In this episode of the Exit Mindset, we join Rem Oculee, the Founder and CEO of Confidence Wealth Management, as he discusses market segmentation, strategies to identify your target consumer, and different ways to incorporate the Exit Mindset in this process.
What is Market Segmentation?
Today, we are going to talk about market segmentation. Do you ever wonder if you have the right market, customer, or client? Is it possible that you’re trying to sell to the wrong people? Could it be that your product is better suited for different types of customers?
One of the most important elements of your business is who is purchasing your product. If you’re selling your product to the wrong market segment, your revenue will likely fall short of expectations. Thus, market segmentation refers to the different types of consumers you target and how those consumers are categorized.
Segmentation and Target Market Analysis
Let’s say you sell your product in a city of 1,000 people. 100 of those people like your product. However, when you go to sell your product, 50 of the people who like your product are mixed in with 50 people who don’t like your product.
This means that you’re at a 50% target ratio. Wouldn’t it make more sense to you target all 100 people who like your product? Of course! It’s simple math.
In the Exit Mindset, there are three basic principles at play: product, infrastructure, and conversation. When it comes to market segmentation strategy, you have to consider all three principles. Let’s start with the product.
Is your product right for the market segment you’re targeting? Does it fulfill the needs and desires of your consumer? These are important questions to ask, but how can you figure out the answers?
First, look at your revenue. Is it where you want it to be? If not, it could be an issue of market segmentation. Then, evaluate your market research. Does the research indicate that your product is optimal for your target market segment? If not, what is it lacking?
Next, look at your infrastructure. Is it configured to provide you with the output you need? This can cover a wide range of departments and processes, including support, sales, operations, marketing systems — and everything in between. Are all of these systems configured for the right market segment? If the answer is no, you need to identify the problem areas and troubleshoot how to make tweaks and improvements.
Lastly, look at the conversation. Remember, this refers to all of your verbal and non-verbal communications with the consumer. The non-verbal conversation can have a lot to do with your product. Perhaps the shape, color, or texture are not ideal for your target market segment. Alternatively, maybe you need to tweak your verbal communication with consumers. Most businesses only focus on changing the latter, while ignoring the non-verbal conversation.
Brainstorming Ideas for Market Segmentation
Now, let’s try an exercise. Grab a piece of paper or open a document on your computer. Create three columns; one for your product, one for infrastructure, and one for conversation. In each column, write down three things that you could change to improve the corresponding principle in relation to your market segmentation.
Take the top idea from one column and run it by your team. Evaluate its workability. This will likely require a brainstorming session with your team. Try to write down nine different ways that you could implement the idea.
Once that’s done, take the top three ideas and start working on them. You’re going to find a great deal of power in this methodology. It can bring about the results you want, especially if you designate a team member to focus on each strategy.
More often than not, people have ideas, but do nothing with them. However, if you actively work to implement ideas and assign them to your team members, you’ll find that your ideas can become reality.
4 Consumer Market Segmentation Classifications
So, now that you have a process to brainstorm and implement ideas, let’s return to market segmentation theory. There are hundreds of factors to consider, but here are four important types of market segmentation:
All three principles will vary based on the age of your market segment. You wouldn’t design the same product or have the same conversation with someone in college as you would with a senior citizen. Moreover, your infrastructure would need to be tweaked as well. You may hire different staff to handle certain processes based on the age of your target market segment.
Oftentimes, business owners over-generalize their target market. For example, you may think that you just want to target college students. However, it could benefit you to specify the segment even further. Perhaps your product is best suited for part-time college students or students at certain schools.
You’ll need to do the same thing regardless of the age of your consumer. For example, if you’re targeting seniors, you’ll need to narrow down your segment. Do you want to target seniors who are preparing to retire or seniors who have already retired? Try to specify your ideal market segment as much as possible.
Is your product going to be the same for all genders? Probably not. Gender can affect certain needs, desires, and expectations. As a result, you’ll have to adjust your product, infrastructure, and conversation accordingly.
Income is a major factor to consider when specifying your target market segment. You may target people looking for a less-expensive version of an existing product. This could mean that your targeting low or middle-income consumers. On the other hand, you may have a high-end product designed for consumers with higher incomes. You’ll also have to consider the spending and saving habits of your target consumer.
While age, gender, and income are all important, there are other factors that you may need to consider. For example, the family dynamic of your consumer could affect your product, infrastructure, and conversation. Is your target market segment single or married? Do they have children? Do they have a large family or a small family? These factors will all affect your consumer’s needs and interests.
Taking the Perspective of a Buyer
Now that we’ve covered market segmentation theory, imagine yourself as a potential buyer of your own company. Would you want to buy the company if the product was not being sold to the right consumers? Selling to the wrong market segment or not exploiting your product to its full potential could severely reduce revenue. In turn, this could devalue your company and decrease the incentive to buy it at a fair price.
So, examine market segmentation methods ahead of time and configure your company in a way that meets the demands of your target consumer. This will increase your revenue and make your company more valuable. As a result, buyers will offer you a better price to acquire a company that’s truly reaching its target market.
However, it’s important to remember that the Exit Mindset isn’t predicated on selling your company. Using the Exit Mindset allows you to generate more revenue and increase the value of your company by taking the buyer’s perspective. You have no obligation to sell your company, but taking this perspective will allow you to grow your company to its full potential.
Remember, action is everything. Use it or lose it.