunt for new prospects. For example – can I buy a list of companies or people who would use the product that way? If thinking about usage gets you there great. If it doesn’t then you have to come up with another way to figure out who to target.
    Hope that helps.
    April

  11. Hi April —
    Great post and comments too. Here are some ideas for a solution.
    Marketing needs segments so that we can group buyers based on they way they think about their business problems and buying criteria (capabilities buyers use to evaluate solutions to their problems). If we skip this step, marketing messages, sales tools and programs won’t resonate with buyers — to find anything that all buyers have in common results in “fluffy” or meaningless marketing content.
    Sales people have a different opportunity — they can treat every account as a segment of its own. A sales person should know how to listen to the buyer’s problems and relate the product to a given account’s buying criteria. This is a luxury that marketing people just don’t have.
    I recommend buyer personas to capture the facts that matter to each segment of buyers. This shift’s the marketing team’s focus away from the product and gets everyone thinking about how they can reach a particular segment of buyers.
    Speaking to your original post and many of the comments, it is unlikely that a single buyer persona could accurately reflect the needs of all financial services (or health care) buyers. More probably, different buyer personas would be required, minimally, for buyers who evaluation solutions based on its technical, economic, or usability merits.

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