Smart marketing starts with smart segmentation. Knowledge of your market shapes your product positioning, branding, communication claims, sales approaches, channels, pricing, and packaging. Necessary knowledge of your target segment includes size of market, growth rate of market, demographics, customer needs, competitive offerings, purchase attitudes, and mind-sets.
There are endless ways to segment markets. Some segmentation approaches are more relevant for one marketing company than another, but there is one segmentation scheme that is helpful to all marketers, from the one-person firm to the multinational company.
All markets segment into four types of customers:
Sophistication is based on the customer’s level of experience buying and using your own type of product or service. Generally, the more experienced the more sophisticated.
It is the marketer’s job to categorize every customer and every prospect as sophisticated and unsophisticated. The categorization is typically done after a needs-analysis of the customer. A sophisticated buyer or company is not better managed than an unsophisticated company. Some companies invest in sophistication; others deliberately do not. Some companies are sophisticated buying one product and unsophisticated buying others. You may not always be right, and the customer may change its sophistication level, but into one or the other of these two categories the customer must go.
The marketer must create its own definition of “Okay’ and “Not Okay.” For example, “Okay” might mean the customer is local, pays its bills, values technical service, has good managers, is growing. “Not Okay” might mean the customer is rude, can’t make a decision, is too expensive to serve, haggles over every invoice, is privately held (or publicly owned). Each customer and prospect must be labeled “Okay” or “Not okay”
1. Sophisticated/Okay customers are usually bigger companies. They know what you sell and how to negotiate. Your margins on sale are lower, but the size of the sales are often large.
2. Unsophisticated/Okay customers generate lower revenues but higher margins. These customers rely on the seller for advice, tech service, and other support, and are willing to pay for it.
3. Sophisticated/Not Okay customers represent a risk for the marketer, If you decide to sell to this customer, be prepared for low margins, an arduous decision-making process, delays in getting paid, and employee burnout.
4. Unsophisticated/Not Okay customers or prospects are to be avoided. This customer does not appreciate your product, does not respect you, is not loyal, and can be costly. Legal fees are not unusual.
Once you have segmented your customers and prospects, you can build a plan on how to sell them, how to service, how to set billing terms, how to allocate people. Forewarned is forearmed. This segmentation system forewarns you and directs you properly.
Love those “Okay” customers.