One of the benefits of doing a huge number of strategic plans is that we get to see lots of variations. I started my work in strategic planning with a suspicion that I knew the right number of market segments to analyze. Actually developing a plan with more – or less – market segments, however, has shed new light on why my suspicions were correct. Most of all, market segmentation helps us do a better job of collecting data, analyzing the market, and setting strategy.
What are the benefits and detriments to consider when developing your own market segmentation?
First, let’s look at the value we get when we have more than one market segment. In general, adding market segments adds work to the process, so we need to get some benefit from doing so. Here are the key reasons more segments help.
- Added segments enable us to target very specific customer behaviors effectively.
- More segments enable us to understand areas where our capabilities and competencies are more or less valuable.
- Added segments help us focus our efforts in one part of the market, rather than taking a shotgun approach.
- Segmentation enables us to segregate a specific threat and respond to it differently than we would in the whole market.
These are all good reasons to have more market segments, however…
as a result, some companies just keep adding segments until they become overwhelmed with details and other issues slow them down or even halts the planning process entirely. Here are some of the most common problems that come up when you have too many segments.
- Team members are unable to remember the market segments, their characteristics or the strategies you chose to follow in given segments.
- The data collection, review, analysis and integration into the plan all take much more time as you add segments.
- Market segments with similar behaviors end up using your resources to come up with the same, redundant answers. These segments should be combined.
- Different strategies for minutely different market segments may confuse the customer – or worse, give them opportunities to game your strategies.
- As the number of market segments rises, the temptation to attempt to expand in more segments than you should also rises. This leads to unfocused, possibly failing strategies.
Clearly, there is a trade-off between too few segments and too many segments.
When you have too few, you don’t get the specific, focused strategies that work well for so many companies. When you have too many, teams tend to ignore some of your segmented strategies or use up far too much time and money managing them.
The greatest traction appeared when the number of market segments matched what team members are able to recall without a list.
Research tells us that such lists tend to be in the range of 5 to 10 for most people (the mean is about 7-8). For executives, this number tends to max out at 10-11. Based on this, a good number of market segments would be somewhere in the 7-10 range for most companies. Our experience definitely backs this up, as companies with this manageable range of market segments have shown higher performance on execution, sales growth and profit growth.
How many market segments do you use for your strategic planning?
Do you think it’s too many or too few? If you’d like to discuss your segmentation, we’d be thrilled to hear from you to discuss how you might come up with an answer that fits your team and your company.
For great ideas on how to improve the quality of your planning, contact me at email@example.com. Consider holding a one-day workshop on Simplified Strategic Planning.
M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: firstname.lastname@example.org