Hello, I’m Sarah Boisvert, founder of Fab Lab Hub, a part of the MIT Fab Lab Network.
Why is Market Segmentation an Important Strategy for Startups?
Marketing is very expensive, and I mean the entire marketing mix, not just advertising and promotion. And startups only have limited resources; actually, everybody has limited resources. Even the biggest companies don’t have unlimited funds to do just whatever they want. You really need to think through how you’re going to spend your funds. If you have a defined market and you are able to take something that’s small and specific, you can focus clearly and save money on all of your expenses, including market development.
Another area that is less obvious: if you are defining a product specific to a market segment, and you are trying to meet all of the needs, wants, and desires of a particular customer. You will need to answer some questions that your product development people will have regarding the product. Making those decisions is not easy: what is the thing going to look like? How big is it? Where is it going to go?
Tailor Your Product To Fit Your Specific Market
I once had a customer in Japan, and it was a new market segment that we were working on. I went to Tokyo to do the specification of the product. I always did the specifications on-site because there would always be things that came up that I couldn’t imagine from my factory. I got there, and our power supply and other kinds of tools that went with the laser always sat underneath the production lines. And when I measured their production lines, because the workers, of course, were typically Japanese women who were quite small in stature, it turned out our machines didn’t fit underneath it had to be completely redesigned in order to meet that particular market segment.
Study Your Customers
It’s really important, in my opinion, to visit the customers and to sit with them and see how they use the product. I have had a number of times when salespeople would come to me and say, “we really need a product for X,” and when I talk to the customers I discover that that wasn’t true at all.
A great example of that is a customer that had wanted to have scribing lasers; they wanted lasers that could write kanji characters. When I went to visit the customer to do the definition of the product, I discovered that they were selling all of their products to the US and they didn’t need kanji characters because they were exporting. All the characters that we could produce already – without having to invest anything in our technology – did the job for them.
So don’t forget to go and talk to and visit the sites of how people use your product.
Test Your Product in a Smaller Market
Sometimes, we’re really enamored with our ideas, and it really isn’t until we get something out into the market that we can tell whether or not it’s going to work and whether the product is actually going to fly and be accepted by customers.
It’s a much smaller risk if you go out into an area and test it in a smaller market segment than if you do some mass rollout. We can see this all the time: companies like Coke or Pepsi or McDonald will introduce a new product into a few cities, see the responses, and then roll it out to the rest of the country.
Our laser company, Potomac Photonics, was a small business that my partner and I started it and we really didn’t want to have a lot of outside investment. We really wanted to be able to fund it internally as long as we could, and one of the ways that we were able to do that was by attacking small market segments. We would look at a small area, see if you could get going quickly & easily and own that market. As a result, our margins were high!
One of the areas that we worked in heavily was the medical device market. We would work on products that only we could produce; a product specific to the customer need, with very high precision and with all the parameters that a customer was looking for.
Because of this, we had almost no price sensitivity because we were able to answer questions and solve problems for customers that no one else could do. Those high margins allowed us to fund our continued R&D; it allowed us to continue our development of new products.
Objectively Develop Your Strategy
When you’re in a startup, the world seems like your oyster; there are all kinds of exciting possibilities, but it’s really important to step back and think about a strategy that can allow you to successful. I always like to say that innovation is much more than just having a good idea. You have to get in the trenches and you have to make those ideas come to life. Market segmentation is a way to do that.