Market Segmentation

A Building Block to Sales and Marketing Success

By Paul Jermain, Entrepeneurial Training Program for the Commonwealth of Mass.

Years ago, I was a member of the board of directors of a small business incubation center located in Nashville, TN. One day, Frank, a client of the center who sold large, five gallon, containers of bottled water, approached me for assistance with his marketing plan. His sales and marketing efforts were coming up short, and he was open to outside expert opinion.

We sat down and one of the first questions I asked him was “Who is your target customer?” He said, “Everyone, really everyone drinks water.” Now from a factual standpoint, he was dead on, however, from a marketing perspective; he was way off the mark. He was overlooking a fundamental to effective sales and marketing, namely, segmentation.

Now, segmentation is a fancy word, but in its simplest form, segmentation is just about dividing customers, businesses or consumers into groups that share common characteristics. That way you can prioritize them, and go after the groups or segments that might get the greatest value from your offering and be open to purchase. Without thoughtful use of segmentation, it is easy to experience a “diluted” focus and end up splashing around a lot, without making much headway.

After I explained the concept to Frank, we started breaking down, or segmenting, the market. First, we decided to segment the market geographically; he would only address customers within a 15 mile radius to keep his non-productive “windshield” time to a half hour or less. Second, we agreed that he was going to focus on only business users as a group, as opposed to business users and homeowners. Third, we decided that he should invest in purchasing the customer list from another bottled water provider company owner that was retiring, as those customers had already proven that they were interested in purchasing bottled water, instead of the city water system that most of the area businesses tapped into.

We agreed that he should scan the list for “heavy users”-those customers that were using more than one water container daily, for two reasons. One, in contrast to “light” users who might consume a five gallon jug weekly, those established “heavy users” would represent the quickest route to strong sales. Two, examining the qualities shared by those “heavy” users such as company size, industry, location, etc., would lead Frank to new, untapped accounts that would likely be solid bottled water prospects.  After our meeting, Frank implemented the new grouping scheme and enjoyed a considerable uptick in sales.

It’s clear that Frank’s success was due to effective market segmentation. As highlighted, there are lots of different ways to group business customers: geography, prior purchase behavior, usage level, company size, industry, and location.  Additional approaches include using adoption styles-leader, follower, laggard; and product forms-PC tower or laptop, just to name a couple. In similar fashion, individuals can be grouped by age, sex, education level, income, location, etc.

The key idea is to narrow the universe down by looking for common characteristics and then taking a prioritized, focused, approach to those groups of customers where your offering holds the most value. As experienced business people will confirm, segmentation is a straightforward approach which works every time.

Paul Jermain is an experienced business counselor with over 20 years of business consulting experience. Mr. Jermain leads an Entrepreneurial Training Program for the Commonwealth of Massachusetts in partnership with Northern Essex Community College in Lawrence, MA.