Business & Marketing
Marketing de-mystified: Understanding Market Segmentation
By Scott Adamson
What is Market Segmentation? The term simply describes a way of carving up the global list of all potential customers into smaller groups with similar characteristics or needs. This then allows you to use a more focused marketing approach geared specifically to the needs of each segment, instead of a mass-market approach.
By Scott Adamson
A Horizontal Market Segment is a broad group based on fairly general
characteristics such as, “all female customers.” Saturn Cars did a
great job of marketing their cars specifically towards women. Knowing
that women tend to be more experiential than men, they focused their
message more around the "experience" of buying the car than they did
around any specific features of the car itself.
A “Vertical Market Segment” is usually a group of customers who share
similar needs or concerns because of what they do. The most common
example would be companies within the same industry classification. One
example might be restaurants. Another might be residential
homebuilders. Vertical Marketing starts with finding a customer group
like this, who share common needs, and then targeting your marketing
campaign or sales ‘pitch’ to those common needs in a very specific way.
The first step is to identify a market segment that is large enough for
you to target, but still has some unique needs that you can address and
satisfy. Next, you need to look at the four P’s of marketing: Product,
Price, Promotion and Placement (or distribution) to see how you can
tailor your approach to that segment .
In Saturn’s case, the product
(car) that they were marketing to women was a little smaller, yet
sporty and practical. Interestingly, they did not offer any sort of
special price but instead promoted a ‘fair price’ with no need to
bargain or negotiate (the experience). Their placement or distribution
was the same as any other new car, the showroom, but they focused on
the customer experience in their showrooms. The women in their
commercials were treated with respect and not talked down to and they
tried to demonstrate that Saturn Dealers went the extra mile to create
a positive experience. One commercial even showed the salesperson
picking a customer up at the airport in her new car after a business
trip, and driving her home. Finally, their promotional medium was
primarily on TV. Why? – Because TV is the best media for conveying
emotion and the relational elements that Saturn knew would appeal to
their target audience.
Unfortunately, most of us don’t have the advertising budget of Saturn
(GM). So how can we use market segmentation in our small businesses? Is
this even an option for us? The answer is, absolutely. One of the first
rules of selling is to “know your customer.” The better you know your
customer and the more that you can tailor your products and services to
that customer’s needs, tthe more you can target your message directly, and the more likely you are to make a sale. You can
create specific advertising messages, design sales brochures geared to
the needs of your market segment, and choose specific media (radio,
print, trade shows, etc) to reach your target market. You can even take
this principle right down to an individual sales representative level!
So let’s see how this might work.
Identify a vertical market: The first place to look is at the customers
that you already have. Do they fit into any easily identifiable groups?
For sake of an example, let’s use the commercial market segment of
small retail stores. Let’s say that you have gone through your customer
list and noticed that you have a lot of video stores, dry cleaners and
convenience stores. How do you determine what the common denominator
is? The easy answer is, just ask them — why did they put an alarm
system in? Do they have any particular security concerns that go beyond
simply an insurance requirement? Do they have more than one location?
Are they all protected by your firm? If so, why did they choose you? If
not, what was important to them in making their decision? This is what
the marketing gurus call “market research.” What you are hoping to
discover is a common concern within this group that you can address.
You may learn, for example, that many owners have more than one store
and their biggest concern is making sure that their staff open up and
lock up on time. Knowing that, what if you could put together a product
offering where the owner would get a text message or email each time
one of his stores was opened and closed? Do you think that you would
secure the sale over a lower priced competitor who did not offer the
same service? Or, you might learn that their biggest concern is
employee safety after hours. In this scenario, a wireless panic pendant and/or a
CCTV system would not only provide peace of mind for their employees,
but would also protect the owner(s) from serious liability issues. Or,
you may learn that employee theft and shrinkage is their biggest
concern and what they really want is a CCTV system to act as a
deterrent and perhaps a covert camera aimed at the cash register to
protect against employee theft at the till.
Design your marketing campaign: Armed with this knowledge you are well
on your way to “vertical marketing.” You can put together a small, two-
or four-camera package; create a brochure around this package with a small
retail store in the picture on the brochure; develop appropriate
wording on the brochure to key on the benefits that you are providing;
and create a leased pricing option with a monthly fee and little
up-front investment to make it easier for a small business to
Getting appointments: The best designed marketing campaign is a waste
of money unless you can attract prospects and make sales. So now you
need to take it down to the sales rep level. Here’s an example of your
first prospecting phone call: “Mr. Smith, this is John with Top Notch
Security. We protect a number of your competitors because we have been
able to help them to retain staff and improve their bottom line. Would
it be possible to meet with you for 15 minutes to explain how we can do
the same for you?” Note: at this point, you don’t want to give too much
information on the phone. All you want to do is promise a benefit
(based on higher profits, cost savings, more leisure, etc) to gain
their interest, and then close for an appointment.
The approach used in the example above also appeals to their curiosity
by suggesting that you are already giving this benefit to many of their
competitors. Which business owner doesn’t want to find out what his
competitor is doing, especially if it is giving that competitor an
edge? Now that you are in front of a qualified prospect, the hard work
is done. All you have to do now is show them how they can enjoy the
benefit that you promised.
Scott Adamson is the Director of Dealer Programs for VOXCOM Security
Systems. He is an industry veteran of 25 years. Scott has a Bachelor of
Commerce Degree in Marketing from the University of Calgary and is also
a Certified Sales Professional with the Canadian Professional Sales