01. Market Segmentation

What is market segmentation?

By dividing the total market into segments, founders can acquire a better understanding of the needs and wants of multiple customers, and begin to distinguish between them. 

This ultimately enables brands to tailor their company’s solution itself towards a customer’s problem, rather than simply present the solution as a stand-alone object.

How to segment your market

To segment a market, you will ideally start with your total addressable market — literally anyone who may buy your product — and create different groups. 

The following exercise will take roughly an hour (the more thorough you go, the more valuable it will become). 

Give yourself the time and space to really think for this one. Get off the computer. Grab a coffee and go and sit outside, somewhere you don't normally sit. Only when you're truly outside your physical comfort zone, will you learn to leave the one in your mind.

Brainstorm all the possibilities

Start by coming up with all of the markets, sectors or industries that would possibly get value out of your product. Write 10 or more. Anything and everything that comes into your mind, write it down. Be it as far fetched or impossible as you want. The important thing is to get specific and brainstorm.

For example, a smart city tool that measures carbon output from buildings could put:

1. Business Parks

2. Universities

3. Airports

4. Conference Centers

5. Self-Managed Towers

6. Private Building Construction 

7. Public Schools

8. Government Infrastructure Buildings

9. New Residential Constructions

10. Hotels

By putting everything on the table, you avoid the classic tunnel vision trap and open yourself up to a whole lot of different opportunities that you may not have considered. 

Narrow it down

Next, what you can do is add/limit it with further criteria, including geography, demographic, behavior or psychographic segmentation:

• Demographic segmentation.The most popular and commonly used types of market segmentation referring to statistical data about a group of people including revenue, location, size, etc.
  I.e., How big is the company you want to work for? How much did they earn last year? Are they public or private? What stage of funding round are they?

• Psychographic segmentation. Categories audiences and customers by factors that relate to their personalities and characteristics including values, motivations, priorities and jobs-to-be-done. I.e., Are they concerned with other sustainability issues (plastic pollution) which could help you influence them? Are they equal opportunity employers? Do they all want to become BREAAM certified?

• Behavioral segmentation. How a customer acts and what patterns they display including their purchasing habits, spending history and how they interacted with products in the past. I.e., Have all the executives just purchased an EV? Does the company only have vegetarian lunches? Are they (aspirational) B-Corps? 

• Geographic segmentation. The most straightforward segment based on locational borders, which includes data like postcode, city, and country. I.e., Do they live in Amsterdam? Are they European? Do they all speak English as a first language?

When you put it all together, one response might look something like this: I want to work with:

• Enterprise Business Parks in Northern Europe with 20+ buildings, or 

• Airports in North American Cities with over 1m people that also have Smart City projects

See how much they can vary?

Ask the hard questions

Once you have a list of between five and 10 viable market segments, it’s time to start getting specific and targeting. In the next lesson, we'll look at how to narrow down your market segment and understand how to communicate with them.