How do we choose a segment to target?

Choosing the right segment to target can make or break a new business venture or growth initiative. Learning from examples like Uber Eats and Cirque du Soleil, find out why it's important to segment well and how to avoid losing 30% of your revenues. This article offers theory and applications based on the perspective of a local car wash business. Let the work speak for itself: partner with the team at Profitworks to get your target segment laser-focused and cut through the noise.

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Executive Summary

 - Choosing a segment to target is important because it can help you improve competitive positioning while avoiding unnecessary competition

 - Defining your current customer segment helps you ask tough questions that ultimately can enable you to better serve and retain your customers

 - Great companies create customer segments but better companies ask for feedback and validate their assumptions

 - Most companies need to overlay segmenting criterias (like geography, preferences, and personal aspirations) to orchestrate an effective customer profile

 - Ultimately, segmenting and reaching customers will help enterprises grow and remain focused on serving customers the way they would like to be served. Otherwise, middle platform brokers may take as much as 30% of your revenues, as seen in the restaurant industry

Why choosing a segment to target is important

Choosing the right market segment can help create an improved and sustainable market positioning for your team. It also helps you strategically choose a competitive arena to operate in, which has led Cirque du Soleil to create entirely new industries and failure to do so - led to the demise of household brands like Sears. Most industries like local enterprises may feel they are not affected by poor segment targetting because they have also had a referral network of business. Yet the greatest threat is not technology or a new startup -  the most prominent risk facing local businesses is losing touch with their core customer base or failing to recognize an upcoming demographic that they could serve. In this article, we explore the strategies that can help companies segment existing customers to better serve them and ways to position themselves to new segments.

Defining your market segment

Defining your market segment is a challenging task because it forces an enterprise to try and empathize and understand who they are serving. To define your market segment, an enterprise must answer these questions.

1. Why the customer works with our team
2. What is the customer trying to accomplish with our product and service
3. What about our product or service retains the customer
4. What are things that can make the customer leave

Once these 4 questions are answered, an enterprise can create a customer segment profile. In the case of a car wash business, here are examples to each of the segment dimensions:

1. Customers choose ABC car wash because we pay attention to small cleaning and detailing issues that can cause long-term issues in their motor vehicles.  Our customers know and experience our detailed care.
2. Customers want to keep their cars in top visual form to ensure the comfort and safety of family and their own clients.
3. We keep track of the weather and communicate optimal times for cleaning so that a customer's car looks better longer. We allow customers to clean their car right after a bad rain storm or flurry before a break of great weather.
4. Price can affect our customers and limited knowledge of cleaning products may cause them to assume that every car wash is equal. Further, location and changes in commute routes will affect our business.

Forward thinking companies will create a segment profile, but great companies will take their initial sketches of their segment and test it against actual customers. Market leaders would have a conversation about each of these areas and understand their customer base by asking them these questions that they themselves may not consider. The second benefit to this is that this is an opportunity to have customers be affirmed in their aspirations - as in this example, where a customer's aspiration is about client and family comfort.

Identifying a market segment

If you are considering a new business or expanding your sales efforts, identifying new market segments to target is a prudent way to plan and supplement business strategies and market entry initiatives. Business Dictionary expands on market segmentation by approaching the topic in 5 dimensions:

Approaches to subdivision of a market or population into segments with defined similar characteristics. Five major segmentation strategies are (1) behavior segmentation, (2) benefit segmentation, (3) demographic segmentation, (4) geographic segmentation, and (5) psychographic segmentation.

What does this all mean?

Behaviour segmentation is how a consumer intereacts with your product or service. For our car wash customers, either they are reactive or proactive in how they utilize a car wash services.

Benefit segmentation is defining pools of customers based on what advantages are afforded. For our car wash customers, people enjoy the convenience and clean experience of having someone else do their car detailing.

Demographic segmentation is a classification of a customer or prospect base by age or economic standing.  

Psychographic segmentation denotes how prospects/customers view or value the service based on their worldview or cultures. For some cultures, like the European and Asian cultures, having a nice clean car is a reflection of your societal stature. Others may simply see the upsides in having a clean and well-maintained car.

