Clayton W. L. Mwaka

Hiya! Another week has flown by, and as a new week commences, let me quickly shoot some ideas about market segmentation today.

I believe you could already be aware of market segmentation and some related principles. Nevertheless, not everybody is and so I thought I could write about this in my blog for today. Again, you might be practicing segmentation but you are not maximizing your gains from it, hence your need or yearning for some additional tips in this regard. Simply defined, a market segment is a division or sector of a market of the same or similar nature, kind and attributes, and responds differently to marketing mix variables. Marketing mix variables comprise the product, price, promotion and place (4P’s). Of course within each of these P there are extras, for example within promotion we can talk about advertisements, communications etc. Again, as my manner is, I warn you about the definitions. You can get millions of definitions of market segmentation, but the principles remain the same. So don’t yell at my definition. Ok?

There are various segmentation approaches, as we will see below, but primarily the idea or focus is to find the right prospects so that your products and services with specific features can offer them the best possible solutions. Market segmentation can give your enterprise very valuable competitive advantage. However, you need to get it right otherwise it will certainly be another waste of time and other resources in your enterprise. Good segmentation enables your enterprise to have a clear direction of which markets to target, add value and achieve increased profitability (ROI – Return on Investment) which eventually positively impacts shareholder value in the enterprise. Remember that segmentation does not need to focus only on value; the volume aspect or market share is also an important consideration. The importance of segmentation is the reason why I want to give nine guidelines to maximize your gains from market segmentation.

Now, can we proceed?

