Your Business Model – Segment & Position
Where do you want to Play and Win?
Customers are the life blood of any business and without them a business simply wouldn’t exist. To be better positioned to satisfy a customers needs and wants a company can group its customers into segments. However segmenting is simply not enough and positioning is essential to business success in a world overloaded with brands, products and companies. Each and every one desperate to grab your attention and take your hard earned pennies. But with so much competition how do you get heard? How do customers find you and when they do, what influences their choice to choose you over all the others. In the old days the guys with the biggest advertising budgets won, but now with social media, email and the internet it’s made the playing field much more open for gorilla marketing. Whilst big budgets will always win on the big screen we can still win small and that is where the entrepreneur and small business can succeed. Whether you sell through face to face, over the phone, advertising or affiliate sites it is as important for B2B as B2C businesses – so don’t think you can avoid it!
We previously mention in Part 1 that the two most popular Business Models are customer led and product/service led. Depending on which you choose Positioning still plays a vital role in your strategy. We will briefly run through this before we get into the detail.
Product/Service Model – here we have an existing product or service. We refer to this in the model as the Value Proposition (we will be discussing this in Part 3). In this model we start with a product or service and use Segmenting & Positioning to find the best match of customers to sell too. Those customer who obtain the most value from the product. But this is only part of the process, the second part is to identify those customers who are also the easiest to reach with the least amount of competitors or competitors with weak positions. As an example, lets say your product can be sold to any industry but your research show that only companies with a turnover of over £1million are most likely to buy it. You may also decide that you are only able to support the product within a 50 mile radius. You have now found your first two categories to begin segmenting and on route to identify your best position.
Customer Model – this strategy is in sorts a reverse of of the Product/Service Model value and is in my opinion the best method to reach success and minimise wasted effort and cost. You start by identifying a market sector which, you want to supply too (if you are going to invest time and money try to enjoy doing it!) and then establish a Value Proposition to suit. This is a customer led approach and has been popularised in recent books, one in particular stands out called ASK by Ryan Levesque, who utilised customer surveys both online and by phone to create data on customer wants. He then identifies products which resemble that need and tailor the product to suit and offer back to the market. Another method is to look at markets with weak products either in their packaging, advertising or quality and create a superior value offering. This has proven a successful method for many Amazon resellers who have a strategy of identifying products with weak reviews, or poor names and launching their own product in response to those bad ratings. This is customer led design in action.
Both Business Models work, what is important is that you use positioning and segmentation to provide focus and create the greatest chance of success.
In a market place flooded with brands, products and competitors, how will you stand out?
So how do you find a business?
When considering your current market position ask yourself the above question of your business and consider where your name appears. Then ask the same question from the customers perspective. What do customers type into Google in order to find companies with your products or services and how are you perceived when they find you.
My old business a sub contract machining company with an add-on of sourcing and packing focused on the bathroom sector. We advertised as precision engineers for some years and later as machining when online databases became more sophisticated, both terms though were not how our customers thought of us! We needed to get inside the minds of our customers and identify where they looked for suppliers like us and how they defined us, so we asked them! How crazy is that we asked our customers for the information we needed. A point to note here is when searching on the Kompass database for precision engineers the results were 4303 hits! – what a waste of resources it was to advertise in this general section with a catch all strategy. On Google anything listed after the first page barely gets click through’s.
In a crowded market the counter to all this is positioning. Decide on a market sector, a searchable term which allows you to be found, to become known for the service or product you offer. If we had been called Bathroom Machined Parts and Assemblies – we would have no doubt had more success with our customers than Rhys Engineering. If you focus and oversimplify what you do, your on our way to positioning. Like the old Ronseal advert said “it does exactly what it says on the tin” is the best way to be transparent with your product or how about No More Nails by Unibond – simple, effective and rememberable.
There have been several books written which include the subject in different ways, either as a whole topic or integrated into their process for creating a winning strategy. Here are a few of my favourite books with positioning taking a strong role;
- Blue Ocean Strategy – Kim & Mauborgne – find untapped markets & avoid the competition
- The 4 hour Week – Tim Ferris – go niche or go broke!
- Positioning – The battle for your mind – Be no.1 or no.2 in your market to be remembered
- Business Model Generation – Osterwalder & Pigneur – One part of the business model canvas
- Playing to Win – Lafley & Martin – Where to play and win
- Purple Cow – Seth Godin – Be remarkable to be noticed be a purple cow not brown
These books share the same theme of using positioning and segmentation to identify the best market place for your company to be in and win. Some refer to this as finding your niche others simply as position. The key message is for the best opportunity of success, find markets which have been untapped (blue oceans) with no existing competition or where the competition is not clearly focused.
Component 2 – Segment & Position
From Vision to Position
Step 1 of our business model was to articulate your vision for the business. In this you may well have stated the market you want to serve, but now we need the details.
In this step we want to state our target customer segments and our positioning strategy in relation to the value proposition we are offering to them, be that a service or product. I believe these are two closely related areas although the business model as a whole should work in harmony, i.e. your resources may stipulate part of our value proposition. We have run through what segmenting and positioning is so now it is time to do it. You may only want to apply segmenting and not go into the more complex positioning strategy but go as far as you feel you can.
We stated earlier the two main business models we see in organizations;
- Product/Service Model – if you want to be focused on your product then identify the market segments which give you the best chance of selling success.
- Customer Model – in choosing this model decide on the market segment you fell has the most opportunity to create a good position for your business or one you want to be in.
So now enter your customer segment into the Business Model. If you haven’t already defined your segments or want to do some further work on them first you can follow our Segmentation and Positioning Process as detailed below.