Finding new ways to target existing customers

The 5 dimensions previously mentioned can be further multiplied based on any number of these common factors. For businesses that are confined to specific locations like a local car wash, this makes things simpler. Yet because industries continue to change, businesses should consider taking on a new venture mindset so as to not fail to capture opportunities or lose marketing positioning. One example that highlights this challenge is the fact that most restaurants are increasingly facing a sloping competitive position because of delivery services like Uber Eats and Foodora. Restaurant owners have lost the ability to better understand their customer's preferences. Now, dining revenues are reduced by 3rd-party platforms by as much as 30% on a delivered order, while also losing direct communication with their customers. This occurred because restaurants didn't take the time to segment and better understand their customers when they wanted more simple and immediate delivery options.

Focus on ways to add value to your existing customers by orchestraing and sequencing segmentation dimensions.

Identifying a segment is tough but well worth the sweat and trials because finding profitble target segments helps a company define a competitive advantage. Continuing on with our car wash example, if the local business previously was only able to conduct car washes on site, it may want to consider other channels to service.  Most local car washes work with residential and personal vehicle owners, yet understanding a commercial fleet owner would provide an opportunity for car washes to service large volumes of customers on a predictable basis. Logistically, a company should also weigh the increased challenges in operational complexity by offering on-site vehicle maintenance and after hours staff shifts.

Another segmentation approach is to understand how these segmentation dimensions play off one another. The behaviour of customers as they wait for a car to be detailed is idling or thumbing through magazines, while the location/geography of conventional car washes are based in the car wash's location/facility. In the traditonal flow of events, a customer has to intentionally come to a car wash, perhaps while driving to or from an errand or work. Yet if our business-savvy car wash owners enabled access to the detailing service at destinations customers visit, that would certainly increase access to customers while offering patrons the ability to do other things while they wait. One such example is offering a car wash at mall parking lots. Customers can have the convenience of dedicated and predictable parking while receiving the added benefit of a car wash.

Finding new customers to target

A common approach to innovation marketing or segmentation is utilizing existing resources in new applications. During the introduction, Cirque du Soleil was mentioned as an example of why effective segment targetting is helpful. Cirque du Soleil used something called blue ocean strategy to target a completely new segment that was previously not interested in the typical carnival circus routines. They combined theatrical drama, sound design, stage design, and did away with a star performer. This led to the reinvention of the circus for modern viewers as a premium experience unlike a music concert or live stage performance. Instead of competing with existing circuses they invented a new market. This led to them being the undisputed market leader in the market they created.

Finding new customers to target with your existing resources and equipment can be a great alternative to edge a crowded market. This is particularly impactful for our car wash owner who is finding that his market is highly competitive and also cyclical, which makes growing his business tough during the off seasons. Here are the steps to looking at how to market services to new customers:

1. Inventory the different resources on hand
   -Fixed and mobile cleaning equipment to maintain vehicles or polycarbonate surfaces.                                                                                         ---  --Staff that are knowledgable about cleaning practices and different types of odours or moulds in an enclosed space.
2. Other customers who may need property or surfaces cleaned
   -Car owners who have multiple cars and want a reason to drive their exotic vehicles. Car washes may offer a subscription plan for multi-vehicle owners.
   -Snow boarders typically go on weekend trips together. One new segment that can be targeted are groups of snow boarders returning from their trip.
   -Food truck owners may also find value in having a car wash focus on their needs as their exterior appeal often has an impact on their business.
3. Determine the profitability of this segment
   -Car owners who have multiple cars are profitable and in fact less costly to acquire repeat business since they already utilize the car wash's services.
   -Snow boarders are a seasonal crowd and may not provide the adaquate profitability as a large volume of snow boards may need to be cleaned while the alternative of self cleaning is always an option for boarders.
   -Food truck owners rely on aesthetics and apperance to win trust and customers. This is a value that could be offered by car washes and provide significant revenue.

Based on this brief analysis, food truck owners may be a profitable segment to select and target for future marketing promotions. The subtlely in marketing to this demographic is not simply providing a service but helping their business be more successfull by always presenting them in the best light as they meet with customers during lunch hour. This will allow your company to compete on best serving intangible and aspirational values that are often times more valuable than absolute cost competition. Most luxury brands appeal to this kind of mentality and can be helpful in supporting a sustainble business model rather than competiing on low cost provider services.

Growing your business one market a time

Determining which segment to target is great way to begin the process of growing your business. Yet, without experience and proven results, business owners can often be discouraged from venturing beyond their current markets or sales channels. As we've learned, however, from the restaurant industry, one cannot hide from innovation but rather should be open to experimenting and growing their sales through keen understanding of their customers and offering new ways to provide value to them.

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