Why Market Segmentation and Prioritisation is Crucial
I have been working as a consultant in Strategic Marketing and Product Management for many years now. I work with clients who are not just from the technology sector but from across a broad range of industries. I am seeing a common thread across many of these clients – the paradox of choice! How can market segmentation help?
Generally, as I start each engagement, we undertake a short capability assessment so that we can explore together where there may be gaps in the the company’s approach to what I call strategic marketing or commercial product management.
Invariably, when we chat about where they have challenges, and reflect on the capability assessment that captures all team members inputs anonymously, one of the key areas that is highlighted almost every time is lack of market focus.
Whether it is a startup or a more established business, they often are adhoc or scattergun in their approach to where they will find market opportunity.
What is a Paradox of Choice?
I have rarely come across a company that has not been relatively clear in describing the product or solution they have created. What they tend to be less clear on are the market segments that might benefit most from their product or solution. Generally, in each engagement I see one of two things happening:
- The company has a product or service but they are struggling to align this with a clear need from a broad enough market base that will help them to drive meaningful revenue – i.e they have a product or solution looking for a market
- The company has a product or service that could address many different market challenges across lots of different areas i.e. they are suffering from what I call a paradox of choice.
A paradox of choice might make us feel good because we think we have lots of opportunities to choose from. In reality having too many opportunities actually requires more effort. A lack of focus, jumping from one opportunity to the next and not targeting sales and marketing resources in the right way will not help us to maximise market opportunities that could be strategically very lucrative.
Why Market Segmentation Helps?
Taking time as a company to outline market opportunity and to assess this market opportunity through insight gathering and then through a prioritsation exercise can be hugely beneficial.
So who should perform this market segmentation and prioritisation exercise? In my view it is part of the role of a strategic Product Manager or a Strategic Marketer. The beneficiaries of this exercise are:
- The CEO – they will have a way of aligning their strategic objectives (OKRs or KPIs) with defined market opportunities
- Sales – the CEO can work with the sales team to assign realistic sales targets to validated market segments
- Marketing – the marketing team can define compelling value propositions for each prioritised market segment and drive targeted marketing campaigns
In my experience, lots of companies avoid this activity because it does require some effort and focus and it does require some experience in doing it right. It is crucial to choose the right criteria to support segmentation, to implement market research to generate insights for decision making and to get buy-in from the full leadership team in prioritising market opportunity.
What are the consequences of not doing this?
From my experience, the key consequences of a lack of market focus are:
- A sales team that are scattergun in their approach to revenue generation. Sales is an operational cost to the business and not ensuring that the sales team are focused and targeted at the right markets is a mistake
- Revenue is coming from markets that are not really aligned with the strategic objectives of the business – perhaps leading to bespoke engagements to meet clients needs
- Revenue is not being generated in a repeatable way from clients with similar challenges
- Sales forecasting is really challenging as it is difficult to predict where market demand will come from
As a senior leadership team, take some time to help the business to achieve real focus by undertaking a market segmentation and prioritisation exercise.