Segmentation: Seeing Differences in Consumers
By Julie Zielinski, EDC Consultant
What I love about Disney is that in the market of entertainment, they definitely know their target consumer segment: families. They know families inside and out and everything they say and do is consistently geared toward providing them with magical family fun, whether through theme parks, cruises, movies, broadway shows, retail store experiences, or even planned living communities. What this means is that they’ve had to choose who they’re NOT going after; singles.
Market segmentation, one of the most important steps in strategic marketing, is the process of dividing your total potential market of consumers into smaller groups of like consumers. Within groups, the consumers will have similar characteristics and needs, while between groups, consumers will have different characteristics and needs.
It’s important to understand how your market is segmented because not all consumers are alike, and if we treat them with the same “one size fits all” approach, we won’t quite hit the mark and be “hot” with any one consumer. We will probably build features into our products and services that are not valued by some consumers (and therefore, build in unnecessary costs) and miss some features that are important to others (and in doing so not provide important benefits to them). However, if we know and choose clearly who our target consumer is, we can spend less to reach them through specific targeted media and create a clear, resonating message. This decreases our marketing cost per consumer reached and allows us to reach that consumer with a more precise, meaningful and resonating message.
Generally, for start-up companies, it is best to target only one or two (complimentary) segments that you understand well and put all your efforts and resources into creating a commanding position with that segment. Think of the successful athletic apparel brand Under Armour. They began with a focus on elite male athletes. Becoming a dominant player within this segment helped them build their brand and gain leverage with distribution channels. After doing well with that segment, they’ve naturally expanded into new segments: females, children, etc… In my experiences in business and with clients, trying to do all segments initially, at once, is likely to cause you to spread your already limited resources too thin to compete successfully.
With existing businesses, it’s good to define a growth strategy that identifies which segments you will enter, and in what order. In other words, what are the best fit priority segments for you? Once you have dominated in your initial segment(s) which new segment(s) does it make sense to enter? When deciding this consider aspects such as market size, growth, fit with your product, costs to promote, competition, and distribution, among other things.
I can hear you asking, don’t I want to pursue all customers? Why would I want to walk away from potential business? To that I ask, what is your market share? Would it be better to have 3% of the total market (dabbling with all) or 30% of a segment that itself accounts for only 24% of the market (dominating with some)? Well, to do a little math, if the total market is $100 dollars, the first scenario would provide $3 in annual revenue, while the second would provide $8 in revenue. And by focusing on only one or two segments initially, your resources will be used much more efficiently. If you have become a formidable player already in one or two segments, then this is certainly the time to expand into chosen, prioritized additional segments.
So what different segments of consumers exist in your market? What type of consumers, personal or organizational, do you serve well today and which ones are you not well suited to serve? Knowing your target consumer segment(s) well enables you to develop products and services that are “hot” with those consumers and spend your precious product development, operating, and marketing dollars most efficiently to reach them.
Julie Zielinski, EDC Consultant, is a part-time Adjunct Lecturer at the University of Iowa, teaching undergraduate marketing and graduate level business strategy courses. Additionally, she consults to local, national, and global businesses, helping them formulate business strategy and develop and execute high return marketing plans.
