Target segmentation theory
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The document discusses market segmentation and target markets. It provides definitions of market segmentation and describes it as the process of dividing a market into distinct groups that have distinct needs, characteristics, or behaviors. It then discusses seven steps for successful segmentation for startups: 1) determine life cycle position, 2) create broad market ideas and sub-segments, 3) create customer profiles, 4) assess and eliminate flawed profiles, 5) assess against selection variables, 6) test target segment, 7) repeat if no segment apparent. It emphasizes using a "problem-need" cycle of iterative customer research, testing assumptions and adapting based on results to identify target customer problems and needs.
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Target segmentation theory
- 1. Market Segmentation Target Market Dr. Celen P.Paul
- 2. 2 Selling System of 21st century
- 4. 4 WHO ? : Market segmentation definitions • Market Segmentation is the sub-dividing of customers into homogenous sub-set of customers where any sub-set may conceivably selected as market target to be reached with distinct Marketing Mix – Philip Kotler • Market segmentation is the process of dividing the whole market of goods or services in groups of people with similar needs. By making this division there is a high chance that each group responds in favour to a specific market strategy. - Pierre Paul Celen
- 5. 5 WHO ? = Target segmentation • Market Segmentation: • Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes. • Target Market • Consists of a set of buyers who share common needs or characteristics ( buying behavior, channels,..) that responds well to the start-up services or offering. • Evaluating Market Segments • Segment size and growth • Segment structural attractiveness • Level of competition • Substitute products • Power of buyers • Powerful suppliers • Company objectives and resources
- 6. 6 Ideal Customer Profile ??
- 7. 7 • The components of a •Target Market segmentation
- 8. 8 Primary Market Research Segment Business Markets Target Markets Problem Testing Rate final segment Assess & Validate Group Similar Need markets Rank & Prioritize Start Defining Value Proposition Process Target Market search
- 9. 9 Seven Steps to Successful Segmentation for Startups • Step 1: Determine where you really are within the startup life cycle. Relative position in chasm / demand type • Step 2: Create as broad idea of an addressable market and then break it down in to all possible sub-segments. Use CSF’s and MPRS • Step 3: Create customers profiles for all remaining sub- segments. Use problem/Need search process • Step 4: Assess profiles again critical flaws criteria and eliminate those that fail • Step 5: Assess remaining profiles against selection variables continuously until top segment remains. Define Beachhead… • Step 6: Test target segment against SWOT and performance goals • Step 7: If no segment apparent, repeat process
- 10. 10 Initial Approach : Search not execute a structured process for testing business model hypothesis Think Plan ExecuteAnalyse Adapt Think Plan ExecuteAnalyse Adapt Understand Customer Problem and Need Develop Validate Develop Sustainable Business Model Adaptive Learning When not enough paying customers GTM ?
