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Market Development Stage 1 - Part 2: Segmentation and Identifying Your Ideal Customer

Updated: Jan 23, 2019

In Part 1, we discussed how market need and customer pain are the core of your strategy for identifying product/market fit. You’ve now successfully sized the market, and you’ve clearly defined market opportunity. So what’s next?

1. Qualifying and quantifying the market need

Out there in the wild world, there is a pool of customers burdened by an unmet need that your product addresses. Before going any further, you must properly qualify and quantify those burdens. Identify market need by leading with unmet customer needs. Out of all the possible companies, who may be your prospective customer and why? What are the current and future trends in the market and how are they supporting the need for your solution. What are the market drivers and are there gaps in market offerings?

For example, in 2010, WeWork jumped on the trends of the “gig economy" and excess real estate. As freelancers, designers, writers, and startups became more relevant in the economy; a need arose for all these new workers. They needed a place to work outside the home, and they needed a space to collaborate. By creating offices where various independent workers could share space with one another, WeWork capitalized on this need and ushered in the birth of “co-working.” The trend evolved, and now even Fortune 500 companies utilize these spaces to create environments of collaboration and innovation. WeWork saw the trend, capitalized on the market gap and continued to build off the trend’s evolution to generate more profit.

If you are not yet sure whether you have properly defined the market yet- take a look back at the Braving the Wilderness post. Quantifying and qualifying the market need will help guide you through these crucial early stages. If you discover that there is no market need, then back to the drawing board you must go.

This point requires a great deal of consideration, and we will, therefore, revisit it in further depth in a future blog post.

2. Develop multiple hypotheses about your ideal customer

One hypothesis won’t do it. You need to develop at least 2-3 hypotheses to determine who your ideal customer is. Why would this customer base value your core solution and your specific, unique advantages? You have to bring something fundamentally different to this particular customer, or they have no reason to select you specifically. Become the expert of your customer’s problem. Do you know your 10X advantages inside and out? If you need an in-depth reminder of the 10X advantages, refer to our Braving the Wilderness post.

For your hypotheses to work optimally, they must adequately address these core questions:

• What is the customer’s life like right now without your solution?

• What pain does the customer experience without your solution?

• Who feels that pain? Be specific!

• What is the cost of that pain in real dollar terms? Think time, revenue, expense, customer retention and risk of project failure.

• What is the cost of that pain in strategic terms? Think competitive advantage and market share.

• What’s the reason or compelling event for the customer to take action right away?

• Is your customer willing to do something innovative to fix that pain?

• What pain does the customer experience without your solution

• Who feels that pain? Be specific!

• What is the cost of that pain in real dollar terms? Think time, revenue, expense, customer retention and risk of project failure?

• What is the cost of that pain in strategic terms? Think competitive advantage and market share.

• What’s the reason or compelling event for the customer to take action right away?

• Is your customer willing to do something innovative to fix that pain?

These questions will form the core of your hypotheses. Take them seriously; you will not be able to move forward without them.

3. Define who ISN’T your ideal customer

Knowing who is your ideal customer is essential, but knowing who is not your customer is just as critical. While working at Motive, we determined very quickly that it was a waste of resources to target the “Blood Bank guys." The Blood Bank guys were the customers who had neither a budget nor a compelling event to couple with our solution. They would inevitably waste our most valuable resources; time. When determining your ideal customer, understanding the negative will ultimately lead to greater clarity on the positive. Discover who is not a proper fit for your product/service, and you will find yourself one step closer to identifying your core customer base.

4. Bring your ideal customer to life

Develop a living, breathing persona for each of the customers in your hypothesizes. Know them as you would your best friend in the world. Make them real. To fully form this persona, consider all these points:

• What is their buying process?

• Who else in the organization feels their pain?

• Who is directly affected when the pain goes unsolved?

• What are the quantifiable costs of ignoring the pain?

• What other products do these customers purchase?

• Consider additional professional information; job titles, roles, who is their superior, do they manage other workers, what does their day to day look like?

• Where do they go for information, what media do they consume, how do they interact on social media, do they go to conferences, who are the influencers in their space?

Your customer needs a reason to act right away. What questions can you ask to get directly to the heart of their pain and stoke action? Is their hair on fire? Is your solution the bucket of water to douse their flame? Only by creating a fully formed customer persona can you begin to tackle these critical questions.

5. What does the competitive landscape look like for these customers?

You are not alone in a void with this customer. You both operate in an ecosystem, and plenty of other fish are swimming around, competing for your ideal customer’s attention. However, do not make the mistake of assuming that competition is an issue. In fact, if you understand the competitive landscape, you can leverage your advantages against your competitors. How do the competitors see and position themselves? How can you clearly differentiate your solution against their positions? How willing is your customer base to switch from a competitor to you? How high is the cost for that switch?

6. Develop demographic snapshots for your ideal customer and build early segmentation lists.

To continue breathing more life and specificity into your hypothesis, work to understand the demographic information about your potential customer. Determine their industry, the size of their company in employees and revenue, their location and functions, titles and roles. Complete early market sizing to determine whether the market is large enough for you to target. Then, build an early list of these customers and companies so you can prepare for the next step; segmentation.

7. Choose your segmentation strategy

There are plenty of ways to segment the market. You can segment by company size, industry, geography, pain point, etc. How you segment the market is directly correlated to how you grouped your prospective buyers and how you positioned your unique advantages. You ultimately want to create a segmented group comprised of customers who will intrinsically favor your solution. To create this, ask yourself these questions:

• Is this segment unique?

• Is this segment large enough?

• Who from my company/customer list above falls into each segment? Note: a company can not fall into more than one segment. If they do, you aren't working specifically enough.

Once you have successfully answered these questions, determine who wants what you’re offering THE MOST. Sure, maybe there’s a shot that everyone on your list would purchase your product/service. Who is most likely? Who is most inflamed to take action?

Now create a set of personas to illustrate this inflamed customer further. Whittle this persona down to their use case for the solution, their location, position, and pain points. Give them a name- for example, the Retail Product Pushers, the VPs of Planning and Allocation, etc. Make them real!

With the ideal customer set and early segmentation work done, we are now ready to move forward. You are one step closer to finding the all-important PMF. Keep going.

Next up: Part 3: Choosing your segments and dialing in your target strategy

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