How to Best Select Segments to Support Organic Growth: Sales Lead Management Association

Home
Contact
Blog
Login
Join

Subscribe:

Search:

Call us: 415-521-4278
Connect with us:

Sales Lead Management Association

About
Join Free
Benefits
Funnel Radio-Podcasts
Lead Gen
Resources
Buyer's Guide
Recognition

Facebook Twitter Google+ Reddit LinkedIN Follow The SLMA

How to Best Select Segments to Support Organic Growth

Laura Patterson | About > From the section: Lead Mgmt News

February, 12, 2018 |

Forrester, among others, declared that growth is the narrative for 2018. As an entrepreneur, it’s important to know how to quickly and cost-effectively select the best markets for growth. Work by Deloitte found that 70% of CEOs expect Marketing to lead the growth initiative.

Segmentation is one of Marketing’s most common models and a basic tool for your growth arsenal. Segmentation is the process of dividing a broad target market into subsets of customers, regions, or industries that have, or are perceived to have, common needs, interests, and priorities. With market segmentation, your company can determine which customer groups it is best suited to serve and which of your solutions will meet the requirements of its selected segments and outperform your competition. The purpose of creating a segmentation model is so you can increase your company’s ability to grow more effectively and efficiently.

Whether you are going to delegate this work to you internal or external Marketing team, or decide to tackle it on your own, there are a number of different segmentation models you can employ to help your business grow. Some common methods that you might be familiar with include organizing segments by verticals, geographies, company size, and needs. For example, a semiconductor company might organize their business around verticals that provide growth opportunities, such as computing, consumer electronics, and automotive. A translation company might organize around primary languages to support their growth, such as Spanish, English, Hindi, Arabic and so on. A company in the analytics space might create segments based on analytical maturity, grouping products and services to serve organizations based on their analytics capabilities. How you segment affects all aspects of your business such as your overall strategy, how you go to market, the partners you choose, your product roadmap, and so on, along with the hard and soft investments associated with these decisions.

Why Should Opportunities Be Grouped into Meaningful Segments?

Data is fundamental to segmentation. It takes data and analytics to organize markets and customers into viable segments. The pitfall is that many organizations often select their segmentation approach on the data available rather than on the business need. Companies with rich transactional data tend to build behavioral segmentation models (grouping customers based on spending levels, frequency of purchase, etc.). Those companies with a wealth of information about customer preferences develop attitudinal segments. It’s a mistake to let your data select your segmentation.

To avoid this pitfall, you need insights and patterns derived from your external and internal data sources that will help you understand the requirements of customers, how they decide between one offer and another, and what customer and market attributes offer the best fit for your solution. Once you have this data and apply the appropriate analytics, you can form groups of prospects and customers who share the same or very similar value criteria.

When building a segmentation model, clarify the purpose of the segmentation. If you need a way to classify newly acquired customers into a segmentation model, you will want a preference-driven descriptive segmentation. If you are looking to create a segmentation model to support cross and up-sell efforts, then you will want a behavior-driven predictive segmentation approach. The former is a more explanatory approach, the latter provides a better way to score and classify. You may need to consider using both.

A Customer-Centric View Creates a Powerful Model

We recommend building a market segmentation model from the customer’s point of view. This is a bit different than what you may have learned in business school, where the focus was on using demographics as a way to create segmentation schemas. The traditional approach tends to create a static view of segments that may not be effective in today’s dynamic environment. For example, in the traditional approach, segmentation may be based on revenue, company size, technology platforms, etc. to classify targets. The classifications remain until the customer achieves the next stage in the schema.

Needs and Behavior Based. By taking the customer view, the model is built more on needs/problems, requirements, and behaviors. We would encourage you to make needs the basis of your segmentation approach. Customers who share demographics may actually have different needs. For example, CFO roles may have similar education and responsibilities. The size or industry may have little impact on how to create segments around CFOs. However, different CFOs have different needs and behaviors. Some CFOs serve in a more strategic capacity. Others may have responsibilities for functions outside of the traditional finance roles, such as responsibilities for talent. These different needs may reflect different personas. If so, you may have the makings of separate market/customer segments.
identify distinct and unique groups of customers. Each segment must have and share a discrete set of attributes, such as why they buy, the features and functionality they need, how they buy, etc. This set of unique attributes is what enables you to define and predict the success level of Sales and Marketing initiatives and to establish performance targets. Use the insight you gain into what each segment values to develop and implement a strategy.
Don’t boil the ocean. It’s important to have a starting point for your segmentation. For example, start by writing a list of products or services down one side of a page or flip chart. Then list the types of customers to whom they are sold across the top and put an X in each row and column where each is actually sold. Most often, this will result in more combinations than you can effectively work with.
Focus on a workable number of segments. Match similar items and buying behaviors to create a workable number of market segments to analyze. Focus on the top 3-5 groups, where the largest overall business opportunities live. Unless there is a significant reason to include a small segment by itself, it should either be omitted or combined with a similar segment for analysis. By consolidating the products/services and the customers to whom they are sold into groupings with similar behaviors in the market place and analyzing these groups as market segments, you can begin to establish the discipline and rigor necessary for effective analysis.

How to Better Select Segments to Support Organic Growth

You’ve created your segments. But most companies don’t have the resources to pursue every segment, and not every segment is worth pursuing. Therefore, you need a way to prioritize the segments and select those that will support your growth goals. To prioritize segments, we often use a model based on criteria associated with two primary categories: opportunity and accessibility. This model allows you to account for facets of opportunity.

To support your growth initiative, consider criteria for this category such as the number of customers in a market with a specific set of attributes, the expected growth of the segment, the expected usage/need for your offer. While there may be growth in a segment, that doesn’t mean you can access it. You need a way to determine the ease of access. For this category you may need criteria such as compliance or standards, the number and types of competitors, how many existing customers you have in the segment, and so forth.

To best use this approach, you will need to

Decide the facets/factors for each category
Establish criteria for each facet or factor
Establish a weight and rank for each
Evaluate each segment again the criteria

When you complete this process you will have a data table, such as this

Segment	Accessibility Score	Opportunity Score	Overall Score
Segment 1	250	280	530
Segment 2	170	190	475
Segment 3	270	205	435
Segment 4	250	185	360

This information can then be plotted.

Those segments that score high on both opportunity and accessibility criteria will be your optimum segments and those you should pursue first. In this instance, Segments 1 and 3 are those segments. Access our customer case studies to learn more about this approach.

Avoid Using Your Gut

As an entrepreneur, you are accustomed to trusting your instincts. Take a data-driven approach for selecting the criteria and evaluating each segment against the criteria. Research is an essential part of being able to segment the market and prioritize these segments. Generally, you will need both primary and secondary research to create and select the segment. Conducting solid research takes expertise. If necessary, leverage an experienced third party for your research.

After determining a segment is worthwhile to pursue, you will need to develop and execute the strategy that will allow you to gain access and traction within the segment. Like most worthwhile projects, proper segmentation takes time. The rewards of more effective sales and marketing, and ultimately cost-effective growth make it well worth the investment.

Abstract:

Segmentation is one of Marketing’s most common models and a basic tool for your growth arsenal. With market segmentation, your company can determine which customer groups it is best suited to serve and which of your solutions will meet the requirements of its selected segments and outperform your competition. This article discusses how to build a market segmentation model from the customer’s point of view and better select segments to spur growth.

About the Authors

VisionEdge Marketing Laura Paterson, CEO and Founder

Gold Mine for Small Business - Simple, Affordable, Proven.