Segmentation

I love the fall! The weather is cooler, festivals every weekend, driving through the mountains - and pumpkin everything!! PS I am drinking a pumpkin coffee as I type this. Another thing I love about the fall is pie. Apple pie, pumpkin pie, blueberry pie - you name it! 

When you think of a pie, it is very similar to your target market (see you had to know that was coming). The pie represent your target market, everything within the pie can be seen as all of the customers who are most likely to make a purchase from you. Though you have a whole pie, within that pie you will have many slices. Each slice is a unique, individualistic piece; however it is still part of the overall pie. In business, whereas the overall pie will represent your target market, each slice of pie represents different segments within your market. 

I know this can get confusing, we have a target market and now we have target segments. Here is an easy way to remember:

Target Market (the whole pie)- The group of customers who are MOST likely to make a purchase from your brand. 

Target Segment (a slice of the pie)- Different sub-groups within your target market who will use your solutions for different reasons. 

Why are Target Segments Important? 

It is all in the "WHY"

You see, many business schools will teach you to define "WHO" your segments. Though this is part of the equation, you are leaving a very important part out. 

Think of this........ let's say you own a coffee shop in a downtown district

You feel your target market is Young Professionals (YP) ages 20-40 M/F (this is the "who")

• There is a large YP population who live and work in your area.
• There is great demand for coffee shops with this demo, however your shop is always dead…Why?

Well, you feel YP’s are very busy, and they need a quick cup of coffee on the run. 

• So your entire shop focuses on speed of service
• You primarily sell drip coffee, as it is quicker to make
• Your staff is trained to get people in and out
• Your shop lined with rope to guide the flow of lines
• Everything is geared towards getting people in and out

So why did it fail? You focused on the "who" but never asked the "why". If you asked Young Professionals why they would go to a coffee shop you want find out they want:

• An authentic cafe experience with lattes, cappuccinos, and pastries
•  Comfortable seating to meet with a client or finish some work outside of the office
• Friendly, personable staff

The Power is in the "WHY"

Different groups of people will use your band for different reasons. Each one of these groups are its own segment. Still part of the overall pie, but just a slice. Your job is to not only find out who is using your brand, but more importantly, why are they using your brand? When you discover the “why”, then you can create solutions that match exactly what your target is looking to buy. This is when the magic happens and profits soar.

Remember - People do not buy products, we hire solutions to perform a particular job. 

We buy a car not because it is a car; but because it is big enough to fit a family, or it connects directly to our phone, or because of the emotional image we feel as we drive it. 

Recap - Defining Segments

• Different groups of people will use your band for different reasons, so we divide our target market into segments to better understand why people use our brand. 
• Your job is to not only find out who is using your brand, but more importantly, why are they using your brand.
• When you discover the “why”, then you can create products and solutions that match exactly what your target is looking to buy. This is when the magic happens and profits soar.
• After we identify the WHY….. then we can identify the WHO.

Task #1  Brainstorm the Segment's "Why"

Your first action task in defining your segments is to brainstorm all of the different reasons why someone would use your business. We call this End Uses. What are the different needs/wants your products fulfill? Make a list of these different end uses.  

• What are the different ways people use your products?
• Why are customers coming to you (be specific)?
• What can you help them achieve? 
• What problems can you help solve?
• Is there a special advantage you offer?
• Groups / people who will do business with you simply because it's you (friends, family, associations)?

Let's stay with the coffee example earlier. Why would they go to your coffee shop? 

• Conducting a meeting
• Getting work done out of the office or house
• International coffee enthusiasts
• Live acoustic music on the weekends
• Bible studies
• Novelty gift shop
• Friends and Family
• Groups you are associated with

But notice this, if I asked you why do people go to Dunkin’ Donuts we may have a completely different reply:

• People on the go who needs a quick cup of coffee
• Fun seasonal flavors
• Cheaper than Starbucks
• Convenient….northeast
• Bakery… munchkins for kids

They are both coffee shops, however people will use them completely different. This is why it is so important to understand why people want to use your brand. In the Solution section of the SUCCEED Strategy we will use this "why" to create engaging products and solutions. 