  1. Understand the basis upon which your segmentation lies, and its relevance based on your segmentation and wider marketing objectives. My dear entrepreneur, what goals and objectives do you have regarding segmentation? What will be the basis of your segmentation? You should never define your segments too broadly. On the other side, never create those that are too small. Don’t make too many assumptions and generalisations. Common segmentation approaches include geographic (city, country, region etc.); demographic (age, gender, education, ethnicity etc.); behavioral (loyalty, use of products etc.) and psychographic (values, lifestyle, personality, risk behavior etc.). Other rare approaches include occasion based segmentation as that used by Coca-Cola, aspirational segmentation (appealing to the emotional element of customers aspirations and motives), and hyper-targeted segmentation (creating very high, unusual and memorable connections with customers). Now, I’m not giving you a license to ask people all kinds of silly questions in the name of segmentation. Some people don’t like answering all kinds of questions even if they always buy your products and services, so please exercise some caution and wisdom in carrying out your information collection process.
  1. Carry out market research and make use of data analytics. Design your research, collect and analyse data, and additionally validate it. This stage of market research and analysis including validation of data is a very vital stage since it provides for you the backbone or foundation of your segmentation drive. Talking about research, not all entrepreneurs know about research and how to execute it. Their alternative may be simple fact finding approaches based on some self-developed ideas or possibly what a business consultant has advised. You might not be an entrepreneur with expert knowledge in marketing but you should at least have some good ideas about your customer groupings. Of course, this is an area where the bigger enterprises that carry out comprehensive research have an upper hand to the smaller ones that use rudimentary procedures and processes to obtain useful data and information from clients. However, your enterprise size and capabilities should not discourage you as there is always a starting point. Even the big enterprises were small enterprises way back. There are also some hired firms that you could use to conduct some affordable market research and data analytics for you, if you like. Knowledge is power, and deep knowledge about your customers is added value that you should not miss. Don’t you agree with me?
  1. Rationalize your segmentation. Now, you don’t need to be simply a copy-cat and start market segmentation anyhow. Ok? You need to rationalize your segmentation strategy. Does your segmentation make sense, or you are simply walking down the segmentation avenue without any serious agenda? Do you have clear and measurable product or service differences and deliverables you can leverage on? Is the size of that group appropriate? Do they have unique needs that your enterprise can meet? Do you have the capabilities of designing and developing products and services that meet those criteria? Can you easily reach and communicate with that segment? Is it a profitable group? These are fundamental questions that you should ask and get satisfactory answers for, before you commence your market segmentation strategy. Don’t proceed anyhow with blindness and find yourself knocking things anyhow! The world needs entrepreneurs who can see the way, as society and humanity benefits more from such entrepreneurs. Am I writing something sensible Mr. Entrepreneur? 
  1. Develop and execute your segmentation strategy correctly. Be both strategic and tactical in managing these segments. Another principal guideline to maximize your enterprise’s gains from market segmentation is the correct development and execution of your segmentation strategy. What segments are you focusing on? What ideas and recommendations do you have? How will you operationalize your segmentation moves? How do various stakeholders key into your plans? If possible organize your business by segment and develop a market focused business model. Some people talk about the STP Model – Segment your market, Target your best customers, and Position your offering. You can use the differentiated approach that many powerful brands do, and focus on that segment with its sub-segments or secondary segments. You could also deploy the concentrated approach for a group that is large enough with attractive ROI and unique value proposition. Place enough emphasis and the duty of skill and care, as you implement your strategic and tactical segmentation plans. You can only maximize value to your enterprise if you do it right!  
  1. Be dynamic with your segmentation approach. Monitor the success of your segmentation and adapt where necessary. Change is the only permanent thing. The research and other findings of this year might not be the same four years down the line. Nothing that does not get measured gets improved. My dear entrepreneur, you need to carry out continuous market research and watch changing trends in the market. Revisit your segmentation approaches periodically; otherwise you pay a high price for ignoring changing market and consumer trends. Measure the performance of your market segments and make required changes in a timely manner. Ensure your enterprise has appropriate feedback and follow-up mechanisms. Additionally, make sure that there are ongoing learning opportunities. After you have worked hard with your market segmentation strategy and you have started realizing gains, you need to retain your customers as their lifestyles, needs, situations and other factors change. This rests on your smartness to be dynamic and transient with your segmentation approach. If you remain stuck in yesterday, your enterprise might not see tomorrow. Do you understand and appreciate the line of thought I’m bringing here? Ok, let’s proceed.  
  1. Align and tailor your messages, market communications, pricings, products, value propositions etc. to specific audiences and segments. You are not going to be daft and approach every market segment with the same thing. Come on, Mr. Entrepreneur. If you do that then you are simply killing the whole market segmentation agenda. The whole idea is to create some uniqueness and focus in your marketing approach simply because you know that the customer groups are different. To maximize your gains from market segmentation, you should utilize the appropriate Unique Selling Proposition (USP), Value Proposition (VP), marketing mix (product, price, place, promotion) that is relevant to each segment. I think you should have an idea about this. Segmentation means that literally everything about your products and services, in terms of market communications, messages, pricing, product features and attributes etc. are going to be differentiated and aligned to the specific market segments you are focusing on. If you are too lazy to do this then your segmentation agenda may not achieve the gains you desire. Never go to sleep along the way before you have achieved the benefits of your market segmentation drive.  
  1. Invest resources into tailored or differentiated products, services, distribution programs, marketing etc. that are relevant to your market segments. Again, I’m talking about spending money here. Not my money but your money! Ok? Some entrepreneurs are so hard with money and yet they want the best. Not so quick! You have got to invest money to gain more money. So, don’t jump around the city with your segmentation agenda when you are not ready to put money where it belongs.  Do you get my point here? Your segmentation strategy will demand for differentiated products, product designs, services, distribution programs, etc. to meet the unique and specific segment needs. Human needs are diverse and complex. By the time you stand on a pedestal and declare that you will offer unique and differentiated goods and services, with all the accompanying where-with-all to different segments, you need to be ready for it. You will have to invest resources of various kinds to achieve this objective. However, if you are serious and focused on what you doing, more so in light of the gains you expect from your segmentation strategy, then spending money and sacrificing other resources should not be a problem to you – unless you are simply too mean, unjust and unrealistic. There is nothing for nothing.
  1. Add value to your segmentation gains through other approaches. Yes, you have identified your most profitable segments and have developed plans to increase your customers’ loyalty and retain them until further notice. Now, what about your enterprise’s other clients and customers? If you are not smart in handling this secondary category, you might water down the benefits that you have accrued from your segmentation strategy. Come on, you don’t need to be seen like an enterprise that throws away certain categories of people after they have been loyal to you for years or even decades. Do you? Even if you are going to disengage, you have to be very smart with it. Therefore, for your less profitable groups, you could retain them but minimize investments so that your ROI gains are not adversely affected. Remember that scientific approaches give a good guide to managerial decision making, but beyond numbers, business executives and leaders also use their heads and hearts. This is why today you see so many corporate social responsibility (CSR) drives. These relate to the heads and hearts of people. For the entirely unprofitable groups, you could also explore other options of converting these into profitable groups, or even working with other entities to ensure that their needs are taken care of as you probably move on. Do you understand me? This is another good principal to maximize your gains from market segmentation. A good enterprise is much more than money, so if you only focus on ROI or the money, you might miss some important things in your local and global business environment. Ok?
  1. Understand that segmentation is a subset of the broader marketing and organizational strategy. Entrepreneur, please never allow your entrepreneurial mind to be too clouded with segmentation that you forget about other important aspects of your business. Good enterprise management requires synchronizing many variables and sometimes these could be conflicting. I admit I’m writing about maximizing your gains from market segmentation, but sometimes in the process of doing so, you might make some dysfunctional decisions that work contrary to the big agenda of the enterprise. Am I creating confusion here? I don’t think so. Let me clarify. I’m simply cautioning you to be wise enough, and ensure that you drive your segmentation agenda with sanity. Don’t go overboard and create other problems in the business that may eliminate the gains you anticipate.  

Ok. Let me leave it here and now. I think we have had a good and long communication.  Have a terrific new week!

With every good wish,

The Wise Entrepreneur

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