Market Segmentation for Small Businesses

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Part 1 of our two part review for small businesses on market research tools available through the Arkansas State University Small Business and Technology Development Center for market segmentation.

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Market Segmentation for Small Businesses

  1. 1. The Right Eyeballs Who Is Your Perfect Customer? By Herb Lawrence, Center Director, ASU Small Business and Technology Development Center Helping Small Businesses Grow…From the Delta to the OzarksLast Tuesday on the Arkansas State University Blog, I startedwhat I hope will be a series of Tuesday Marketing Tips my readers will find valuable.In the blog article "Get Your Marketing Message Right" I brought up a challenge thatmany of my small business friends have mentioned in trying to get their marketingmessages noticed by potential customers.I mentioned 8 Keys to Successful Marketing Messages that will help you stand out above all the noise. The first one, and to me most critical is: My message must be seen by the RIGHT EYEBALLS. By right eyeballs I mean the potential customer who will be most interested in what I have to say. For any business to be successful they have to know who their ideal customer really is. What I mean is you have to know your "world". At the ASU Small Business and Technology Development Center I know myworld:• A distinct geographic area 15 Counties in Northeast and North-Central Arkansas I am definitely a "Local Business" with a specific geographic trade zone.• My world is For Profit (or at least want to make a profit) businesses in my 15 county area.• My clients are small... Generally $0.00 to $5 million in revenues and from 1 to 50 employees.• Finally...they have a problem or maybe see a potential opportunity but dont know how to find the right answersAt the ASU SBTDC our “Perfect Customer” is a small for-profitbusiness, less than 50 employees and making under $5 million insales, in one of my 15 counties who realizes he (or she) needshelp in a particular area that is keeping them up at night.So who is your "Perfect Customer"?Whether you are a B2B like me (business to business) or a B2Clike 75% of all businesses, market segmenting is really very easyIF you have the resources to know where to look to get good harddata.
  2. 2. Here is a quick example of the kind of data you need especially as a B2C: retailer, hospitality, service, or health field AND it is available to you at your nearest Small Business Center. Lets say you are a jewelry store in Jonesboro, Arkansas (Craighead County) and you want to know who your best customers are. While there are a lot of ways to segment a market, for most brick and mortar retailers’ demographic data is the best place to start. If you met with one of the ASU Consultants here is the first thing you would learn: Best customers for Jewelry • Young adult households aged 25-34 • Middle aged adult households aged 45-64 • Married couples without children at home • Married couples with school-aged or older children at home Households in Average Market Trends in consumer jewelry Craighead Expenditure Potential consumption • Average householdUnder 25 2,779 83.62 $232,379 spending on jewelry fell by 22% between 2000 and 2009 with the great25-34 5,558 137.15 $762,279 recession may continue to fall with tighter budgets due35-44 4,892 99.28 $485,677 to limited discretionary spending potential.45-54 4,520 119.83 $541,631 Total household spending on jewelry in 200955-64 3,933 124.16 $488,321 • $12,708,627,100.00. Nationally • $2,796,623.95 In Craighead65-74 2,555 88.91 $227,165 CountyOver 75 2,041 28.99 $59,168 Average household in 2011 will spend • $105.23 per year nationallyTotal 26,278 $2,796,623 • $134.03 per year in Craighead County Demographic data on the number of households came from our Demographics Now subscription that allows us to access a variety of demographic features by county, city, even zip code. Consumer expenditure data from new Strategist Publications, Inc. “Who’s Buying Apparel” that shows by demographic categories how much households spend on a variety of goods and services.
  3. 3. Craighead County Households by Age under 25 25-34 35-44 45-54 55-64 65-74 over 75 If you take a look at the 7.8% 10.6% two pie charts below it quickly becomes obvious 9.7% that out of my "World" of potential Jewelry 21.2% customers in Craighead 15.0% County, certain groups make a lot more sense to target. The first chart shows the 17.2% 18.6% Craighead County households by age groups as a percentage of the total number of households in the tradezone.The second "pie" shows the percentage distribution of those segmented households tothe total market potential in the county for jewelry purchases. Notice households aged 25-34 make up 21.2% of TOTAL households BUT they make up 27.3% of the market potential! Whereas households 75 plus make up 7.8% of total households in the county but only 2.1% of the market potential for jewelry purchases.humm.... And finally the chart below shows us exactly which household segments arethe best to target. This is an indexed chart with 100 representing averagehousehold spending on jewelry.Those segments OVER 100 are the best to target because as a group they spendMORE than the average on our product! Households age 25-34 followed by 55-64,then 45-54 year old head of households.
  4. 4. Best Customers Indexed Now the next challenge is to look at 140 130 those 3 groups closely....and try to 114 118 understand: 120 94 100 84 79 80  How those 3 distinct groups 60 think so we can create the 40 28 right message that fits each 20 category. Because the RIGHT message to 25-34 0 under 25-34 35-44 45-54 55-64 65-74 75 year olds ISNT the right 25 plus message for 55-64. And, age is only one way to segment your market.Because jewelry is definitely a discretionary purchase it might also be helpful tosegment those Craighead County households by INCOME.Demographic segmentation, whether selling on-line to potential consumers around theUnited States, or in a specific geographic trade zone like Craighead County allows oursmall business friend to start slicing and dicing his potential customers intodiscrete segments and start thinking about how to craft his marketing message toappeal to the different groups.In addition to demographic and consumer expenditure information like this, it is alsohelpful to pull in another tool for specificgeographic areas that the ASU SBTDCuses Community TapestrySegmentation with a DominantTapestry Map from ESRI like the oneabove where we slice the geographicareas of your trade zone intohomogeneous areas based on lifestyleand attitudes.For a more detailed description of ESRI’sCommunity Tapestry Segmentation readmy recent article Simple Target MarketingTools for Small Business that I posted toSlideshare.
  5. 5. The information provided in the jewelry store example came from New Strategists Publications, Inc eBook: "Who Buys Apparel". This New Strategist Publications “Who’s Buying Apparel” provides extensive segmentation information on all types of personal apparel items from jewelry to men’s suits, children’s shoes to lingerie. The Arkansas State University Small Business and Technology Development Center maintains other editions on any other possible consumer product or service from:  Transportation to food,  Entertainment to household services,  Insurance to health care.  And moreThis data will zero your marketing efforts to the right buyers whether a plumber ora dentist, restaurant or dress shop and virtually any business in between.After you get the data you are able to determine the RIGHT EYEBALLS that you mostwant to see your marketing message. Next Step: Make sure your message is in theRIGHT place for those targeted eyeballs to SEE your message. In our coming blogarticle we will discuss how to choose the right media channels.In our 15 county area? Then call the ASU SBTDC consultants at (870) 972-3517, or E-mail us for information asusbtdc@astate.edu for your free and confidential appointmenttoday.

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