- 11. “ ” 11 The components of Target Market segmentation 1. Primary Market Search Life Cycle Positioning If you have done the positionig in the Value Proposition Module then skip this step and go immediately to Step 2
- 13. 13 Positioning : questions to ask • Start is a hypothesis : • What is my idea ? What is my proposal ? • Do not suffer from the „ engeneer-syndrom „ • Questions to ask : • Who is your target customer? Who is my potential buyer ? (IDEAL CUSTOMER PROFILE module ) • What kind of problem do you solve for them? Is this an important problem for this customer? Is it an urgent problem? Where is “ Low Hanging Fruit” ? • How do you plan to solve this problem for the customer? What type of benefits will it generate. • Position your solution : here is the process in steps 1. Find out the „ Demand type „ - it will define/ influence the business model 2. Find out in what phase of the technology transfer your market and potential buyers are ( Chasm-principle ) or the PLC-cycle of your market 3. Summarize a viable MVP, test it and start proposing it to the early adapters
- 14. 14 Positioning : 1. Demand Type • Definition of Demand. An economic principle that describes a customer's desire/NEED and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa. • Why important ? • Because yr TOTAL „GTM- / Marketing & Sales plan“ will depend on it • It will tell you : who to contact, at what org-level, what message to deliver, how to deliver / style and what probable stage of the buying cycle ( Buyers Journey) • Types Of Demand • Steve Blank : ??? incomplete - confusing • New Market / Existing Market / Redefine Existing Market ( Niche / Low-Cost entrant ) • Sirius Decisions
- 15. 15 MVP Whole Product 2. Technology Adoption Life Cycle
- 16. 16 2. Technology Adoption Life Cycle where and how to sell Name % Type Character Sales : Place / Message Innovators 3 Technology enthusiast Central interest / Curious Pleasure of exploring new • Trade shows • Great Technology Early adopters 12 Visionaries Buy new concept early Not technologists First to get the new stuff • Congress, Trade shows • You can be the first • Beat yr competition Early majority 35 Pragmatists Strong sense of practicality Need PoC(oncept) • Meetings, Office • ROI, efficiency, save $$ • Case studies, examples Late majority 35 Conservatives Wait until something has become an established standard Not comfortable with technology • Awareness Campaigns • References Hopefully you prepared yr exit Laggards 15 Conservatives Don’t want anything to do with new technology Just do nothing
- 17. 17
- 18. 18 MVP versus „Whole product“ Minimum Viable Product ( MVP ) A Minimum Viable Product is the smallest feature set that lets you start learning about customers. Don't confuse your MVP with a minimal product. Your MVP needs to address your top customer problems and deliver on your Unique Value Proposition. Objective Details Step-by-Step Process Define the minimum feature set needed to solve your top 1-3 problems. For each of the problems outlined earlier, sketch out the top features or capabilities that will address those problems. • Outline a possible solution for each problem • Don't spend too much time detailing • These features will form the basis for your Minimum Viable Product
- 19. 19 Create +Test the MVP Describe the key aspects of your MVP for which you are currently seeking market feedback. Answer the following questions after testing the MVP. • Is our understanding of the customer problem accurate and relevant? • Does the MVP solve the customer’s problem? • Does the product solve the problem better than a viable alternative currently on the market? • Would they use the product? Can they imagine the product as part of their everyday life? • What is their primary concern about buying and implementing the product? • How much would they be willing to pay for the product? • What process would the customer employ when deciding to buy such a product? • Who is involved in the decision-making process? • Whose budget will the funding come from? • Who will be the users of the product?
- 20. “ ” 20 The components of Target Market segmentation 2. Segmenting Business Markets Compose the broadest idea for your Product / Market mix ( Ansoff)
- 21. 21 Segmenting Business Markets How can I segment MY hypothetical market • Demographic segmentation • Industry : which industries should we focus on ? • Company size : what size of companies do we focus on (3-Tier Model) • Location : what geograohical areas should we focus on ? • Operating variables • Technology : what customer technologies should we focus on ? • Usage/non-user status : focus on heavy, medium or light user OR non-users ? • Customer capabilities : focus on MVP-potentials or “whole product” • Purchasing approaches / Buying Cycles • Organizational : highly centralized or decentralized • Policies : leasing, SaaS-lovers, service-contracts, RFP,… • Situational factors • Urgency, specific application, size of order • Personal characteristics • Buyer-seller similarity, attitudes toward risk, loyalty
- 22. 22 Secondary Market Search : where to find info ? Secondary Resources
- 23. 23 Secondary Market Search : where to find info ?
- 24. 24 Secondary Market Search : How to find info ?
- 25. 25 Essentials of market research • What is the size of the market? How large is the target market? Geographic spread ? • What problems concern the target market? • Are any of these problems greater than the one you’re addressing? • What unique need does your TYPE of product/ services meet? • How does your product or service fix the problem? • Who will buy your product or service? • Why do they need it? • Why would they buy from you? What is the gap un-serviced by current players? • Who are your competitors? Who are the other key players? How is your product different from competition? • What are their strengths and weaknesses? • What is your demand Type ? Can you make the reference price in the market ? How efficient is your solution ? Is this segment a price sensitive ? Dou you have a premium? • How much are customers willing to pay for this product/ service (top/ bottom/average)? • What is the REAL available market for you? What share of this can you reasonably expect to get?
