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Creating target customer segments (referred to as segmentation) is the process of dividing the market for your products according to similarities between the market’s subgroups. The purpose of segmentation is to help startups identify their most attractive market segments so they can focus their marketing resources on those customers.

How to segment your market

Segmentation involves developing and ranking application scenarios to identify the most attractive customer segments in a given market. The following flow chart illustrates the process. A full explanation is provided below.

Step 1: Create a list of target segments

Generate user-focused scenarios to create a complete list of potential niche target segments. (You may wish to read our separate article on Target customers).

Step 2: Narrow the search to the most promising target segments

Rank the scenarios according to the Chasm-crossing and/or Bowling Alley criteria (for further details, refer to the technology adoption lifecycle [TALC]):

  • Is your economic buyer accessible and well-funded?
  • Does your economic buyer have a very compelling reason to buy (CRTB)?
  • Do you offer a viable whole-product solution?
  • Will you face a lack of established competition?
  • Is there positive follow-on potential?

Note: Repeat Steps 1 and 2 until you identify a single target segment.

Step 3: Select the target customer that offers the greatest potential

The customer should be attractive on its own merits and provide the best follow-on market potential based on developing a product strategy and customer references. Each customer represents a potential market segment. Use a market development strategy checklist to develop a plan to win the lead segment.

Step 4: Validate current thinking and assumptions using market research

You may choose to conduct research prior to market planning or at the same time your product goes to market. Testing your strategy enables you to test the assumptions you made before launching a new market development initiative.

References

Wiefels, P. (2002). The Chasm Companion. New York: Harper Business.
Image adapted from The Chasm Companion.