Hello, I’m Sarah Boisvert, founder of Fab Lab Hub, a part of the MIT Fab Lab network. Today I really want to talk about an element of marketing that I’m really interested in.
What is Market Segmentation?
We ask the question all the time: how does a startup with limited resources come up with a marketing strategy that helps them get ahead, without having unlimited tools or unlimited money or unlimited funding?
Market Segmentation strategy is a really cool way to divide and conquer a market, and look at areas where you can actually have a lot of impact and gain a lot of market share with limited resources.
The Origins of Market Segmentation
Market segmentation strategy was developed many many years ago through research that was done at GE. They quickly realized that you can’t own a market unless you really are able to have enough of market share. You have to be either #1 or #2 in the market in order to really have an impact. And you will not be profitable unless you’re in the number one or two position.
If you take a market that’s a billion-dollar market – and I see this all the time with startups, they go, “oh, there’s a $60 billion market, we’re going to go after that.” How can you do that if you’re a small team, if you only have a couple million in startup funding, if you only have a little bit of Angel funding?
Segment Your Market
The answer is: you take a large market and you divide it so that you will be able to impact and develop products that are specific to that market, so that the customers have to buy from you.
Apple: Market Segmentation Geniuses
There are some great examples of this, and one of them is Apple. Apple, when they first came on the market with the Apple Computer, were targeted towards schools. They were targeted towards education, and their second target market was graphic designers.
So they made computers that were not for people who wanted to get inside the machines and play with them; they made them for people who wanted for them to just work. They wanted something that was user-friendly, they wanted something with cool designs that looked interesting, and they just nailed those markets. Of the entire computing market, Apple only owned 6%, but they had huge margins and were able to charge a premium because their products were specific to the market segment going after.
Market Segmentation’s Impact on Product Design
Another really practical example of a Market segmentation strategy was when I worked with a collaboration in the coding and marking market, and people have been coding and marking with inkjet printers – industrial inkjet printers, and we wanted to move to lasers.
We wanted to move to lasers for a lot of reasons, but one that really made a lot of sense was water bottles. It was almost impossible, technically, to laser code a water bottle and not break through the plastic and end up with leaks – which of course wasn’t going to work. And so we developed the technology to be able to mark it with lasers, and the way that we sold it was really through the marketing department, not the technical production people. Because, when you’re selling something that is pure, like water, you don’t want to have the black marks of inkjet on your water bottles. You really want to have something that shows that purity. So we basically built the complete product for that segment and owned that market; we had about 60% market share, which is translated to quite a lot of revenue for our company.
Takeaways: Find Your Segmented Niche
So you can see from these examples how you are able to take a big market that’s really hard to address, both in terms of time and energy and resources and people and dollars, and divide it into more manageable elements that you can control, and consequently, own.