What is market segmentation - Important steps market segmentation

 

It is the first step for the success of any startup.

• Generally, entrepreneurs are so happy with their ideas that they feel whatever they are doing is right or whatever they are thinking is right. They wear glasses and start thinking from the perspective of their companies only.
• But your startup will only succeed when you will start looking from your customer’s perspective.
• Keep the customer at the center and that is why market segmentation is done so that from day one, your focus remains on the customer and not on your company.
• Whatever you want to achieve, ultimately, you need to create value for the customer and that is why market segmentation is done.

First of all, you need to ask an important question from yourself. This is a critical question for a successful startup. The question is:

What is the single necessary and sufficient condition for a business 

• It means you will have to figure out a single factor that is important for the success of your business. You can give various answers like customer, market, product, marketing, sales, HR, etc.
• But, you need to give only one answer, i.e. paying customers, which are the customers who will give you money. This is the single necessary condition for the success of your startup.
• A startup becomes successful when you get a paying customer and not just a customer.
• Therefore, you will have to solve a burning problem of your customer for which he gives you money.

• It means that a startup does not begin when you get a good idea, hire few people, and then hire some developers, make a website, and launch a mobile app. A startup begins when you fulfill an unmet need for a segmented market.
• This means that either no one is fulfilling that need of the customer or if someone is fulfilling that need, the customer is not satisfied and need a better player in the market and due to which you are getting the entry in the market.
• Always remember, do not start a startup only with enthusiasm, start it to cater to the unmet need of the market segmentation.

Key Note #2: Steps important for market segmentation

1. Create a new market that you can dominate with your innovation:

• You start a startup because you want to innovate or disrupt something. Otherwise, you can also open a saree shop, which is also considered as a startup. But, fundamentally, the definition of a startup is linked with innovation and disruption.
• For market segmentation, you will have to find a new market that you can dominate.
• By domination, it does not mean that you will get 100% of the market share on day one.
• It will happen very rarely that you have created an innovation, which does not exist in the market, for which a huge customer base is already ready to whom you start selling the product.
• As this is very rare, so, you need to find a unique market that you can dominate with your innovation or startup idea. This market may not be big but should be unique.

2. Don’t be blinded by customers:

• A lot of entrepreneurs fail because they do not focus on this point but you should focus on it.
• Sometimes, entrepreneurs get blinded by their first 100 paying customers. Blind does not mean that you keep serving these 100 customers continuously. These customers put a blinder in front of you. As a result, you start thinking that they are paying you money, so, whatever they need is the right business.
• This is a critical pitfall in which every entrepreneur falls.
• You should not create your business on the basis of the first 100 paying customers. These customers are a good signal for your business.
• For example, if you are running a B2C business, then till you get the first 1000 customers, you should consider every customer as a signal and not as a trend. It will only become a trend once you get your first 1000 customers.
• On the other hand, if you are running a B2B business, then till you get the first 100 customers, you should consider every customer as a signal and not a trend.  
• The pattern is formed from the trend and not from the signal. Signal just signifies that you are getting a good amount of money and people are interested in consuming your product.

Key Note #3: Failure points of the market segment

If you are unable to segment your market, 2 important failures that you may face are:

1. Selling to everyone:

• It may happen that you have started selling your product to whosoever comes to you and have started considering them your market.
• At times, entrepreneurs feel that the whole market is their market. For example, if you open a chemist shop, you will feel that all the people living in that area may require medicine at some point in life, and therefore, the complete market is yours.
• The thought is good but it does not happen this way.
• You can only come out of this pitfall if you segment your market properly.

2. The China syndrome:

• Many entrepreneurs make use of excel sheet to calculate big numbers and feel good about it.
• They think as per the calculation on the sheet if they take Rs. 1 lakh from 10,000 people or take Rs. 10,000 from 10 lakh people, they will make a big company.
• This mathematics is known as Chinese mathematics or China Syndrome and looks good on the excel sheet but actual business is not formed in this way.
• Therefore, market segmentation is important as it will give sanity to your excel sheet and business plan and you will be able to see that the whole market is not yours.
• You will not be taking Rs. 10,000 from 1 lakh or 10 lakh people but will be taking Rs. 2 lakh from 10,000 people or Rs. 10 lakh from 10,000 people as they are your market segment.

