This time we are going to look at the importance of market segmentation from the eyes of Bada Business Professor Paritosh Sharma in the course “How to Start a Startup.” This analysis is essential in developing a solid foundation in business. This course includes 24 other videos which have been meticulously put together to enable the entrepreneur achieve his or her objectives in business. Market segmentation is one of the primary things that every business person has to learn in order to make a success of his or her business.

Key Note #1: What is Market Segmentation?

Market segmentation is the first and most strategic approach toward the achievement of success in any startup. It guarantees that your business remains on track and focused on the demands and needs of the client.

Golden Statement : “Startups see success when they look through the eyes of the consumer and not from the company’s angle”.

Most entrepreneurs get too carried away with their concepts that they completely forget the customer’s angle. They presume that every strategy they are implementing is acceptable from the company’s standpoint. Your startup will only achieve success when the major focus is directed to the people who matter most: the customers. Creating value for them is what matters. This encapsulates the concept of market segmentation.

A question of utmost relevance for every entrepreneur is: What is the necessity and the only sufficuent condition for a business?

The market, product, marketing, HR and so on could offer possible answers, but the right one is paying customers. When customers are ready to pay for your product or service is when a startup becomes successful. Hence, identify a pain point of your customers and offer a solution that they are willing to pay for. Golden Statement A startup does not start with hiring people, building a product or developing an application. It begins at the moment when you respond to the customers’ need that has not been met yet. This implies a startup does not get started on having a brilliant idea or commencing a product, it commences from identifying an unfulfilled customer need, one that either has no solutions to it or the solutions provided is not sufficing.

Key note #2: Crucial Steps for Market Segmentation

Establish a New Market You Can Rule Over

To conquer in market segmentation, you need to create or improve an existing market. Opening a local business store like a corner shop does not qualify you as a startup entrepreneur. Startups are a result of innovative ideas so your aim should be to establish a fresh market that you can rule over with your offerings.

In as much as ruling a market does not translate to controlling it with 100% market share, it does, however, mean finding a segment that you can easily be differentiated with. This market may not be a large one, but it should be small enough to allow your new startup to create a considerable impact.

Avoid Being Overshadowed By Initial Customers

Most entrepreneurs fall into a trap of concentrating too much on the initial, paying customers. While this may be some mark of validation, it is not helpful to keep employees focused on the bigger picture. Having paying customers usually indicates that a business is on the right path but it is not a trend until there are hundreds or thousands of paying customers.

As an example, picture a B2C (business-to-consumer) scenario. Assume every customer is a signal until you gain your first 1,000 customers. In a B2B (business-to-business) context, this figure is likely nearer 100 customers. Commonly identifiable patterns only become visible after significant customer acquisition.

Third Important Point: Weaknesses in Market Segmentation

Vertical: Anyone and Everyone

One of the weaknesses is treating the whole market as a single customer. Most entrepreneurs fall in the trap of believing that their product can reach everyone. Take the example of opening a pharmacy. You would assume that every person in the vicinity would at least need some medicine at some point and therefore almost the entire market is available to you. Unfortunately, this is not the case. This is where market segmentation becomes important for identifying and understanding the precise target market.

The China Syndrome

This happens when an entrepreneur puts together a business plan that is not feasible because it is based on big numbers that can easily be retrieved from an Excel sheet. For instance, they may think that if they put out a small amount of money, a huge number of people would pay. This is termed as “The China Syndrome”. It looks really nice on paper but fails terribly in real life. Proper market segmentation solves this problem by putting some sanity on what your startup’s actual addressable market is.

Key Note #4: Example of Market Segmentation

Indian consumer goods company Patanjali is a prime example of market segmentation. The company had 1,100 SKUs to begin with and later increased that number to 800. This wasn’t due to revenue problems for Patanjali, but rather, missing out on customer segmentation. For example, the company’s toothpaste is marketed as “Dant Kanti” instead of “Patanjali Dant Kanti”. The product has its own market and is sold independently leading to its brand name.

If a large firm like Patanjali can afford to segment their market, then it is obvious that startups ought to do the same. Startups tend to suffer most from financial losses, meaning that market segmentation becomes necessary for remaining afloat.

Key Note #5: How To Do Market Segmentation?

Brainstorm

Start by brainstorming with your co-workers. Identify the several markets that could benefit from your product and services. If you are providing web design services, then your market is the global economy. If you are producing tangible goods for sale, like rice, then your market is limited to the region where the product is grown.

Sift Through

Filter the list of markets to isolate important segments. Concentrate on one market segment to begin with. As a startup, your marketing efforts should not venture into all the available markets, rather it should focus on a particular market segment.

Collecting Information

Do primary market research to further aim accurately to the target market. This doesn’t mean issuing out surveys or forms, but directly interacting with customers such as physically meeting them, calling them, or video conferencing. The more customers you meet, the better understanding of their wants you will have. Spend adequate amounts of time to engage primary research for about four to five weeks before starting up the business.

Key Note #6: 7 Steps for Market Segmentation

These questions ought to help you in your attempt to segment different markets:

Does the prospective client have enough money?

Can your sales team visit the prospective client easily?

Is there need that the prospective client has that would compel him or her to purchase?

Are you able to offer the product today, perhaps with the aid of some associates?

Are there competitors that would potentially keep you out of the market?

Once you have made a foothold, can you extend to other segments of the market?

Does the market align with the objectives and interests of your founding team?

Massive Action Plan

To successfully implement market segmentation, here are crucial steps:

Make a list of potential markets: Highlight 10-12 probable market branches.

Narrow Down: Limit the document to 5-6 principal branches.

Conduct primary market research: Interact with the clients to find out which category your startup should target.

Following these guidelines is absolutely mandatory. When you are done, you will have a clearly defined target market along with the required information to proceed with your startup.

Conclusion
In an upcoming startup, the market segmentation is significant as it increases the chances of success. If you are paying attention to the customer need and selecting your target market carefully, you will steer clear of the most common problems that a lot of entrepreneurs face. Keep in mind that you find success when you attend to an unmet customer need rather than when you have an amazing idea. The right division of the market enables you to determine and conquer a niche market which helps in the success of your startup.