On the 2nd of September, 2016 I introduced the “10 foundations of business success”, an excellent very practical book by my friend and colleague Guy Hamilton. Guy spent 35 years with global banking giant HSBC Group.
On Friday, September 09, 2016, I published Part 1 of an article of the first discipline on the subject – “10 Foundations of Business Success” (if you missed the article, I have provided the link to the article, click the link to the article).
Today’s article is Part 2 of the first discipline the 7 Rules of Market Segmentation
So what are the basic steps a small business can take to understand its market segment in a relevant and appropriate way?
1. The first step is defining your business’ target market segment. Start by creating a working hypothesis, and then progressively validate it with facts and figures. Don’t jump to conclusions; be prepared to evolve the definition of your business as other data and insights come to hand.
2. Develop a clear view of your target customers. Create an image in mind of what they look like and how they are likely to behave. Add colours to your mental image, as you clarify specific attributes of these target customers, such as “40-60 years old, metropolitan in behaviours and tastes, like understated quality, demanding on quality”
3. Conduct mystery shopping on existing players. Look carefully at what they offer, price point they market to and type of customer they seem to be attracting. Remember, existing players in the market who have survived for years will have done so by refining their business model to something that makes commercial sense. Don’t dismiss what an existing player is doing; as “why?”, seeing what is actually happening in a market is highly illuminating, and as important as theoretical paper-based analysis.
4. A useful start to segmentation is to critically consider5 key customer satisfaction success factors for the business. They will help shape the business model you need to have in place to deliver what customers want. Start by creating a “working” hypothesis” is a good catalyst to get the thought process going, remain open minded and keep challenging your hypothesis with hard evidence and tangible facts, or research.
Why the top 5 factors? Most management teams or businesses struggle to measure and consistently execute more than 5 core deliverables in parallel. There is a natural simplicity that stems from focusing on 5 key factors – the more you, have the more complicated the process becomes.
Once you have your “Top 5” mystery shopping activities in potential markets and the data you need to validate your proposed business model become a lot clearer. You can now consider geographic, logical and other factors more precisely. Make sure you define tangible and measurable product or service factors.
5. Avoid being a “niche”. I have found over the years there is a temptation for businesses to get drawn to the compelling rationale of “We are a niche business and aim to be different”.
6. Review and update your segmentation thinking every year. Markets and competitors change, as do customer preferences. Be careful that a historic view on the market positioning does not become embedded in the business mindset. If you have invested time and effort into developing a clear view of your business segment it makes no sense not to revisit your thinking (in a disciplined way) regularly, nothing stands still in the business.
The importance of segmentation will become progressively clearer as we work through other important disciplines.
Questions to keep in mind: “Can I precisely define the market I wish to compete in? Can I define my target customer? Do I understand which segments offer me the greatest chance of success?”
Thank you for taking the time to read this post, that’s it for now and I hope you enjoyed the 2nd part of Chapter 1, Market Segmentation 10 Foundations of Business Success’ (By Guy Hamilton)