As many organizations are looking at ways to improve profitability, they are asking their employees to do more with less (a.k.a. fewer employees and fewer dollars. At the same time, markets are becoming crowded with competitors, products are becoming more commoditized, and customers are asking their vendors to be more than just a supplier of a product. This leaves sales and marketing teams in a position to make critical decisions and prioritizations as efficiently as possible. Effective segmentation and targeting is more important than ever.
Segmentation and targeting have numerous benefits for an organization—the most important of which is providing a direction for the business and a framework for the allocation of resources (both people and dollars). Once segmentation is complete, tools, tactics, and messaging can be focused at each segment.
The premise of segmentation is to divide all customers within a market into separate unique groups. This division of customers can be done based on a variety of criteria important to the customer such as price, geography, quality or features of product, etc. Segmentation can also be done based on demographic make-up of customer. Depending on market, there are literally hundreds of ways to segment it.
Once a market has been segmented, then it is on to targeting. Within the market, there are customers to whom a company wants to market and customers who will be disregarded. When developing a target market, an organization needs to identify areas where it can effectively differentiate its offering from the competition. In addition, the customer must see the value of the offering. A company can choose to target multiple segments. However, if multiple segments are targeted, then a company must be prepared to develop different messaging and products to address the unique needs of each segment; generally a more costly and time-consuming approach.
My experience has been the time and costs associated with going through a segmentation and targeting exercise far outweigh taking a blanketed approach and trying to service all customers within a market and hope your message resonates with someone. Throwing spaghetti at a wall and hoping some stick generally just creates a mess someone has to clean up. Segmenting the market and targeting specific customers with a laser like focus allows for the creation of targeted value messaging, better utilization of internal resources and a higher probability of success.
Key points to remember regarding segmentation:
- Must include all customers within the market
- Each group within the segment is unique with no overlap
- Don’t over segment. At some level, every customer is unique. However, once the previous two criteria are met, then some discretion needs to be used so the resulting segments align with the various value offerings by the company
Key points to remember regarding targeting:
- The largest segment is not necessarily the best segment to target
- The best segment to target is one where the company’s offering aligns well with what the customers value and where the company’s total offering is differentiated from the competition
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