Creative Market Segmentation

Several years ago I was in the market for a house. We had relocated to Vancouver and decided to rent until we were more established in the new city. But with two small children and two growing start-up businesses, it was time to put down some more permanent roots. As we were looking at buying, I found myself closely analyzing the options for contractors and interior designers.

I was a second time home owner with a need to buy services and a strong belief in the value of paying for someone’s expertise. What I learned is that very few companies were specializing enough in their marketing to target me directly. This got me thinking…could your company be losing business because of the way you have segmented the market?

Segmenting your market involves identifying all possible consumers for your services and then developing “subset services” based on their unique buying behaviours, values, and demographics. Business owners are always on the quest for more business – more profitable business.

If you have been in business for a number of years, it may be time to revisit your market segmentation. Small business owners often spend more time working in the business than working on the business, so once they have a segmentation that works for them, they stick with it forever. Markets, however, change and a different perspective on your prospect base will open your eyes to an entirely new roadmap to profit.

Consider residential interior design firms. They have the dual challenge of finding new markets and overcoming the public’s perception that anyone can do what they do, regardless of experience or education. Yet, designers that want new clients are approaching the residential market as only one segment, attempting to find new clients through home improvement tradeshows and features in design magazines. These channels work, but they are also saturated.

There are many options and the key to unlocking them is identifying a unique market segment where a) design services would provide value and b) an opportunity can be generated to explain what that value is.

Rental accommodation design is one alternative. There was a period in Vancouver when laneway housing was thought to be a new major segment and some design firms began to market to this directly. But what about rental suites? A designer that can specialize solutions for rental accommodations can easily quantify the value of their services (our designs will achieve an extra $300/month in rent) and should be able to find this customer through “for rent” advertising.

An industry that has seen dramatic changes to its market landscape in the past few years is design / build contracting. Generally, I’ve found that design / build firms are trying to appeal to everyone. They claim they can design and build your 10,000 square foot house from an empty lot, or renovate the powder room in your existing home, or anything in between. They want to appeal to everyone. Of course, when times were good they’d prefer to win a whole house job and the powder room work is not something they actively sought (it was just used to fill holes in their work schedule).

But a slowdown in the housing industry causes these companies to seek more small projects as a (in one contractor’s words) “necessary evil.” What would happen if a design build firm re-segmented their market to focus on sub-sets of what the consumer wanted, rather than what the company preferred? If clients are looking for a company capable of giving their powder room a facelift, on time and on budget, is there a way to exclusively do this kind of work profitably? (Of course). Is this market segment already full of companies specializing in this one area? (Not even close).

By slicing the market from a different angle, such as rental accommodations or bathroom renovations, new untapped potential reveals itself. A large piece of a small pie is often more profitable than a small piece of a large pie.

Can your team identify an untapped market space to create a new market segment where there wasn’t one before? Allocate a half hour from your regular management meeting for brainstorming this topic. Assign pre-work to the team to read this article and have each come prepared with three alternative segmentation strategies to present. Then, let the ideas flow and see what transpires.

Bellrock is a management consulting and change management firm where remarkable is expected. If you found this article valuable, don’t be stingy. Share!