- 26. 26 Requirements for Effective Segmentation Measurable Size , Purchasing Power, profiles of segments can be measured Substantial Segments must be large or profitable enough to serve Accessible Segments can be effectively reached and served Differential Segments must respond differently to different marketing mix elements Actionable Must be able to attract and serve the segment
- 27. 27 Key Information about your segment • What are the key political, regulatory, economic, environmental, social, cultural and technological trends that affect the space you are in? • What are the key issues facing customers in this space? • Who are the key stakeholders? • Who are the analyst firms, analysts, journalists, bloggers and conference presenters that talk about relevant issues and technology? • What are the main conferences and events? • What are the main media outlets that keep people informed about the industry and its technology? • Prepare your list of questions and issues to address in your customer meeting / talk / interview
- 28. 28 Horizontal vrs Vertical Solutions • Vertical Business Solutions tend to be specific to a given industry or a specific group of customers within in a given industry. • Vertical Business Solutions are generally thus tailored to provide better product or service market fit and as such, may have a higher adoption rate within their target market though the target markets for the solution may generally be fewer. • Geoffrey Moore's "Crossing the Chasm" outlines the strategy of initially attacking and dominating a single vertical, and then parlaying that success to knock down adjacent verticals (a bowling pin analogy is used) until the company becomes effectively horizontal. • Dominating a vertical gives a company brand recognition and customer evangelists that help it "cross the chasm" into the mainstream market. • This has been widely hailed as effective technology adoption strategy and has become almost synonymous with the technology adoption lifecycle. • Steven Blank says in "The Four Steps to the Epiphany" that it was the best model for startup strategy before customer development came along. • Horizontal Business Solutions can be adopted across many different types of industry by many different types of customers. • Horizontal business solutions are (relatively) low priced and apply to a generalized, widespread market. Think of Microsoft Office software. • Horizontal strategies are difficult to bring mainstream because it's hard to build a critical mass of heterogeneous customers. • You might find many customers of different sorts who like your product, but few who *need* your product or have the requisite passion to evangelize it. • Segmentation for horizontal solutions is therefore much more needed ( niche market search ) but is also much more demanding and time-consuming
- 29. 29 Use MPRS to close in and focus what are the 3 key criteria why a prospect should buy from you ? Primary Sectors ( NACE ) Subsectors Criteria TOTAL x y z ?? A - Agriculture, forestry and fishing Crops Animals Forestry Fishing 0 B - Mining and quarrying Coal Petroleum Gas Metal ores 0 C - Manufacturing Food, beverages, tabak Textiles, Leather Paper. Printing Chemicals, rubber 0 D - Utilities Electricity Gas Steam Air conditioning 0 E - Water supply; sewerage; waste Collection Treatmnet Waste, sewage 0 F - Construction Building Roads Railways Tunnels 0 G - Wholesale and retail trade Nutrition Household goods IT-equipment Other 0 H - Transporting and storage Passenger, Freight Land, water, Air Warehousing Postal, courriers 0 I - Accommodation and food service Hotels, Resorts Campings Restaurants Catering 0 J - Information and communication Publishing Media Telecom ITC 0 K - Financial and insurance activities Banks, Monetary Inst Lease, Credit Insurance, Risk coverage Pension funds 0 L - Real estate activities Buy and Sell Agencies Renting 0 M - Professional, scientific and techno Legal, Accounting, Vets Consulting, Advertise Architects, Engeneering Testing, R&D,Mktng 0 N - Administrative and support service Renting, lease HRM, Call centre Tourisme, travel agent Security, cleaning 0 O - Governement Defence Social Security Police, Justice Firebrigades 0 P - Education Primary Secundary Higehr / University Other 0 Q - Human health and social work Hospitals, GP practice Residential care Nurses Social Work 0 R - Arts, entertainment and recreation Artistic, creative Entertainment,Sp ort Library, museum Gamble, betting, 0 S - Other services activities Trade Unions, Prof. Org. Repair, Washing Fitness centre, well-be Hairdressing, Funeral 0 T - Activities of households Domestic personnel Undifferentiate goods 0 U - Extraterritorial organisations bodies 0
