2. Market Segmentation – Hitting the Sweet Spot!

First here’s a chart illustrating how you can focus sales and marketing efforts on the targets that need your solution urgently!  The end result effects every function in your business, from reducing you’re sales cycles and support effort to increasing customer loyalty,  and you are only making the profit you are capable of when you do this.

Example of segments and differentiation within a vertical market.

During one appraisal of a 6,000 target addressable market we were able to identify a ‘bad’ segment of 1500.  We researched what happened when the software was sold to the segment and found that implementation projects always ran over budget and, rather than declining, support calls increased over the first year. In this case there was a very good reason for the issue and the supplier accepted the evidence and focused resources on more profitable activities. As a result of focusing on the right prospects with the right message they increased sales and reduced cost of sales significantly.  Companies who don’t manage to do this never perform to their potential and face tangible losses in every area of their business.

It also means that sales presentations don’t require constant objection handling because the audience are accurately identified prime targets and a competence to serve customers just like them can be proven. In fact the appointments are easier to win for the same reason. Price is maintained and customer satisfaction is higher because the project is typical of many others successfully completed.

So, how do you get there? How do you clarify exactly what you are good at and the specific identity of the right prospects?

A great place to start is an analysis of your sales ledger or debtors list, but the same routine can be followed for start-ups segmenting prospect databases, just change the tense to future.

Look at the business activities of your clients, what service they purchased, why did you win that business against the competition. Establish the best user cases and the highest paying customers, find discernible characteristics they all have in common and use those to identify other targets who are likely to have the same problems to solve. Your specialisation then becomes a key part of your differentiation.

You will find that there is much more to segmentation than size or volume. Certain businesses will operate differently perhaps based on the return on sales margin they achieve and, importantly, the decision to buy your product may sit with different functions, each with different purchasing behaviours.

In the 6000 site addressable market mentioned above the buying decision was made by different people in each sub-segment, it worked as follows; S1:owner, S2. finance director, S3. board of operations directors.

The positioning with each of these was different and if it isn’t compelling for one of the sub-segments you can save your-self an incredible amount of time and effort.

Here are a few examples of criteria which could be used beyond size and volume to identify your prime target market:

• How profitable is their business?

• How mature is their business?

• Who makes the purchasing decision?

• Is their HQ in your country? Is their business focused on a certain geography or are they trying to achieve cohesion across many regions?

• What percentage of their turnover do they spend on IT? Would your purchase come from that budget or department P&L? What major purchases are you competing with from the same budget?

• What expertise do they need to make a success of your product, i.e. are you selling proprietary ERP to a segment which doesn’t have full time accountants?

You will identify dependencies, key success factors, and whether to differentiate your proposition for a number of segments or only focus on certain ones. It’s then just a case of obtaining data, knowing how to analyse it and doing some research.

As a product management or product marketing professional you can incorporate this assessment to your concept adjudication and have it ready for internal product launch. We found stakeholders digested it well when we framed it as follows: Who are they (exactly)? What do they buy? Why buy from us? The answers to these questions make it easy to identify exactly where they are and that changes everything.

For all of the reasons above any conversation regarding a business, product or any development should start with 1. The specific target market and size, 2. Their problem and need to solve it now. 3. The idea and it’s dependencies. 4. Story of last few product launches. This outside-in approach emphasises the need to define the proposition by the market rather than imagining a market for a proposition.

If you agree that commercial success is the ultimate goal of product management I believe this topic represents the most significant work product management can do. It feeds into everything else and still pays dividends through to in-life win/loss analysis.

If you need to sell this to others….

Every business person should understand the difference between being 50% right for 100% of the people compared to 100% right for 50% of the people. Consequences can lead to scenarios such as 10 sales activities for a decision and a closing ratio of 1:20 versus 5 sales activities and a closing ratio of 1:4.

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