You can’t be everything to everyone. Every start up has heard that, and it’s true. As a start-up, you have limited resources – time, people and money. You need to be wise about how you allocate those resources and where. One key exercise to help you appropriately allocate your resources is market segmentation.
Market Segmentation is the process of identifying unique segments of an addressable market, with the ultimate goal of being able to determine whom your target market (or that ideal customer) is. The market can be sequentially whittled down via the market cascade of:
Total Addressable Market à Served Addressable Marketà Target Market, where:
- Total addressable market – all potential customers/segments
- Served addressable market – customers/segments that align with your capabilities and value proposition
- Target, or ‘go to’ market – the segment BEST aligned with your value proposition
Recall that a value proposition is about the benefits you provide to your customers. Employ market research to determine if what you perceive as a benefit to your customer is indeed a benefit. In-depth understanding of the value you offer will greatly assist in aligning your product to the appropriate target market.
The process of market segmentation provides rich information on the market and allows you to:
- Examine opportunities
- Quantify opportunities (e.g,, sales, revenue)
- Inform R&D
- Assess the competitive landscape
- Understand market complexities (e.g., buying/purchasing process)
Based on this in-depth information, you can prioritize customer segments, and identify your target market. Further, you are able to develop a strategy focused and specific to that target segment with appropriate product positioning. You may also identify strategies and positioning for follow-on markets, if applicable. This step-wise determination of where your value best aligns with customers ensures that you are appropriately allocating your resources to the segment that will allow you to get the greatest ‘bang for your buck’ without draining the bank.