Moving Beyond Traditional Market Segmentation
by Neil Baron and Charu Manglani
A shared belief at the Boston Product Management Association (BPMA) is that most companies don’t think beyond traditional factors like geography, demographics, gender, income, social profiles to segment consumers. The ‘Product Executive Forum’ (PEF) of BPMA, focused recently on exploring ways to move beyond traditional ways to market segmentation.
Who, What, Where?
Product Marketers often ask “Who is your target customer? What is your target market? Where should you position your product?” Digging deeper into these questions helps identify strategies for effectively marketing the product. To find the right answers to these questions, product managers must invest time in ‘segmenting’ the market during the product development process.
Segmentation not only serves an important purpose of creating differentiated product offerings to suit each customer profile, but also improves sales, marketing, and aligns all functions to the overall business strategy. Two-thirds of the participants in the PEF felt that the segmentation process currently followed in their companies is only moderately effective.
What are the decisive factors for customer-segment fit?
Customer selection, one of the most important product strategic decisions, is often relegated to the sales team and elicits at best, a reactive approach from the organization after products are already sold to customers (that unfortunately too often were not really built for.) It is crucial to apply a consistent definition of market segments across all corporate functions and engage the executive team to not only lead the definition but also the implementation of such segmentation. It is only via cross functional alignment to market segments that the management team can launch products for the right set of customers.
Measuring the size of the available market and finding the needs of each target segment is the next task. This approach has been successfully adopted by companies like Samsung, which markets mobile phones at various price points with differing features for retail and business users. Focusing on each segment size allows the company to deepen market penetration and increase customer loyalty. Furthermore, sales teams must be aligned to the individual customer segments and specific metrics must be assigned based on the size of the target customer.
Focus on your user’s needs to reap the benefits
The discipline of Design Thinking focuses on the customer’s problems. This technique resonates well with the concepts behind market segmentation, especially when addressing the limitations of demographics-based, market segmentation. While user demographics continue to guide the broad segmentation of the market, understanding the nuances of user and buyer persona helps break the larger segment into more addressable sub-segments and pursue targeted marketing strategies to enhance sales. User needs-based segmentation lets the organization cut across different markets, often enabling a wider reach into unexpected users.
Following a market-centric approach to segmentation reiterates the urgency of the needs-based framework: when external market forces drive the choices of the users, an all users encompassing strategy may not be appropriate. For example, the current uncertainty caused by the pandemic has reiterated the importance of breaking the target market into smaller segments and responding to their needs in an iterative manner.
Follow the trends & data
Why is market segmentation so hard? What steps can you take to improve your segmentation strategy?
Social media has certainly complicated things by introducing non-standard segments that require building an infrastructure to extract and analyze data continuously. Large and established corporations must alter their status quo swiftly and hire talent that has expertise in various markets, is able to track the challenges of each segment, and identifies growth paths. Metrics like renewal rate and buyer referrals are instrumental in understanding the success and failure rates across markets and in identifying patterns to select successful segments. These analytics, combined with market research about competition, strategic partnerships, a review of the effect of events on the different customer categories and customer feedback will help organizations match their product and capabilities to specific client needs.
In order to remain ahead of your competition and market successful products to customers, you must identify segments using multiple techniques and methodologies and review these segments periodically.
About PEF
The Product Executive Forum or PEF is an exclusive, by invitation only program for senior executives that are responsible for the product management or product marketing function. Learn more about PEF here: https://www.bostonproducts.org/product-executives-forum
Note: If you are a VP or Director in Product Management/Marketing and interested in sharing best practices with your peers, please contact Neil Baron, at nbaron@baronstrategic.com
About the Authors
Neil Baron has served in a variety of senior marketing and management roles at companies such as IBM, Digital Equipment Corporation, Sybase, Art Technology Group, Brooks Automation and ATMI. He is passionate about involving customers throughout the go-to-market process. In 2009, he started Baron Strategic Partners, a consulting firm focused on helping organizations launch groundbreaking products and services and re-energize older ones.
Charu Manglani has worked in the banking and asset management industry in strategy & advisory roles. Charu is passionate about learning and applying new ways of building and improvising products. Her current focus is on exploring optimal applications of emerging technologies in designing user friendly products.