Segmentation – Easy Ways to Get Started

In my last post I said I was going to talk next about how to get
started with a decent segmentation.  In my practical experience the
whole reason you want to have a few target segments is so you can build company expertise around a particular business problem in a particular market.  This understanding helps you satisfy those customers better, make decisions about the product direction, focus your marketing spend and helps your service and support people meet the needs of those customers better.

There are lots of ways to do segmentation but I am going to point out two key principles that have always lead to success in my experience:

1.  Well defined segments include both a
business problem and a vertical
(or in certain cases, a horizontal).
For example instead of saying that you are focused on the dreaded
“Financial Services” (which is so broad it can be ignored), you have
segments that look more like “retail banks that want to improve
customer retention” or “credit card companies that want to reduce their
amount of fraud”.  I am not against horizontal segments but it’s harder
to have one that is specific enough to be actionable.  For example, if
you say you are targeting “Small Businesses that need accounting
software”, it’s going to be hard for you to focus your marketing spend
unless you can put a bit more detail around which small businesses you
want to go after.

2.  Your product was designed with a
segment in mind – pick that one.
This might sound silly but I’ve seen
companies that have target segments where they actually have no
customers nor expertise/experience.  It’s pretty hard to figure out the
customer pains of a market you know nothing about.  Sometimes a startup
will have a product that was built for a particular segment but then
won’t want to say they are focused on that segment because it’s too
small.  That may be but if you can get a few deals under your belt in
that small segment, why wouldn’t you go after those first?  The
experience you get closing those deals will help you figure out what
customers really value about your solution and point you to the
bigger segments to go after.  It’s always easier to close the first few
customers by concentrating on what you know.

In my next post I am going to talk about some common complaints that startups have about sticking to a segmentation and what to do when that happens.

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9 thoughts on “Segmentation – Easy Ways to Get Started”

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  4. April,
    I have seen segmentation based on the different customers buying your product (sales perspective). I have also seen it done around how users actually use the product.
    Would be interested to hear your thoughts on customer usage vs. sales segmentation.
    Thanks,
    Josh

  5. Nice post – I’m totally with you on the importance of segmentation. I especially like the second point. The tech companies I’ve worked with in the past sometimes have a lot of difficult with this – they see potential in other markets and want marketing to make it seem like their product was designed FOR a different market than they originally had in mind.

  6. Hi April
    Great content on your site. Really loving the no-nonsense advice on various aspects of marketing. This post addresses the issues a startup faces but I feel it leans more towards startups that sell into enterprises. At the outset it should not be any different consumer focused companies (B2C) as well but it is – don’t you think? The wide range of customers with varying pain points makes it challenging to focus on a narrower niche – I am facing one right now. Would love to hear your thoughts on the same.

    -Subraya

    1. Hi Subraya,
      My background is definitely more B2B than B2C but in my opinion most of the startups that I’ve spoken to that have been in the B2C space that have failed have failed because they didn’t segment their market. The problem when you are trying to hit everyone is that your message and value proposition gets really watered down. Why? Because people are all different. We don’t have identical problems. It’s easy to look at a site like YouTube and say a service like that should be marketed at everyone. Today it is but when they started out nobody have ever seen a service like that, there wasn’t a lot of content on it and you have to start building traction somewhere. The key to doing that is to look for segments where your value proposition is the strongest – for YouTube they started with film buffs that were filming their own movies.
      Word of mouth and referrals move around communities. If you have 1,000 users and you have 10 users in each of 100 countries for example, you won’t be well known anywhere. If you have 1000 users and they all live in Kansas, I can guarantee you are going to be on the local news and talked about in Kansas. That traction will help you move to the next segment, then the next until you are massive and at that point you can start thinking about marketing to everyone.
      April

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