Better Business: Top tips on segmentation

“If you’re not thinking about segments, you’re not thinking,” said former Harvard Business School professor Theodore Levitt. Business consultant Steve Billingham puts the theory to the test…

Endless column inches have been devoted to ‘segmentation’ over the last couple of years as advisers have wrestled with the challenges of identifying their most profitable client segments, or niche, and the prospect of disengaging sensitively and compliantly with lower value clients.

Client segments can be as broadly or as narrowly defined you wish. Males are a segment. But so are blond, left-handed females under age 30 who live in Guildford and drive Volvos.

As this example suggests, segmentation can, to quote Tony Putman, the marketing guru and author, “be an endless exercise in accomplishing nothing much” unless you understand why you are doing it.

Why segment

Theodore Levitt the renowned author and professor at Harvard Business School once said: “If you’re not thinking segments, you’re not thinking”.

• Some segments are better prospects for your services
• Some segments have a greater need for your services
• Some segments will take more effort to nurture, build and maintain relationships with
• Some segments will be more profitable than others

Again to quote Tony: “You want to dig your well where you have the best chance of finding water with the least amount of digging”

Key characteristics

So, what are the key characteristics of an attractive and potentially profitable segment or niche?

They have the means: they have enough money to both get value from your services and afford to pay your fees. Anything else and you both lose.

Willing to pay a premium price for a premium service: some people will always buy on price but, on the whole, you’ll enjoy better results if you focus on people who recognise quality and are willing to pay for it.

Abundance: There are enough of them to capture a level of enquiries (in response to your marketing activity) that is sufficient to sustain your business (or new business requirements).

Easy to communicate with: It will be easy for you to reach this segment to communicate your marketing messages.

You already have (or can easily build) credibility with them: You have to get prospective clients to take what you have to say seriously. You are clearly at an advantage if that credibility is already established.

They already know that they need what you offer: Whilst it is possible to get people to see a need they didn’t know they had, you are pushing against an open door if they already know they have a problem that your services can solve.

Use these characteristics to evaluate the potential of each niche that you are considering focusing your marketing efforts on. The niche doesn’t have to meet all these criteria, but if it isn’t meeting four or five of them, there’s probably a better option elsewhere.

Steve Billingham is owner and director of Steve Billingham Consulting.