SEGMENTING YOUR MARKET: 10% of a watermelon, or 90% of a grape?

If I were to ask you, “What would you rather have – 10% of a watermelon ... or 90% of a grape – how would you react? Think about this, and we will conclude this piece with an answer.

All too often we define our market too broadly. This results in the phenomenon known as “biting off more than we can chew.” We cannot lose sight of the fact that as the founder of a new start-up, we have limited people and financial resources. Therefore, it is imperative that we focus on a segment of our market to start.

In the excitement of turning our idea into a product or service... into a sustainable business, we mistakenly look at the entirety of our market, adopting a marketing approach that is a mile wide and an inch deep. When focusing in on a more manageable segment, we need to adopt an approach that is an inch wide and a mile deep.

How do we segment a market?

There are several variables we can choose from to develop our target market segment. These include geography (city, state, time zone, country, etc.), demographic variables (age, gender, income, family size, etc.), psychographic variables (personality, lifestyle, values, etc.) and behavioral variables (benefits sought, product usage rate, brand loyalty, etc.)

What are the characteristics of a successful market segmentation?

To test whether you have segmented your market successfully, look for these characteristics:

· Homogeneity of needs/wants appears within the segment (need/wants are pretty much the same)

· Heterogeneity of needs/wants exists between the segments (needs/wants are different)

· Differences within the segment should be small compared to differences across segments

· The segment should be distinct enough so that its members can be easily identified (based on variables described above)

· It should be possible to “size” the segment (how big is the segment in numbers?)

· It should be large enough to be profitable

Select a market segment that represents the best prospects for successful entry. For example, avoid high growth segments with low barriers to entry. You’ll find a flood of competitors already established or hot on your heels. Also, avoid attacking too many segments simultaneously. Again, biting off more than you can chew.

In our opening question above, the watermelon represents the established market already flush with competitors. The grape represents a small segment upon which you can focus. There may be no competition there yet, so you have the opportunity to penetrate that segment, establish yourself, dominate it, and then look for your next “grape,” bringing along the business you already have and expanding segment by segment.

By adopting this approach, you lay the groundwork to position your start-up as the expert in your specialized area and building a successful, sustainable business.