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Building a Strategic Marketing Plan: Market Segmentation + Identifying a Target Market

Building a Strategic Marketing Plan: Market Segmentation + Identifying a Target Market

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Transcript of Building a Strategic Marketing Plan: Market Segmentation + Identifying a Target Market

an idea Building a Strategic Marketing Plan:
Market Segmentation +
Identifying a Target Market

A special presentation In the process of developing a Strategic Marketing Plan, the step which follows the identification of strategic business objectives for your brand is:

market segmentation and identifying your target market.

This presentation will outline these two important processes in the context of a small business brand.
To begin, lets define these two key processes for the purposes of clarity and differentiation.

The content of this whitepaper will be presented in two modules, one for each of the following definitions respectively. Market segmentation is the process of dividing a population of consumers (your “universe” or “total market) into smaller groups. Identifying your target market is the process where you identify which of these segments are the most attractive for you, i.e. the segments whose needs and wants your business will be best able to satisfy.

Looking at it another way, these are the customers most likely to appreciate your brand promise.
MODULE ONE: MARKET SEGMENTATION

The steps in the Strategic Market Segmentation process for your small business:

1. Start with your total market, or “universe”:
this is the overall population of potential customers who could potentially have a need for the product or service that your organization provides. 2. Apply a broad perspective:
depending on the nature of your business, your total market could be a B2C (business to consumer) or B2B (business to business) universe.

In some cases, there may be elements of both. I’m going to use a fictional example whose universe contains both B2B and B2C potential.
Toronto Organic Star Catering, (a start-up which provides organic and locally sourced catering services in the Toronto area) is developing their strategic marketing plan and is beginning their market segmentation process.

This enterprise starts with a large total universe. Potential customers could include Toronto area businesses of all sizes:
event planners
wedding planners
large corporations

In addition to individual consumers:
parties
family events
showers
as well as niche customers
political events, funeral receptions. To provide context, we’ll consider that Toronto Organic Star Catering have done their preliminary marketing planning.

The brand will operate with two distinct strategic marketing plans: one for the B2B market, and one for B2C.

For this segmentation exercise, they wish to focus on the business to consumer market only.
They have also done their homework in developing a UBP and a brand promise.

Their unique buying proposition is their ability to provide fresh, only locally sourced, organic, and/or vegan catering services.

Their brand promise is “Make your event perfect. Naturally.” Just like your business, our organic catering brand needs to start dividing their universe of possible customers into segments of potential customers. 

There are a number of ways to do this; most organizations will deploy several strategic market segmentation tools or criteria when identifying possible market segments.

Here’s a list of the most frequently used: 1. Geographic target segmentation: identifies the geographic area where your potential customers are.

This can be as large as “Global” and as small as a set of specific postal codes.

For our fictional catering brand, let’s say that the Greater Toronto Area is the maximum drawing area for potential customers based on the resources of the business.

This also fits nicely with their locally sourced food positioning. 2. Demographic target segment:
This is the most frequently used tool to identify market segments, and also has the largest number of potential variables. 

Defined as the statistical data set of a population, demographics create a robust “portrait” of the segment.

In strategic marketing, common demographic identifiers include:
Gender
Age, median age
Generation (Gen X, Gen Y)
Education (highest level attained)
Marital status
Household income
Ethnicity
Language spoken at home
Religion
Number of children
Employed/Unemployed
3. Psychographic target segment: This tool identifies the IAOV for a population: acronym for Interests, Activities, Opinions, and Values.

Brands utilizing this segmentation tool look for commonalities in the IAOV within the total market and divide it into segments on this basis.  For example, vegetarians and vegans, are individuals who believe in the benefits of a diet that minimizes or avoids animal-based products.

This opinion or value system differs from individuals who eat animal-based products and are therefore a different segment of our brand’s total geographic market (Toronto.)
Toronto Organic Star Catering has identified this psychographic variable as a key segment of the overall “catering” market in Toronto.

We can then go back and identify some fictional demo and geo variables that could describe the “veggie” segment of the market.

Gender: 60% female
Generation X predominate (born 1965 to 1979)
University degree or higher level of education achieved
Employed
Newly married or in long-term relationships
Higher than average household income
In addition to the  geographic variable which identifies the segment as residing in the Toronto area.
Returning to our list of strategic market segmentation tools:

4. Needs based target segment:
Divides the total market for a product, service, or brand into segments based on the unique needs of each group. For example,

Nikon cameras may recognize that the total market for one of their products, cameras, can be divided based on the needs of the end-user. Some consumers have a need to take occasional pictures during family events and outings with friends.