Hold on what actually is Segment & Positioning?
You may not be over familiar with these terms so here is a brief guide. Generally they fall under the category of marketing but I think they also play an essential role in your strategy. Deciding on you customer segment is key to a good business strategy. It’s preferable to start with segmentation as this is the hard grunt work of collecting data, conducting market research, surveying and questioning the customer. Then through using both data driven information and open questions you create the big picture of your market. That picture should look something like an orange when your done. The whole orange being your overall market split into segments each representing different groups of customers with similar buying behaviours and characteristics. The categories for grouping customers have to be decided by you and your team. You can be fairly open or go very narrow and be quite specific (when we talk about niche’s later this is what we mean by narrow). There are many standard categories with readily available data such as location, sex, age, income level, interest, industry sector, company size, employee no. and company turnover. Once you have analysed your customer or industry sector by these factors you then group the customers to form the segments based on your chosen criteria. Once you have successfully segmented the market you choose a segment to target. Your target market should be the segment your product or service best fulfils. You then look to establish your 4P’s (product, price, place & promotion) to best serve that target market.
In todays more digital centred world with the likes of Google, Amazon, Facebook and Twitter, segmenting has become a little old school in favour of personalised targeting. Adopting this strategy has a greater focus on the individual and is very specific. Thanks to these new platforms and the analytical data running behind ecommerce sites like Amazon, it is more possible than ever to really focus your marketing and make purchasing suggestions very personal based on past spending and browsing behaviour. There is still segmenting at work here but more like segmenting 4.0 or segmenting on steroids!
Segmenting is wonderful and hopefully you can clearly see the benefits by reducing your market to a very specific segment you can tailor your 4P’s and get a better return on your investment of time and money. Going the next step is Positioning.
The concept of Positioning was first coined by Al Reis and Jack Trout back in 1969, and popularised after the release of their book Positioning: The Battle for your Mind in 1972. Before positioning there were two types of promotion Product and Image.
The product era of marketing focused on the product features and customer benefits. This had huge success in the 50’s until an increasing amount of competing copy-cat products were launched, blurring the benefits of one company over another.
This was followed by the image approach to marketing, where by companies focused on creating their reputation and image over product features. This had great success again until once more competition increased using the same approach diluting the method. Customers became overwhelmed by all the self praising and at the mention of a company saying we are the best a customer simply thinks so what’s new, isn’t everyone?!
Then in 1969 the term positioning was introduced, creating a new marketing strategy referred to as the battle for your mind. In a world of overwhelming competition and advertising input from tv, radio, media, promotions and now internet, for a company to be successful and beat the competitors it has to create a position in our minds and be remembered. The average mind will associate a product or service with at most 7 brands, with the no.1 or no.2 company getting the lion share of the market.
The approach to this predicament can be found in one of the below ways;
- find a target market or niche which does not have competition or has weak competition. Whilst this may sound daunting it could be a simple tweak to a product or service
- Change your name either the company or product brand to become recognisable and easily associated with the product you sell, so the customer will remember it.
- Don’t dilute your brand – if you want to add more lines to your existing products be careful how you brand them. If you simply extend your line you will dilute the current brand and the position you hold in the customer mind. Your brand becomes less integrated and you will see your sales drop. For example not everyone like Coca Cola, so when & up was you can exploit their positon.
- Identify competitor’s weaknesses – if a company has a strong position within a market for a particular product it won’t necessarily be to everyone’s taste. You can look to reposition the competitor allowing you to focus on an alternative market. For example a chinaware manufacture may say of their no.1 competitior – “Joe Blogs supplies great chinaware made in china, we supply great chinaware made in Stoke-on-Trent home of the potteries”. This advert states a fact without slandering the company. If your target market are customers who want a brand made in England then you maybe their new preferred choice.
A great example of a company using positioning is P&G. They have 100’s or product lines from toilet paper, to make up, to washing up liquid. Many people wouldn’t even recognise the brands association to P&G because the value and association is in the product brand to the application. Fairy liquid is their washing up brand, but if they released a furniture polish by the same name? On one hand it makes sense to use a widely known name and work off it, but the result will be a dilution of the Fairy brand. In your mind you associate it will washing up but now it will represent polish too. With no clear identifiable link the brand will lose its place and maybe its position as no.1 in your mind.
But what if your not really interested in being no.1 or the best, you just want a successful business and make some profit. That’s ok we not all after glory but if you apply the principals of segmenting and positioning if will still provide great dividends and a real focus for your business. I’ve listed a few benefits that I believe you can achieve through positioning;
- It saves money – if you focus your sales system on a market segment you limit where you advertise and sell into.
- Improves the return of your sales system – You will increase the effectiveness of your advertising and selling.
- Be recognised – by being focused on one niche you create a link between your business name and the service or product you sell. if a customer see’s or hears your name they will automatically know what you do and vice versa – when a customer wants your product they will think of you.
- Go niche and be an expert– by focusing on one market, you and your team can become an expert on that segment. Either choose an niche you have an interest in and can research or identify a niche with limited competitors. You can study, for new products or ideas, be more market aware for trends, now your competitors intimately. The smaller you define the better and easier it is to become an expert.
- A group of niche’s! – this is the power of branding! You can operate in multiple niches through branding to suit each market. Work from the core strength of you business and build up multiple niches with your products which sensibly fit under one umbrella group.
Segmenting and Positioning has a real impact on your business yet many companies fail to define it. Give this real thought and you could turn your company into a number one or two business. By segmenting what you do and spending some real time researching you can find unique positions or niches which you can look to occupy.