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Rule #4: Segment, segment, segment

One of my favorite recreational activities is long distance hiking.  When I lived in Washington State, my buddies, my children, and I would set out on multi-day hikes through the mountains.  You can’t hike a whole trail at once.  It’s a process of climbing up, over a pass or across a peak, and then down the other side, across a valley, and back up another peak.  You conquer a long distance trail, one peak at a time.

That’s what Rule #4 is all about.  Conquer your market one segment at a time.  Segmenting the market means dividing an overall market up into a number of smaller, more easily attacked, markets.  Focusing on a market segment allows more targeted messaging, and more effective use of resources. It also reduces the costs of going to market, and results in better market understanding of the segment you’re attacking.

Fundamentally, conquering a market one segment at a time is much easier than taking on the whole market at once.

There are a lot of different models you can use, depending on what your product or service is.  One popular model is to segment along vertical market lines.  Vertical markets are specific market segments focused on specialized industries – real estate agents, lawyers, and flower shops, for instance, might all be vertical markets. If, for example, your product was a word processor, you might choose to be the best word processor for real estate agents first, rather than trying to take Microsoft on broadly.  Once you’ve conquered the real estate agent market, you might try lawyers next, and so on.  Eventually, by slicing off one market at a time, you might reach the share that Microsoft has.

Another segmentation strategy is to choose a market demographic.  This is a popular tactic for consumer products.  If you were responsible for marketing a new brand of soap, for instance, rather than try to be the soap product for every soap user, you might try to be the soap product for teenaged boys. You would try to create a product that appeals to that specific market demographic.  In the Voice over IP space, where Iotum’s business is, you see this kind of activity all the time.  Some companies insist that their VoIP product needs to have a plastic handset.  Others insist that building a VoIP product around an instant messaging model is the future.  Both are right.  The demographic requiring plastic handsets are typically 40-something knowledge workers.  The IM generation are my kids.

Finally, another major category of segmentation is psychographic, or behavioural, segmentation.   In this model you try to identify groups of people with similar behaviours, and reach those people.  This is one of the most difficult segmentation strategies to execute, but also the most profitable.  A great example of this strategy is Microsoft’s influencer model, which was in use while I was at the company in the mid 1990’s.  Microsoft segmented end-user business customers into “Influential End Users”, and “General Business Users” – or IEU and GBU.  IEUs have three characteristics:  (1) They are technology enthusiasts, (2) They buy software for themselves, and (3) They give more advice than they receive  The advantage of identifying and marketing to the IEUs was that these influencers introduced many others to the technologies which they were impressed by.  It was the viral marketing model, long before viral marketing became the hot topic it is today.   Microsoft marketed to those influencers by focusing marketing efforts on user groups, and industry and enthusiast publications.

Every business has to segment.  Most choose vertical market segments, because these are the most easily identified.  An extremely effective strategy is to evaluate several vertical market segments, identify which are most likely to purchase your product, and then target the influencers in each segment.

Segment, segment, segment, and you will conquer the market.