Columns

Big Ideas for Small Business Managers : Identify your target accurately: you’ve won half the game

30 Nov 2015 - {{hitsCtrl.values.hits}}

Knowing and understanding the customer needs is at the centre of every successful business, whether it sells directly to individuals or other businesses.

Once you have this knowledge, you can use it to persuade potential and existing customers that buying from you is in their best interests.

Before you can begin to sell your product or service to anyone else, you have to sell yourself on it. This is especially important when your product or service is similar to those around you. Very few businesses are one-of-a-kind. Just look around you: how many clothing retailers, hardware stores, air conditioning installers and electricians are truly unique?

The key to effective selling in this situation is what marketing professionals call a ‘unique selling proposition’ (USP). Unless you can pinpoint what makes your business unique in a world of homogeneous competitors, you cannot target your sales efforts successfully.

Pinpointing your USP requires some hard soul-searching and creativity. One way to start is to analyse how other companies use their USPs to their advantage. This requires careful analysis of other companies’ ads and marketing messages. If you analyse what they say they sell, not just their product or service characteristics, you can learn a great deal about how companies distinguish themselves from competitors.

For example, some airlines sell friendly service, while others sell on-time service. The perfume manufacturer sells luxury, while the supermarket sells bargains.

Segmentation
Because your individual customers have differing needs, it will be easier to give them what they want if you divide them into groups sharing similar needs and treat each group differently.

This is known as market segmentation or target marketing. It involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments. It can be the key to attracting new business and making your small business a success.

The beauty of market segmentation is that it makes the promotion, pricing and distribution of your products and/or services easier and more cost-effective. It provides a focus to all of your marketing activities.

So if, for instance, I open a catering business and plan to offer catering services in the client’s home, instead of advertising with a newspaper insert that goes out to everyone, I could target my market with a direct mail campaign that went only to particular residents.

While market segmentation can be done in many ways, depending on how you want to slice up the pie, three of the most common types are:

Geographic segmentation – This involves segmenting the market based on location. Home addresses are one example, however depending on the scope of your business this could be by neighbourhood, city, electorate and province. Geographic segmentation relies on the notion that groups of consumers in a particular geographic area may have specific product or service needs; for instance, a mobile book lending library service provider may want to focus their marketing efforts in a particular suburban area that has a high percentage of seniors.

Demographic segmentation – This is based on measurable statistics, such as gender, age, income, marital status, education, race, religion, etc.
Demographic information is crucial for many businesses. For example, if you are an exercise equipment store vendor, you might want to target your marketing efforts based on the results of poll reports, which indicate that muscle building workout equipment is the choice for people below the age of 45 (particularly in the 18-34-year-old age range) while those aged 50 and older prefer simple treadmills or exercise bicycle.

Psychographic segmentation – This is based on the theory that the choices that people make when purchasing goods or services are reflections of their lifestyle preferences or socio-economic class. Psychographic segmentation divides the target market based on socio-economic class, personality, or lifestyle preferences. The socio-economic scale ranges from the affluent and highly educated at the top to the uneducated and unskilled at the bottom. The lifestyle classification involves values, beliefs, interests, etc. Examples include those who prefer an urban as opposed to rural or suburban lifestyle, or are pet lovers or have a keen interest in environmental issues.

Advantages
A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers.

Cost reduction – The old standby of mass marketing in an attempt to capture with widest possible cross-section of consumers produces mixed results and runs up enormous costs. Market segmentation, by contrast, limits the field of customers and allows a business to direct financial resources into specific communication channels that reach out directly to consumers in that market segment. A company that makes precision machining tools would waste money marketing placing ads in general interest magazines, as the average consumer has no use for precision machining equipment.

Product development
Focusing in on a specific market segment allows a business to tailor the existing products and services to meet the particular needs of those customers. Segmentation also allows the business to design future products and services to address the exact needs of the target market. Consumers in the market segment also can provide input for proposed products, through focus groups or surveys, to help a business determine if the product provides value to them.

New markets – Market segmentation can help a business identify underserved markets, which provide a golden opportunity for a business to establish itself as first in the market. The businesses that first offer a product or service to a market tend to control a commanding market share even when competitors move in.

Business focus – Market segmentation also encourages the business to focus, as trying to serve too many markets or provide too many products dilutes the business brand. Catering to a narrowly defined market means the business must narrowly define its offerings to suit those customers. The restaurant that serves only high-end Italian food to dine-in customers attracts a market segment that seeks a specific product and experience while allowing the business to improve its core competencies.

Customer retention – By using segmentation, customer retention can be encouraged through the life cycle of a customer. Titan is an example of products which are planned through the life cycle of a customer. From fast track to Sonata and the high range watches, Titan has them by price segment as well as life cycle segment. Thus, a watch is available for any customer who enters a Titan showroom, whatever be his age.

Increase profitability – Segmentation increases competitiveness, brand recall, brand equity, customer retention and communications. Naturally, once your focus increases, your competitiveness in that market segment will increase. If you are focusing on youngsters, your brand recall and equity with youngsters will be very high. Your market share might increase and the chances of a new competitor entering might be low. The brand loyalty will definitely increase. Thus, market segmentation also increases competitiveness of a firm from a holistic view.

(Next week more on market segmentation)
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at [email protected])

Columns

Big Ideas for Small Business Managers : Identify your target accurately: you’ve won half the game

Most Popular Articles

Struggling Pizza Hut chain to be sold for $2.7bn

Iran war casts fresh shadow over Sri Lanka’s recovery

‘Two leaves and a bud’ becoming fiction as climate change hits tea: Dilmah Chief

Market stages strong recovery as ASPI surges over 740 points on renewed buying interest

Middle East conflict puts global spotlight on Colombo Port, World Bank tells government

Early rally fades as profit-taking leaves market mixed

Latest News

TPA raises land rights, resettlement issues with Australian High Commissioner

G.C.E. O/L examination results released online

Fire destroys processed tea stock at Elpitiya tea factory

Italy cancels US visit after Trump says Meloni ‘Begged’ him for photo

Delayed peace deal weighs on CSE as profit-taking pulls indices lower