- 30. “ ” 30 The components of Target Market segmentation 3. Customer Profiles Use „ Problem-Need cycle
- 31. 31 Understand Customer Problem and Need • What problem causes the pain or frustration? Sketch a scenario in which the customer attempts a task and feels pain as a result. • How does the customer try to cope with the problem now? • What is causing the problem? What is interfering with a speedy solution? What goes wrong and why? • How much money is the customer losing, either in additional costs or lost revenue? Quantify the pain. • Who is the individual who feels the pain first and how does it “waterfall” up or down? • Who else feels the pain? The customer’s customers? Suppliers? Partners? Investors? Think Plan ExecuteAnalyse Adapt Phase 1 Test customers / prospect‘s perception • of the problem and • his urgency / need to solve it
- 32. 32 „Problem-Need cycle“ Hypothesis Assumptions Product Ideal Customer Market Type Demand Creation Test Need / Problem Relations Ideal cust. Interviews Evaluate Results Summarize / Adapt Adapt & Test Product Reality Check Product presentation Customer visits Validate Verify Product / Market fit Problem / product Iterate KOL Create Business M
- 33. 33 Explanation „ Problem-Need“ cycle • This iterative process is for the sake of simplicity presented as a linear process. However the entrepreneur has to be aware of the fact that it is not, and that findings in a alter stadium of the process might alter, after validation, the assumptions made in a previous stadium or phase of the process. This means that there should be arrows and short- circuits from almost every box to eventually any other. As later in the definition of the business model these parameters are linked together • One simple example to clarify this complexity : changing the hypothesis will create another ideal customer and then also another market type in which thze dynamics of demand creation will be different, not to speak about the competition, the pricing levels or models and the channel • For now one should understand the general principles of the „ problem-Need cycle „ and how the iterative process works. 1. Starting from our business idea / hypothesis the entrepreneur has to make the assumption about which urgent problem or need this idea will solve 2. Then he needs to make an assumption about the customers compelling reasons to buy, which decision criteria are on the basis of his/her decision. What is the urgent problem or need that needs to be addressed 3. By means of an MPRS the economic sectors are evaluated and ranked with reference to their affinity for the 3 parameters above : hypothesis / problem / decision criteria. The highest scores are further taken into further evaluation. That can be wrong, but due to scarce resource one has to limit the number of test-markets 4. Use Problem/Need search process, which will be broadly discussed in more detail in a separate and explained in a later presentation. 5. Create as broad idea of an addressable market and then break it down in to all possible sub-segments. Create customers profiles for all remaining sub-segments. Try to group learned experiences into an MVP-matrix. 6. Assess profiles again critical flaws criteria and eliminate those that fail. In fact a kind of SWOT analysis for all thos market segments that seem to respond favorable to our proposition / hypothesis. 7. Finally choose a few, the top 5 or top 10, assess them against neutral, pragmatic selection variables until top segment remains. Define a Beachhead if possible. 8. Test target segment against SWOT and performance goals 9. If no segment is apparent, or the assessment indicates a weak correlation, then repeat the whole process
- 34. 34 „Ideal“ customer profile • See also slide “ segmenting business markets • Identifying your ideal prospects and customers isn’t simply about company size, sector or location. These traditional demographic-based approaches to segmentation are proving to be an increasingly inadequate and incomplete means of describing the common characteristics of their most valuable customers and prospects. • We recommend establishing an Ideal Prospect Profile for each of your key product or service offerings, but add structural, environmental, behavioural and situational factors. • Profiling : • Demographics : Geo, Size, Industry, Decision Cycle, Buying cycle,etc.. • Psychographics : includes their “values, behaviors and characteristics.” • The questions you need to ask yourself are; is your customer more interested