Step #2 Define the "Who" in each Segment

Now that we have brainstormed why people use our brand, or in marketing terms the end uses, let's now try to describe the people who are most likely to be apart of each segment. How old are they, are they male or female, are they married or single, children or no children, what do they do for work, ect.? Now you do not need to answer all of these questions, but what are some of the key, common characteristics of this group?

Is the geography of where this segment works or lives a key indicator? Is it in a particular region of a country? Is it in the city or suburbs? It is also possible that geography is not all that important to this segment, for example, there are young professionals worldwide using their laptop at a Starbucks to get their work done. In this case, we may leave geography out. 

What does this segment have in common? What are their shared interests, goals, or problems? What behaviors does this segment have in common? Are they always on the road, do they check their cell phone all day, do they engage in manual labor, do they make a purchase once a week, do they shop online or in the stores, ect. 

Look at all end uses on your brainstorm list, now try to identify who they are. Let's take the coffee example, your "who" may look like:

• Conducting a meeting - Business Professionals ages 25-65
• Getting work done out of the office or house - Business Professionals ages 25-65 as well as Independent Contractors who work from home
• International coffee enthusiasts - Young Professionals who want to meet with friends in the evening
• Live acoustic music on the weekends - Young Professionals who live in the city and want a low key thing to do on the weekend
• Bible studies - Christian groups ages varying from 16-65 looking for a relaxing place for a bible study

 As you start to define the "who", you will notice a couple of things:

• A single end use may cater to different demographics 
  • Ex: Getting work done out of the office or house - Business Professionals ages 25-65 as well as Independent Contractors who work from home
• A single demographic may have multiple end uses
  
  • Ex: The Young Professionals group of ages 20-40 fit into many of the end uses above
• Your target may be different than you first thought
  • Ex: In the coffee shop example, you said your target would be Young Professionals ages 20-40. However looking above, you may be limited yourself as there were many segments int he 40-65 age group who would use your coffee shop.
•  There may be end uses, or demographics, in your brainstorming session that might not be as useful as you thought
  • Ex: Novelty Gift Store. There really was not a key demographic that would be interested in this, so this might not be the best way to spend resources on. 
  • Or you may find an end use or demographic that you are attracting, however may not be the best for your business.
    • For example, you may be a restaurant however you are attracting a coffee crowd who are taking up tables from paying restaurant goers. 

Task #3 How are the Segments Connected 

The final important element of a segment is they need to talk to each other. Athletes talk to other athletes and coaches. Business professionals talk to other business professionals at networking events. Parents talk to other parents walking around the neighborhood. As segments talk to each other they mention the solutions they use in conversation - this is word of mouth (WOM) marketing. WOM is on of the most powerful ways your brand gains traction as it is free, comes from a trusted source, and provides personal testimonies all in one. 

Look at your list above, and try to identify how people within this segment are connected. There are a couple of things we want to do here. First, organize identified demographics with the all of the relevant end uses. Second, identify how these groups are connected and interact with each out. Then, try to identify how you would connect with these segments. We will use this information in the Message section of the Succeed Strategy in promoting your brand. 

Let's take the coffee example, your "connected" brainstorm may look like this:

Things to remember about segmentation in your market tier:

• Targets are dynamic (fluid)
  • One day I may need a quick, reasonable coffee on the go; but the next I may want a caffe experience driving a cappuccino while I work on my laptop
  • Most of my clothes may by reasonably priced jeans, but I may also have a couple of high quality suits. 
  • People will have different needs in different situations; the key in defining your target is to focus on the preference  people will have when they need your brand, and then what group of people will most likely buy from you in that situation. 

Conclusion

By the end of this lesson, you should have 3-5 clearly identified segments. Of course smaller businesses may have less, and larger business may have more. However ending this lesson with 3-5 segments identified is a good rule of thumb. 

The SUCCEED Business Strategy provides you with simple to follow, step by step guides on how exactly you can develop an effective targeting strategy to help grow your business. Click here to learn more!