For Nikon, this segment’s needs may be answered by a compact, simple to use and inexpensive camera that takes mid-to high quality pictures.

Another segment of consumers may need a need to take a large volume of very high quality photos in a professional or semi-professional setting, such as fashion portraits for a modeling agency. 

Nikon may answer the needs of this segment with a multiple-feature, high quality camera that forgoes simplicity and compact size and sells at a higher price point. For Toronto Organic Star Catering, needs segments could be identified as follows:

Needs Segment 1: needs fast, inexpensive organic or veg catering services for a small last-minute event.

This segment may need immediate service (24 hour turnaround) and does not require a wide variety of food options to be available.

Needs Segment 2: needs a large variety completely vegan food options for a wedding 6 months from now.

This segment may need reassurance that the quality of the food is optimal and that the presentation will be top-notch.
Other segmentation tools include:
5. Usage segmentation (low, medium, high volume users of a product: example beer.)
6. Lifestyle Segmentation:
Similar to psychographic segmentation, this criterion identifies groups of consumers based on their lifestyle choice. examples:
condo dwellers
marathon runners
young professionals
motorcycle enthusiasts 7. Industry Segmentation: (B2B):
divides the total market for a product (say, a blast furnace for steel production) by industry:
the auto industry
the building industry
the aerospace industry 8. Technology adoption segmentation: (early, joiners, majority, laggards)
This segmentation tool is popular amongst
app developers
mobile marketers
technology brands
brands engaging audiences in the social media space. Strategic Market Segmentation: the golden rules

Dividing your overall market into segments, even when using the tools outlined above, is not an ad-hoc exercise;

like all strategic marketing concepts, there are some rules that you should follow.

Especially relevant for a small business start-up, it is critical to respect these rules as you divide up your universe. Strategic Market Segmentation: the golden rules
Dividing your overall market into segments, even when using the tools outlined above, is not an ad-hoc exercise: like all strategic marketing concepts, there are some rules that you should follow. Especially relevant for a small business start-up, it is critical to respect these rules as you divide up your universe. The strategic market segmentation rules:
There must be similarity within the segment: The segment should inclusively demonstrate similar needs and wants, the same profile, same geography, same usage behavior, same industry, etc. Each segment should be mutually exclusive: Each segment must be different according to the key criteria, such as geography or demographics. If the segments overlap, that overlap represents a segment. Segments must be quantifiable: you have to be able to count the number or estimated number of customers within the segment. Segments should be large enough to be profitable: if your segment is too small to be realistically relevant to your business, it’s not really a segment. (Alternatively, it could be a niche segment that you can address through a different marketing mix.)
MODULE TWO: IDENTIFYING A TARGET MARKET
Identifying a Target Market for your Small Business: 8 Steps to Success

So you’ve identified your potential target market segments. What’s next? Given that a total potential market (or “universe”) can contain multiple unique customer segments, out task now is to identify which of these segments are most attractive in the context of our business or brand. This process is called Target Market Identification.
Given that a total potential market (or “universe”) can contain multiple unique customer segments, out task now is to identify which of these segments are most attractive in the context of our business or brand. This process is called Target Market Identification.
Given that a total potential market (or “universe”) can contain multiple unique customer segments, out task now is to identify which of these segments are most attractive in the context of our business or brand.

This process is called Target Market Identification.
Your goal: is to select, from all of the segments you have identified, the segment or segments towards which you will direct marketing effort. (Marketing effort usually means directing investment, i.e. dollars.) It’s not always obvious which market segment(s) you should pursue.

Here is a list of 8 key steps that will help you choose.

Measure the size of the segment
Measure the degree of need + demand within the segment
Measure the current growth + potential growth of the segment
Determine the age + sustainability of the segment
Review seasonality + elasticity of demand within the segment
Determine how well the segment fits with your brand promise + brand positioning
Observe the number of competitors serving the same segment, + their position relative to your brand
Consider your business resources against the market segment

Sound complex? Not really. Lets get started:
1. Measure the size of the segment
This is your first step and sets the stage for all other target segment identification considerations.

