Market Segmentation in Practice

Eric Ries quotes from The Lean Entrepreneur by Brant and Patrick on the importance of market segments:

Market segments drive your business model. The process of segmenting your market is one of the poorest understood concepts in the business startup world, yet is one of the most powerful. The market segment you pursue is inextricably linked to the other aspects of your business model.

Segments determine how future customers will expect to interact with the product, how they will be marketed to, and their method of purchasing. Differences in how people are reached, their expectations of the buying process, how their trust is earned, the price point they’ll accept, what distribution methods are most efficient, the messaging that attracts them — all these factors (and more) may represent different sub-segments.

But market segmentation is harder in practice than on paper:

You can build a mobile app for senior citizens, launch a Facebook campaign targeting Fortune 100 CEOs, or charge $25 for a food cart hamburger if you’d like, but the mismatch between product, tactic, pricing and segment might delay that Hawaiian vacation you’ve been planning.

It may seem rather obvious, but as with many aspects of entrepreneurship, the practice of segmenting your market seems commonsensical, but is more complicated than it seems to put into practice. And the problem is that few take the time to really master it.

Entrepreneurs carry market segments around in the back of their minds, relying on gut-feel to determine whether customers they are seeing are the “right” customers. The problem is when you’re chasing revenue; any and all customers will seem like the right customer.

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