in: Image, Innovation or Convenience? Savings or Relationships? Value or Price? • Frustration, urgent Need, job protection vrs risk-taking, pain scenario ( see workbook ), status quo vrs ambition, social interaction profile…. • Rank them against your solution offering : what impact will it create ? • Defining your ideal prospect requires you to look at the characteristics common to your buyers and the organizations in which they work. This typically includes: • Company Characteristics — company size (employees and revenue), industry, location, growth rate, age/maturity • Buyer Characteristics — job title, level, tenure, attitude, ownership (or lack of) of the problem, scope of responsibility (buying on behalf of department, function, or company) • Situational Characteristics — initiatives, triggers, opportunities, threats, regulations, internal change
- 35. “ ” 35 The components of Target Market segmentation 4. Validate and Assess Customer Profiles with Test & Interviews
- 36. 36 Prepare to talk to customers • Make list of 20 – 30 customers proportionally spread over 3 Tier and the business segments under consideration • Prepare your list of questions and issues to address in your customer meeting / talk / interview • Make Script with possible objections or questions ? Prepare also the answers, eventually train yourself with role-model. • Describe your product vision : this should be your Value Proposition • Write a statement that describes your product vision, which identifies one or more of the following: • Your target customers and their problem • The product solution you are making • How the user goes about their job and will use the product solution • Customer outcomes and benefits • Three- and five-year scenarios for your product and company • Culture needed : NO selling mode !!! • Search then execute • Learning and discovery • Agile development • No „ fear of failure culture“ • No sales, marketing, bus.development departments
- 37. 37 Customer Interview program • Scenario : • Use questionnaires and surveys • Use the Internet • Use Telemarketing / Congresses / Trade Shows • Who ? Talk to potential customers Talk to suppliers / resellers / potential future partners Talk to competitors Talk to complimentary services/products Talk to bankers, lawyers and accountants • Customer Archetype / Buyer Profile / Persona Forrester Siriusdecisions
- 38. 38 Welcome •Set stage •1-2 minutes Collect •Collect demografics •Check/test customer segment Story tell •Set problem context •Few minutes Problem Rank •Test Problem •5 minutes Explore •Explore customers world view •Test Problem – 15 minutes Wrap Up •The hook and ask •2 minutes Results •Document results •5 minutes Example : Problem Interview in 30 minutes • Briefly set the stage about how the talk will work • Ask introductory questions to test Customer Segment • Identify early adapters • Illustrate top problems • State top 1-3 problems and check /r ank with customer • Test each problem. Ask how they address today. Listen • Ask follow-up questions • Permission to follow-up • Referrals • Document Results
- 39. 39 Asses & Validate : Scotsman qualification + segment identity Questionnaire Qualification Yes No S Solution Do we have the right solution ? Does the customer has a lot oft objections? C Competition Who is the competition ? Can we beat him ? O Originality USP and does the Prospect agree with it ? T Timing Is the time plan agreed and realisitc S Size Is the estimated Budget big enough to afford the resources and do we have the necessary ressources? M Money does the customer has a budget ? I is the project worthfull / profitable for him ? A Authority Is our contact person the decision maker ? Do we know the decision maker? Does our competition knows ? N Need What is the final goal of the customer ? Which problem to solve ? Do we know his business problems? Do we understand ? TOTAL TOTAL Number Points in Yes / No column
- 40. 40 Assess Problem No Question Fact Assumption 1. Who is your target customer? What kind of problem do you solve for them? 2. Is this an important problem for this customer? Is it an urgent problem? 3. How do you plan to solve this problem for the customer? Describe how your solution will work in the customer’s hands and the benefits that it will generate. 4. Who is your competition? How do they solve this problem for their customers today? 5. What is unique about your way of solving the problem? Why are you better than anyone else in solving this problem? Label each answer as Fact (and list the accompanying evidence) or Assumption (if you don’t have any evidence at this stage).