Measuring the number of potential customers who meet the segmentation criteria will help you determine:

a) The feasibility of the segment. If your segment is too small to profitably pursue (even with a niche strategy) then it should not be considered a target segment.

b) The proportional size of the marketing investment ($$$) you wish to direct to the segment. A larger segment (meaning more potential customers) will in most cases require a greater marketing investment, and vice versa.
Getting back to our familiar example of Toronto Organic Star Catering, who have identified, amongst others,  a potential B2C (business to consumer) target segment using geographic, demographic, and psychographic segmentation as follows:

Geographic: Live in the Toronto Area
Demographic:
Gender: 60% female
Generation X predominate (born 1965 to 1979)
University degree or higher level of education achieved
Employed
Newly married or in long-term relationships
Higher than average household income
Psychographic: Vegetarian, vegan, and/or organic food preference and/or locally sourced food preference. Potentially higher importance placed on health/diet considerations vs. other segments. There are several resources that our catering brand can turn to in order to measure the size of this segment, including:
Statistics Canada,
PMB (Print Measurement Bureau) statistics
Wikipedia
Google Scholar
blogs Measuring the size of a target market segment is rarely an exact science; for a small to mid-size business owner with potentially limited resources, this may be even more the case.

The important thing is to arrive at a well-researched and comfortably accurate estimate of the number of potential customers within this segment, and compare it with the size of other segments identified.

Then ask: “Does this segment represent a large enough number of potential customers to justify investing marketing resources?”

Moving ahead with our example, Toronto Star Organic Catering has determined that

in most North American cities, approximately 25% of the population is vegetarian or vegan and

a recent Foodland Ontario consumer research paper (fictional) indicates that approximately 15% of consumers in Toronto and Ottawa attempt to incorporate locally sourced foods as part of their regular grocery shopping. Our catering brand has determined that inclusive of all geographic, demographic and psychographic criteria considered, the segment size is approximately 200,000 consumers. 

From a needs-based approach, the total size of this consumer segment will of course be smaller given that our brand offers catering services only. 2. Measure the degree of need + demand within the segment
Do they want to buy what your selling? It’s a fundamental question for any small business marketer. That said, estimating the demand within a segment can be as easy as asking yourself:
Can your product or service deliver something of value to the segment better than the competition? Are you meeting an unfulfilled need or want of the target segment, or providing them a unique solution in a way that the competition does not?  If the answer is yes, than you have evidence of demand within the segment. How to measure demand:
For small business owners, there are several ways to estimate demand without relying on expensive research and complex statistical analysis (although these are obviously superior if you have the resource dollars.)
Count up the number of competitors you are aware of: businesses do not swarm to serve the needs of tiny, dying markets. Where there is smoke, there is fire.
Google it. Punch your product or service category into the big G and see how many results come up in the Sponsored links section. How relevant are they? Are the organic search results mostly commercial enterprises? 
Try Google maps to pinpoint competitors in your local geography.
Or go old school and open the Yellow Pages and count the number of ads for competitors whose messaging and offers speak to the target segment.
Call a competitor. Ask them how business has been.
Visit Facebook pages for competing brands. No fans? hmmm.
Statscan.com and industry Canada websites: provide a wealth of industry specific information, including revenue trends by category 3. Measure the current growth + potential growth of the segment
Is the segment growing? Is it stable? Is it shrinking? If so, at what rate year over year?

Look back over a mid-to longer term (5 to 10 year) historical timeline.
Consider if Future Shop or Best Buy  had not looked at huge potential growth in the home theatre segment upon the introduction of large-format plasma TV screens?

Or conversely, if they had not measured the alarming erosion of consumer demand for the VCR upon the introduction of affordable DVD technology?
Back to our catering brand, Toronto Organic Star Catering who have researched things well:
Geographically: Population in the Greater Toronto Area and the Metropolitan Toronto core has been increasing steadily, year over year, for the past 15 years.
Demographically:
The demographic profile of the segment has been relatively stable over the past 10 years, with a notable increase in university completion as the highest level of education attained.
Psychographically:

Our catering brand has found that due to changes in consumer preference, there has been a marked and significant increase in the number of consumers preferring locally sourced and organic foods, and a slightly less positive trend in the number of consumers who identify as vegetarian or vegan.

The profile of these consumers also dovetails well against the demographic profile of the segment. Good news for our catering brand!
Remember:

Even if the size of the identified target market segment is currently a good fit with your business infrastructure and marketing mix, you should not assume that this will always be the case and vice versa.

The segment may be shrinking down to a niche size that your business has no appetite for, or may be expanding beyond your resource capacity to service properly. 4. Determine the age + sustainability of the segment
Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.
4. Determine the age + sustainability of the segment
Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.
4. Determine the age + sustainability of the segment
Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.
4. Determine the age + sustainability of the segment
Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.
4. Determine the age + sustainability of the segment
Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.
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