Jul 14, 2014

7 lessons I learnt from a B2B market segmentation exercise

The last month has been a good learning experience in understanding how to perform a B2B market segmentation and sizing exercise. Though I have read about the best practices and frameworks in my marketing courses, getting the hands-on experience is extremely valuable. The whole exercise took about a month and 3 presentations and culminated with identifying a prioritized list of market segments to go after. Academic inputs and theories did provide the required direction and focus since market sizing can be a daunting task without it. Here are the 7 lessons I learnt that I would want to reflect back whenever I take up a similar project in the future. Hope you find them useful too.

1) Start off with a framework or structure
At the beginning of any market segmentation exercise, the definition of your market will be very broad. In order to identify your niche or specific target segments, you need a step-by-step approach to navigating the market space . The framework needn't be something from academic research papers. Rather, you draw up your own based on your needs and assumptions. It should serve as a guide with the objective of helping you identify the segments that make sense to your product/service. It could be a funnel diagram or a simple 10 step approach document that outlines how you plan to proceed further.

2) Identify the criteria you would use to segment the broad market
Start off with the basic parameters such as geography, industry, size, growth rates, annual revenue etc. At a second level, get into parameters that are directly linked to your offering. This depends on your target verticals (marketing, sales, customer support, operations etc) and pain points specific to that vertical that you want to address. List down the possible criteria that would help you to choose the attractive industry. Keep this list as exhaustive as possible at this stage.  For example, if your product is targeted towards customer support teams, a few criteria to consider:
- customer touch points from various sources
- team structure to handle specific types of issues
- processes related to escalation and resolution
- typical workflows and time spent in each stage

3) Include non-quantifiable parameters
Metrics such as annual revenue or number of employees help you to easily segment the overall market into distinct buckets. However, do consider investing time in understanding the non-quantifiable parameters that can be a good source of segmentation. For the customer support offering example, parameters such as complexity of the resolution process will help you identify if your product offering is suited to such requirements.

4) Identify your TAMs
The first insight that you might have to estimate is your "Total Addressable Market" - this is your universe and your total scope. If you eventually build and scale, this is the total potential you could reach for. The second insight that is more relevant for immediate action is your "Target Addressable Market". Based on various criteria that you have identified to understand the segment(s) attractiveness as well as your internal capabilities to effectively address the segment(s) needs, Target Addressable Market is identified for a short-to-medium term objective. You could further narrow down to identify a specific niche market to target in the next 3-4 months.

5) Data will not be handed to you in a platter
Unless you have access to expensive market research reports, you will not be able to get the required data easily. You might have to use multiple sources which can be conflicting at times. In such situations, you might have to triangulate the data points from various sources based on certain assumptions and back-of-the-envelope calculations.

6) State your assumptions clearly
Once you have identified the target market segment(s) based on the defined criteria, you might have to make certain assumptions regarding the willingness to purchase your product/service. You could use certain metrics as proxy. For example, overall IT spending in the last 3 years has increased in this specific market segment. Or this specific market segment is seeing a significant increase in funding activity in the last year. These assumptions have to be further validated by understanding the criticality of the problems you plan to solve for this target market.

7) Use lateral market data
Understanding the end-to-end workflow of a specific process helps you to analyze the dependencies on other products or solutions. For example, if you are building a marketing automation product, you could use CRM market data as a reference to understand industry dynamics. market shares and growth trends.

Do comment/reach out if you have any questions. I'd be glad to address any specific ones focused on your industry/offering.

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