Let's start a record and tape store. The business can carry rhythm and blues, country, heavy metal, easy listening, classical and rock. We'll market the store to entire metropolitan area with an eye to new locations in Washington, D.C., and Philadelphia.
Entrepreneurs frequently develop good multi-product ideas only to kill their dreams in an effort to be all things to all people. The strategy to open and quickly expand a new firm is typical of new business owners with little experience in the world of entrepreneurship. From the beginning there is a need to focus the business effort to attack only a piece of what constitutes the entire market . . . this is called market segmentation.
Geographics: The ideal geographic market will vary by the nature of the product and how the product can be efficiently delivered. A pizza shop in Hampden should market only to an area within a 3-mile radius from the store. From a common sense point of view, people tend to limit their travel distance for this type of product. A window treatment supplier (drapes and blinds) from Columbia, however, must set a strategy to distribute their products to interior designers in both the Baltimore and Washington areas. In this case the supplier should set a plan to focus on a limited geographic territory based on factors such as population or ease of transporting the product to the designers. A main consideration is the time and expense required to distribute the product to the customer (in the case of the window treatment company, the customers are the designers).
Demographics: Demographic segmentation of a market population can be based on the age, gender, race, ethnic origins, education, religion or personal income levels. A new site for a child care center should be where there is a high female population between the ages of 20 and 35 but where household income is not so high that they would likely hire in-house sitters.
This type of statistical information can be gathered from a number of places. A major public library, the U.S. Labor Department, the state or county economic development offices, or, the Council of Governments for either Washington or Baltimore is available for public use. Be sure to look at three years of data to see if there is a demographic trend. Many retailers have failed partly due to a lack of this type of quick research.
Product/service specialty: The marketplace can be divided into segments based on benefits. A pet store can be perceived as more than a pet store if it specializes in one area, such as tropical fish. After dogs and cats, tropical fish are the third most popular pet; however very few stores are well versed in the subject.
A service value is added to the pet product when the store clerk provides you with accurate and detailed answers to your questions. Soon the store builds a service-oriented reputation based on the distinctive benefits of the information available free.With this strategy the store has segmented the market to claim those enthusiasts who will drive the extra miles to get the specialized attention and information.
Volume segmentation: Volume segmentation of the marketplace is based on the experiences with past product users -- who are small, moderate or heavy users. If you discover that a large portion of the customers at your deli are from University Hospital, then you may want to name your sandwiches with health care oriented names as one nearby operation did.
The people in your firm who actually sell the product to the customers will know a lot about them. See if there is a common thread or two and then market heavily to those special segments. The volume consideration includes identifying repeat customers regardless of the dollar value of their purchases. The local newsstand operator will know the repeat customers by first name, which helps to promote continued repeat sales.
Psychographics: Psychographic segmentation addresses different cultural/ethnic groups and their styles of living. Psychographics divides the market based upon statistical samples and demographics that are then used to draw conclusions about the population's perceived values, interests or special attitudes. Marketing specialists use this information to help companies develop effective promotion campaigns, design new products or even to develop a staff that relates well to the targeted market.
Useful information is available at the library or from a marketing professional, however a local small businessperson might be able to draw similar conclusions from common sense and careful observation of the community.
Baltimore is a very difficult market area based on psychographics. It differs from Washington, D.C., where the government bureaucracy and politics are the common threads. Baltimore is actually a number of tight residential and ethnic communities. As a result our community is considered one of the most difficult cities from which to target a market segment to approach.
The Bottom Line: Marketing to the whole world does not work, so find a basis upon which to divide the market into manageable segments. Then go for it.
Patrick Rossello, president of The Business Consulting Group in Towson, is a member of a number of local advisory boards and an instructor at Loyola College. Send questions or suggested topics to him c/o Money At Work, The Evening Sun, 501 N. Calvert Street, Baltimore, Md. 21278.