Market segmentation is complex, expensive and reserved for the big end of town. Or is it?Michael Field from Michael Field Pty Ltd explores how small business owners can watch their business blossom and flourish through market segmentation.
What is market segmentation? How can I use it to grow my business?
Most large organisations use some form of market segmentation to group customers with similar attributes. The advantages can include improved revenue through the development of relevant product and service ‘bundles’ and increased efficiency of targeted communications.
What benefits can a solo consultant derive from market segmentation?
Each segmentation approach provides different insights into the customer base and identifies different opportunities:
Business Size - Employee numbers, turnover, geographic footprint, brand ranking, growth and a range of other indicators can measure business size.
Many small businesses try to service all business sizes from the micro to the multinational and often fail to serve them all satisfactorily.
Small business owners can benefit from deciding what size business they work best with and then focus on doing that well.
Revenue/Spend - Revenue/spend segmentation is used to determine how much a client is spending in total on your type of service and what percentage your business is receiving from the total spend.
You can then determine how much revenue growth is still available in the account and either develop a plan to capture more or commence a business development plan to replace revenue from mature or declining accounts.
Industry Category - Industry category is a common segmentation approach with many benefits. You can:
- Match marketing and product development investment to industry trends
- Forecast revenue more accurately when linked to industry trends (is overall industry revenue shrinking or growing?)
Geographic - geographic segmentation can become extremely important for small business owners and solo operators. Travel time is costly and often difficult to recover.
Other factors to consider include:
- Can geographically remote customers be better served agents or distribution partners?
- Are there more profitable accounts available locally, and are you best served placing your effort there instead?
- Can you utilise technology more effectively to service remote customers such as the Internet, VOIP and videoconferencing?
Sales cycles - Sales cyles including product/service usage and seasonal sales cycles reveal many opportunities. You can:
- Forward plan production and staff requirements
- Negotiate special supply arrangements and seasonal purchase opportunities
- Recognise and respond to growth/decline trends
- Identify changing usage patterns
Needs-based - Needs-based segmentation is generally more appropriate for businesses servicing individual customers as it identifies the primary personal drivers and expectations of the decision-maker.
An example could be a wedding photographer who may segment her customers by identifying value-for-money or status. This approach can assist with the development and marketing of specific product packages tailored to the individual’s requirements.
So where do I start?- Determine what outcome you want from the project
- Determine which segmentation approach is most appropriate for your business objectives
- Identify what customer data already exists
- Source additional data where necessary (annual reports, websites, trade journals, ABS etc.)
- Decide if you want to conduct the segmentation work yourself or outsource it to a suitably qualified external consultant
- Conduct initial analysis of internal data and complete a ‘gap-analysis’ to identify missing information
- Commission market research to further explore the findings from the internal analysis and uncover additional information
- Review findings and identify opportunities
- Map the report findings back to your project objectives and prioritise the action steps
Segmentation can take many forms and requires a clear objective, access to internal data, and a capable individual to conduct the work. Additional market research is often required to test assumptions and gain an independent insight into the customer perspective.
Importantly, segmentation is not just for big business and can be readily employed by small business and solo practitioners to achieve business growth.
About Michael Field
Michael Field is an independent strategy consultant advising medium and large B2B and NFP organisations.
More information available at http://www.michaelfield.com/
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