- 41. 41 Test – Validate the assumptions Assumption Information Where/Who Method 1. 2. 3. List the assumptions and then make an action plan : • What key piece of information would validate the assumption? (Information) • Where does that information reside? Who has that information? (Where/Who) • What is the best way to gather that information? (Method)
- 42. 42 Evaluate market feedback • Is the market problem urgent? Will customers care if the problem is not solved? Do they have another way to solve this problem? • Is the market problem pervasive? Determine if the identified market problem applies to a significant percentage of your desired target market. • Will your buyers pay to have this problem solved? • On the basis of the answers to the above questions, which direction should you take? • Make a list of the interviewed companies : OK or failed
- 43. “ ” 43 The components of Target Market segmentation 5. Validate and Assess remaining Customer Profiles
- 44. 44 Create Groups According to Similarities Unless you have unlimited time and money, rationalize all the profiles into segment groups • Out of 50 or so profiles, about 2-3 segments will likely coalesce • Look for key similarities • Vertical markets • Common problems and pain points • Similar economic impacts • Similar groups of users
- 45. 45 Assess Profiles against Critical Flaws • Assess each profile against 5 key criteria that can “make or break” your chance of succeeding in that segment • Ask and answer a series of questions and rate the answers on a binary scale of yes or no. Include a sentence or two on why. • Eliminate any that fail and set aside all related segments • Questions : • Do They Have a Reason to Buy? Is the financial impact of the problem severe enough to drive the need of a solution ? Of all possible ways of solving the problem, is yours the obvious choice • What Do They Actually Need to Buy to Solve the Problem? deliver the “whole product”? • Who Else Can They Buy From? • Can They Buy? Criteria Yes No Reason Segment: Produce Reefer Location for Carrier Cies Compelling reason to buy √ Deliver whole product √ Buyer with economic power √ No competition √
- 46. 46 Assess Variables + Rank them At What Price Will They Buy At? How Are They Going to Buy? Why Should They Buy From You? Will the Segment Survive? Are There Adjacent Segments That You Can Jump To? Rank each variable on a scale of one to five Rank all segments and eliminate weakest 50% • Use totals as an overall indication • Weight variables according to your flexibility or ability to change your situation Repeat ranking exercise until top one or two segments revealed Assess Variables Ranking Example
- 47. “ ” 47 The components of Target Market segmentation 6. Assess „ Happy Few „ against SWOT & KPI
- 48. 48 Rate Final Segment Against Final Criteria – Can You Win It? • Undergo a SWOT exercise in relation to segment • Involve all internal stakeholders and decision makers • Rate chances of success against corporate weaknesses and strengths • Assess segment honestly against core competencies • Technology bias • Marketing ability • R&D ability • Build one and two year financial models to assess revenue potential, profitability, share, growth • Can you live with the risk of failure • What is the cost of failure? • Can the company survive? • Establish Performance Goals / KPI’s • Rate your chances with remaining customer profiles against KPI • Update if necessary your Value Proposition
- 49. “ ” 49 The components of Target Market segmentation 7. Next Steps IN or OUT
- 50. 50 Create the Business Model or Repeat the process Business Model
- 51. 51 Initial Approach : Search not execute a structured process for testing business model hypothesis Think Plan ExecuteAnalyse Adapt Think Plan ExecuteAnalyse Adapt Understand Customer Problem and Need Develop Validate Develop Repeatable Business Model Adaptive Learning When not enough paying customers GTM ?
- 52. “ ” 52 The components of Target Market segmentation 8. Use Workbook if necessary