Key Note #4: Example of the market segment

• For example, CEO of Patanjali, Acharya Balkirshna said that they had 1,100 SKUs (different products) and today their product range is only 800.
• This is not because Patanjali has less money or it is going to shut down, but because the team of Patanjali understood that they have to do market segmentation.
• Therefore, you need to focus on your critical customers. You also need to identify which of your product is becoming your most valuable product.
• As a result, the famous toothpaste of Patanjali is sold by its name ‘Dant kanti’ and not ‘Patanjali Dant Kanti’ as the product has made its own market.
• When such big companies like Patanjali segment their market, it becomes more important for you to segment it too as it is a big company and can take a financial hit but you are starting a startup and won’t be able to take a big financial hit.

Key Note #5: How to do market segmentation?

1. Brainstorm:

• It means that you ideate with people.
• Let us assume that your business idea is clear and you know about your product/service.
• You have 5 to 6 big markets in which you can either sell your product or deliver your service.
• If you are a web designing company, your market can be anywhere in the world. You can design the websites of people in the USA while sitting in India. For this, you don’t need to travel physically.
• On the other hand, if you make rice or have a manufacturing setup, then your market can be in India and you can also export your products. But, you will have to first define your market because today, you are a startup and not a business of Rs. 50 crore that is trying to reach Rs. 500 crore.

2. Narrow down:

• You will have to narrow down the list of 5 to 6 key market segments and figure out 1 market segment.
• You will have to start with a single market.

3. Primary research

• You can narrow down your market with the help of primary research.
• Primary research does not mean that you make a Google form or survey form, distribute these forms to 1000 people, and start a business on the basis of the survey results you got.
• Primary research means meeting your customers physically, over a call, or on a video call as it is important to have one-on-one screen time with the customer.
• The more you conduct the primary research with your customers, the better it is.
• Before starting a startup, invest 4 to 5 weeks in conducting the primary research and understanding your customer deeply.
• The whole concept of market segmentation is to know your customer.

Key Note #6: Market Segmentation – 7 Steps

Here is a list of 7 steps or questions through which you will be able to do market segmentation:

1. Is the target customer well-funded?

You will have to figure out whether the prospective customer has the money to give you.

2. Is the target customer readily accessible to your sales force?

• Check whether your potential customer is accessible to your sales team, which may include your telecalling team, on-ground sales team, or digital marketing team.
• It should not happen that the sales team is unaware of the targeted customer and you keep on giving them a salary for 6 months to 1 year and think that they will reach the targeted customer someday.

3. Does the target customer have a compelling reason to buy?

You will have to find out if your targeted customer has any compelling reason to buy your product or take your service and if he is excited to avail your product.

4. Can you deliver a product today with the help of partners?

• At an early stage, when you are short on money, you may not able to make the complete product.
• For example, you may complete the product but you don’t have money for packaging or have the money to create only half of the technology.
• In this case, you can partner with people to give your customers a complete product.

5. Is there competition that can block you?

• You should know if there is someone in the market who can block you the minute you enter the market.
• If yes, either address the completion before starting the startup or get something better than him in the market.

6. If you win this segment can you penetrate other segments?

• For example, if you define any segment in the market and get a larger market share of it, now, you will have to see whether you can enter other market segments with the help of the current segment.

7. Is the market consistent with the goals and passions of the founding team?

• This means that if your team or other co-founders really have the passion to serve this market or you are just driven by money and are only concerned about making it.
• In your startup journey, you will see both good and bad times. Your bank account may have money at times or do not have any money. Therefore, you will only be able to sustain when you will have a lot of passion and wish to do something good for the customers.

Massive Action Plan

You have to perform 3 tasks:

1. Make a list of multiple potential markets:

First of all, write down 10 to 12 market segments as per the market you wish to target.

2. Narrow down:

Narrow down 5 to 6 key market segments.

3. Primary market research:

Sit face to face with the customers and talk to them to reach a single market segment.

These 3 steps are non-negotiable and after performing them you will be able to define the right market segment.

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