Market Segmentation

So today’s class was all about Market Segmentation which is the first bit of a 3 part process called STP (Segmentation, Targeting and Positioning).

The idea is that you segment your market and develop consumer profiles for each target segment. There a whole bunch of ways that you can segment a market by:

• geographic (important if you’re a pizza shop, no point in targeting markets outside your delivery area)
• demographic (income or age or stage in the family cycle)
• Psychographic (grouping people based on psychological or personality traits which is important for fast-moving consumer goods in a supermarket: is your target market an impulse buyer or a shopping list maker)
• Behavioural (are they a first time user or a repeat, are they buying from you in a professional context or a personal)

It’s also really important to understand what the market it. When you’re segmenting a market, it’s not just the users of your product, it’s anybody that can use it. The example we were given was fruit juice. The company in question sold fruit juice but had no segmentation of the market. They had a range of products, different flavors, different pack sizes but no real understanding of who wanted them and why. So they sat down and figured out what there main consumption groups were. Turns out there were 3 major times that people consumed juice: at breakfast; out-of-the-home as a snack/lunch drink in a cafe; after school when the kids come home and raid the fridge for anything that will tide them over until dinner.

Then they pushed deeper. Within the breakfast category the Juice company developed consumer profiles, sort of an amalgamated profile of the characteristics of that purchaser/user. There were those consumers who were looking for a meal replacement, others were looking for a heath product and another segment was looking for taste and variety. So the company developed a product for each of those segments. The first one turned out not to be a juice at all, it was a non-juice breakfast meal replacement drink, the second segment got several juices fortified with vitamin A, C & E and folate to capture that health market and the final segment got interesting blends of exotic juices and seasonal flavors.

Every business sells something and for someone with my background, manufacturing engineering, where the selling of the product is quite remote from the execution of the project there’s always the risk that your designers might not have any idea what it is that the consumer actually wants. Which is why marketing is important internally for an organisation. These are the guys who should be helping the designers and the engineers (or the lawyers, or the chemists) understand who the end user is, what motivates them and what their needs and wants are. I’ve never met a designer who wanted to make a crap product but it happens all the time because the communication between what the user wants and what the designer thinks they want isn’t clear (there’s the additional factor of what management will allow them to have but that’s something that marketing should be managing as well). Thoughts?

The Value Creation Process or “Mmmm Shiny!”

Disclaimer: this post might seem really obvious to people from a marketing background but having come from an engineering/manufacturing background, I know this isn’t applied as universally as it should be so marketers, jump to the challenge at the end, engineers, stick around and read my cautionary tale!

We’ve been doing a lot of case learning in class so I’m going to try presenting in that manner… At university some friends and I started an engineering consulting company (3GEngineering.com.au) which picked up project work, mostly in the robotics/automation fields, for companies that wanted new or extended functionality for in-house products that they didn’t have the expertise (or time) to do themselves.

It was really good fun, we got involved with a bunch of interesting projects, from prototyping cars to robotic inspection units and a whole bunch in between. But it was project work, things might be busy for a month or two on a job then nothing for half a year, so a couple of years ago we decided to try our hands at an online store. Steady retail sales would augment the cyclical nature of project work (or so the theory went).

So we had a meeting to figure out what we wanted to sell. Both guys were building houses at the time and being engineers, lighting was a key component of the build. In cupboard LED strips, under-bench lighting, recessed wall floods, we were deep into it. For those that haven’t been bitten by the “Mmm Shiny!” bug this is a very expensive pastime, in the order of a coke addiction but at least with something to show for it at the end (which isn’t an eroded septum).

Being the resourceful gents that we were we got some quotes locally and then, after recovering from the pricing shock, went online and found what we wanted, sourced direct from China for a third of the cost. After getting hold of some samples to QA we settled on 2 suppliers and bought enough lighting gear to illuminate a small town. Installation commenced and I can modestly say, it all looked brilliant (no pun intended). Lots of people commented and several asked to be hooked up and  so we thought, “Ah ha! Here’s our retail store product.”

So we setup Brightify.com.au to import the gear and onsell to home users and tradesmen. We found a point of differentiation: if you buy it yourself from china, you have to cut it to length and solder it up yourself, with ours you specify the length and we prep it for you so all you have to do is remove the stick tape on the back and press it against the wall. And we were pleased with ourselves. All in all, about $20k invested in stock bought plus setting up the website and time and effort.

18 months later: 3 sales totaling just over $1000.

Somewhat underwhelming is probably being a tad generous… 3G’s was still rocking along so Brightify just got pushed into the ‘too-hard’ basket and we focused on other things where we knew what was wrong and were motivated to fix it. So during this weeks marketing class our lecturer presented us with two models for value creation which really resonated with me.

The first was the Traditional Physical Process Sequence which looks something like:

Basically it can be summarized as: get your product -> find someone to sell it to.

It’s been a successful model, historically it’s how a lot of stuff has been sold but the killer for this model is choice. It works really well when people don’t have a choice (because you’re the only widget seller in the area and they need a widget) but with the globalization of the marketplace and the internet giving us access to a range of sellers, like us with the LED lights, the buyer is no longer constrained by geography (there are exceptions to this, say where it’s more expensive to ship them than to buy them locally). And choice means that people generally won’t just “make-do” with a product that doesn’t meet their needs (especially if it’s an expensive product) because they can get something that suits them better.

So the model that  marketing is pushing the rest of the process chain towards is this one:

This one is more like: figure out who you want to sell your product to -> find out what they want -> make it and sell it to them.

In my mind, the big difference is that the second process is driven by the consumers wants and needs, not the product. The product is just the vehicle. It’s a big perspective shift for someone who’s always been product driven but this is the kind of culture you want to build into a company that makes consumer goods, particularly ones that are susceptible to trends/fads.

So back to the Brightify story. We assume that our customers (tradesmen, DIY-ers) want our product but we have no real evidence that they do. We also treat them all the same (ie: we haven’t segmented our customer market) so we have no idea how to advertise our product effectively to each specific market. So right now I’m looking at this and cringing inwardly and wondering how I could have been so oblivious but to their credit, the other owners have looked at this and said “Looks good in theory, but we’ll believe it when we see the results. We’ll pony up another 10k for you to have another go at it. Show us that your MBA has taught you something”

So that’s my challenge: I’ve got $10k to take what we have already at brightify and in in 12 months, build turnover to $100k. Any suggestions on what to do next?