This post is a continuation of my thread about building a strategic marketing plan, and why successful business owners should have one developed.
After identifying your strategic business objectives the next key element of your marketing plan is market segmentation and identifying your target market.
This post will speak to market segmentation, and my next post will speak to identifying your target market. There is a difference between the two processes; and here’s a short explanation.
Market segmentation is the process of dividing a population of consumers (your “universe” or “total market) into smaller groups.
Identifying your target market is the process where you identify which of these segments are the most attractive for you, i.e. the segments whose needs and wants your business will be best able to satisfy. Looking at it another way, these are the customers most likely to appreciate your brand promise.
Strategic market segmentation for your small business:
Start with your total market, or “universe”: this is the overall population of potential customers who could potentially have a need for the product or service that your organization provides.
Apply a broad perspective: depending on the nature of your business, your total market could be a B2C (business to consumer) or B2B (business to business) universe. In some cases, there may be elements of both. I’m going to use a fictional example whose universe contains both B2B and B2C potential.
Toronto Organic Star Catering, (a start-up which provides organic and locally sourced catering services in the Toronto area) is developing their strategic marketing plan and is beginning their market segmentation process.
This enterprise starts with a large total universe. Potential customers could include Toronto area businesses of all sizes: (event planners, wedding planners, large corporations) in addition to individual consumers (for parties, family events, showers, etc.) as well as niche customers (political events, funeral receptions.)
To provide context, we’ll consider that Toronto Organic Star Catering have done their preliminary marketing planning. The brand will operate with two distinct strategic marketing plans: one for the B2B market, and one for B2C. For this segmentation exercise, they wish to focus on the business to consumer market only.
They have also done their homework in developing a UBP and a brand promise. Their unique buying proposition is their ability to provide fresh, only locally sourced, organic, and/or vegan catering services. Their brand promise is “Make your event perfect. Naturally.”
Just like your business, our organic catering brand needs to start dividing their universe of possible customers into segments of potential customers. There are a number of ways to do this; most organizations will deploy several strategic market segmentation tools or criteria when identifying possible market segments. Here’s a list of the most frequently used:
1. Geographic target segmentation: identifies the geographic area where your potential customers are. This can be as large as “Global” and as small as a set of specific postal codes. For our fictional catering brand, let’s say that the Greater Toronto Area is the maximum drawing area for potential customers based on the resources of the business. This also fits nicely with their locally sourced food positioning.
2. Demographic target segment: This is the most frequently used tool to identify market segments, and also has the largest number of potential variables. Defined as the statistical data set of a population, demographics create a robust “portrait” of the segment. In strategic marketing, common demographic identifiers include:
Age, median age
Generation (Gen X, Gen Y)
Education (highest level attained)
Language spoken at home
Number of children
For Toronto Organic Star Catering, demographic profiling will be most useful with the business to consumer market. More on this later.
3. Psychographic target segment: This tool identifies the IAOV for a population: acronym for Interests, Activities, Opinions, and Values. Brands utilizing this segmentation tool look for commonalities in the IAOV within the total market and divide it into segments on this basis. For example, vegetarians and vegans, are individuals who believe in the benefits of a diet that minimizes or avoids animal-based products.
This opinion or value system differs from individuals who eat animal-based products and are therefore a different segment of our brand’s total geographic market (Toronto.)
Toronto Organic Star Catering has identified this psychographic variable as a key segment of the overall “catering” market in Toronto. We can then go back and identify some fictional demo and geo variables that could describe the “veggie” segment of the market.
Gender: 60% female
Generation X predominate (born 1965 to 1979)
University degree or higher level of education achieved
Newly married or in long-term relationships
Higher than average household income
In addition to the geographic variable which identifies the segment as residing in the Toronto area.
Now, back to our list of strategic market segmentation tools:
4. Needs based target segment:
Divides the total market for a product, service, or brand into segments based on the unique needs of each group. For example, Nokia cameras may recognize that the total market for one of their products, cameras, can be divided based on the needs of the end-user.
Some consumers have a need to take occasional pictures during family events and outings with friends. For Nokia, this segment’s needs may be answered by a compact, simple to use and inexpensive camera that takes mid-to high quality pictures.
Another segment of consumers may need a need to take a large volume of very high quality photos in a professional or semi-professional setting, such as fashion portraits for a modelling agency. Nokia may answer the needs of this segment with a multiple-feature, high quality camera that forgoes simplicity and compact size and sells at a higher price point.
For Toronto Organic Star Catering, needs segments could be identified as follows:
Needs Segment 1: needs fast, inexpensive organic or veg catering services for a small last-minute event. This segment may need immediate service (24 hour turnaround) and does not require a wide variety of food options to be available.
Needs Segment 2: needs a large variety completely vegan food options for a wedding 6 months from now. This segment may need reassurance that the quality of the food is optimal and that the presentation will be top-notch.
Other segmentation tools include:
5.Usage segmentation (low, medium, high volume users of a product: example beer.)
6. Lifestyle Segmentation: Similar to psychographic segmentation, this criterion identifies groups of consumers based on their lifestyle choice, example condo dwellers, marathon runners, young professionals or motorcycle enthusiasts.
7. Industry Segmentation: (B2B): divides the total market for a product (say, a blast furnace for steel production) by industry: the auto industry, the building industry, and the aerospace industry.)
8. Technology adoption segmentation: (early, joiners, majority, laggards)” This segmentation is popular amongst app developers, mobile marketers, technology brands and brands engaging audiences in the social media space.
Strategic Market Segmentation: the golden rules
Dividing your overall market into segments, even when using the tools outlined above, is not an ad-hoc exercise: like all strategic marketing concepts, there are some rules that you should follow. Especially for a small business start-up, it is critical to respect these rules as you divide up your universe.
The strategic market segmentation rules:
1. There must be similarity within the segment: The segment should inclusively demonstrate similar needs and wants, the same profile, same geography, same usage behaviour, same industry, etc.
2. Each segment should be mutually exclusive: Each segment must be different according to the key criteria, such as geography or demographics. If the segments overlap, that overlap represents a segment.
3. Segments must be quantifiable: you have to be able to count the number or estimated number of customers within the segment.
4. Segments should be large enough to be profitable: if your segment is too small to be realistically relevant to your business, it’s not really a segment. (Alternatively, it could be a niche segment that you can address through a different marketing mix.)
In my next post, we will have a look at the second phase of this process: identifying your target market or markets from the segments you have identified.
If you have any questions about strategic market segmentation for your business, you can contact
cōjent. marketing + communications: