You Can't Do Business with Everyone - Huxiu.com#
You Can't Do Business with Everyone#
This article discusses the importance of market segmentation and how to gain a competitive advantage by choosing a good segment and implementing special business activities.
• 💡 Choosing a good market segment is crucial for a company's success.
• 💡 Paka Corporation has achieved outstanding performance and reputation by focusing on the high-end heavy truck sector and maintaining high quality and performance.
• 💡 Market segmentation is only part of the decision-making process, and the key to gaining a competitive advantage lies in the design and implementation of special business activities.
Today, I'm sharing a topic from the book "Marketing Notes" about "Market is Choice, Product is Segmentation".
I. You Can't Do Business with Everyone
You can't do business with everyone, nor do you have the opportunity to do business with everyone.
Choosing a product means entering a segmented market.
If you enter a bad market, it's like throwing a sprint champion into a muddy field, no matter how good you are, you can't run fast.
So, "Market is Choice, Product is Segmentation."
So what is a good market segment? Let me tell you a story first.
Which is the number one truck company in the United States? It's Paka. You may not be familiar with this company.
Paka Group has been the largest truck company in the United States for decades, with an average return on net assets of 16%.
The industry average is only 12%.
The truck industry is a cyclical industry, and customer demand fluctuates with the economic cycle, just like the shipbuilding industry.
At the same time, the heavy truck industry has slow growth and a particularly long return period. It is not an industry favored by investors, so no one is willing to invest in this industry and compete.
But in such a volatile industry, Paka's performance remains very stable. It has not incurred losses since 1939, even during the global financial crisis in 2008, it was profitable.
How did Paka achieve such good performance?
Paka focuses on the high-end heavy truck sector and, based on this market segment, has formed a series of coordinated and long-term advantages in product design, research and development investment, distribution channels, and customer research.
Paka does not manufacture light trucks or cheap heavy trucks, it only manufactures high-end heavy trucks.
What is a high-end truck? Trucks are not cars, and the purpose of buying a truck is very different from buying a car.
In the United States, truck buyers are generally fleet operators, and the drivers are the ones who drive the trucks. Fleet operators will not buy a high-end truck to show their status, so how can they sell their trucks at a higher price?
The answer is to improve the quality of the trucks.
The quality of heavy trucks includes three aspects: truck performance, truck service life, and truck operating costs.
For example, a 2008 Kenworth T2000 heavy truck, if it travels 100,000 miles a year, the fuel, maintenance, and insurance costs will be about $100,000.
But the selling price of this heavy truck is only about $110,000.
So, since it is a high-end truck, it not only needs to be durable but also has low operating costs.
Kenworth has developed trucks based on aerodynamics principles and equipped with low-resistance air intakes, which greatly reduces fuel consumption.
Paka also realized that truck operators usually hire two drivers to take turns driving to save operating costs and improve truck utilization.
Paka pays great attention to the design of driver rest spaces and has designed the appearance of the trucks in a Harley style, which is more popular among American truck drivers and also affects the purchasing decisions of fleet operators.
The quality of trucks is not easy to prove unless they have been tested for a long time.
So Paka persists in producing high-quality and high-performance heavy trucks, and it takes many years to see the return.
If your truck has been running on the road for 20 years, with good performance and stable quality, and hardly needs any repairs, this cannot be proven by verbal promises. Only when the truck has actually been on the road for 20 years can it gain such a reputation.
Otherwise, how many people would believe it and pay hundreds of thousands of dollars?
So, going back to the previous question: why did Paka achieve such good business performance?
First, it segmented its business; second, it developed a series of coordinated business activities for its segment.
II. Everything You Do is to Gain a Competitive Advantage
Just segmenting the market does not guarantee good business performance or bring any advantages.
Just like positioning your brand, it does not bring any competitive advantage.
Market segmentation is just a decision for a company, and this decision does not guarantee success.
Because many brands positioned in the mass market also perform well, such as Coca-Cola.
So what is the key to your success?
It is the series of special business activities that your company takes for this market segment.
Only by doing various business activities for the market segment can you gain an advantage.
It is precisely because of these coordinated business activities that shape the competitiveness of the company and the brand, and form a competitive barrier.
For example, Paka not only designs trucks that are more comfortable and in line with the style of truck drivers for its target customers but also insists on maintaining quality and performance for decades. This has earned it a rare reputation in the heavy truck industry.
It is very difficult to gain such a reputation.
In addition, its pricing allows it to have enough profit to invest in further technological research and development, which allows engineering and technical personnel to work with peace of mind and not frequently change jobs for opportunities.
So, the key to the problem is not market segmentation but gaining a competitive advantage.
How to gain a competitive advantage through market segmentation?
There are two key points here.
First, you need to enter a good market segment.
Second, you need to strategically position yourself and gain an advantage in this segment through business operations and design.
III. How to Achieve Effective Market Segmentation
Different businesses have different strategies and design approaches.
But there are four indicators that can help you determine whether your market segmentation is effective.
These four indicators are:
- Identifiability and Measurability
In other words, can your chosen market segment be easily identified and measured?
It must have clear boundaries and can be tested for customer scale, purchasing power, and consumption scale through statistical methods.
For example, the market segment for elderly shoes like Footcare is people over 60 years old.
Is this market segment identifiable and measurable? Yes.
We can define this market through demographic methods and determine the purchasing power and consumption potential of customers in this market through statistical methods.
Their consumption characteristics can be easily described.
Another example is Rolex, which targets wealthy individuals with high social status. This market segment is relatively easy to measure.
Similarly, college students, high school students, residents of first-tier cities, high-income individuals, fitness enthusiasts, customers who prefer durian, programmers, vegetarians, drivers, people with menstrual pain, etc., can be easily defined and their consumption scale can be measured.
Paka's market segment is also relatively easy to measure.
But if your market segment is second-generation Beijing residents, this is a market that is difficult to identify, define, and measure.
Because the characteristics of this group of people are not very obvious, although their status as second-generation Beijing residents can be proven by their parents' place of birth, this identification is time-consuming and labor-intensive and does not have much significance.
For example, if our market segment is those upright and kind target groups, this segment cannot be measured, and it is very difficult to find and define them.
- Market Capacity
Market capacity determines how big a company can be, how fast it can grow, and how far it can go.
You may have chosen a market segment that is easily identifiable, but you still need to consider the market capacity.
For example, Footcare's sales in 2017 were only 50 million yuan, but by 2019, it reached 4 billion yuan.
Because China has entered an aging society, the elderly economy is a huge market, and in such a market capacity, you can easily get tens of billions by cutting a piece of cake.
Another example is the baby market, which currently has a relatively large market capacity, and the previous baby market has not been fully tapped.
For example, in the past, parents used to cook for their children at home, but now more and more mothers are choosing various brands of baby food to feed their children. In addition, Chinese families are paying more and more attention to their children's health and education, so the baby market has tremendous purchasing power.
From another perspective, China's birth rate has been rapidly declining, even lower than Japan, which has the lowest birth rate. The overall consumer population of infants and young children is declining year by year.
And their consumption period is very short. If we look at it from a longer-term perspective, this market segment has some problems.
A few years ago, someone who made label machines consulted me.
Their product is mainly targeted at people who like to label and categorize in their daily lives.
This is a very niche market, and the market capacity is also small. Even the largest label machine company in the industry has only a scale of over 100 million yuan.
Of course, it varies from country to country. Japanese people are very obsessed with classification and organization, so Japan has a much greater demand for label machines.
Another extreme example is the group of Chinese astronauts. This group is easy to identify, but it is too small.
If you have determined a market segment and the market capacity is large enough, you also need to consider the accessibility of this market.
That is, can you reach this group through channel construction or advertising?
For example, the military is a segmented market, and this group seems to be very segmented and easy to identify. Moreover, the living conditions of the military are very concentrated. Can you reach the military through sales channels?
For this group, besides online sales, offline channels are relatively difficult.
If you were doing business 20 years ago in the LGBTQ+ market, it would also be extremely difficult to reach this market.
Because the internet was not developed at that time, the majority of LGBTQ+ individuals in China were hidden, and it was very difficult to find them.
But today, this market is relatively easy to reach because there are dedicated LGBTQ+ dating websites and communities.
Another example is e-commerce practitioners. This group itself is a very segmented market, and they also have needs, such as a great demand for knowledge about store operations. So how can you find them and communicate this knowledge to them?
For example, Taobao operators generally have the Taobao seller version. If you advertise through information flow or other advertisements, you can directly identify users who have the Taobao seller version app on their phones and target them with advertisements. This is called accessibility.
If you choose a segmented market that is not accessible, then you cannot do business in that market.
Because you cannot advertise to target customers, nor can you find channels to transact with them.
Responsiveness refers to considering the response of the market segment to your product and promotional activities.
Many years ago, there were gender-specific beverages, but female customers did not show a clear preference for so-called female beverages.
This shows that customers in this market segment have insufficient response to the value and promotion of your product. It can only be said that at that time, female beverages were not a good market segment.
There was a brand that made Chinese-style insoles for young people, and they asked me how to effectively promote them.
This is very difficult.
Young people are not the main consumers of insoles, and generally, consumers have a greater demand for the comfort of insoles than their aesthetics. Because insoles are placed inside shoes, they cannot be displayed.
So even if you find those young people who like Chinese-style, will they pay for this product? I feel the likelihood is very small.
Of course, the response of customers is related to the value of your product and the direction of your promotion.
We previously made British Little Leather's ambient temperature yogurt for children, and the initial promotion focused on good ingredients and nutritional content, but mothers had a mediocre response to this.
Later, the salespeople changed their promotion to "ambient temperature yogurt is good for babies' stomachs," and mothers were quite receptive to this promotion.
This shows that different promotion focuses on the same product can bring different responses.
If the product itself has no value for this market segment, then customers will also have a lukewarm response to marketing and promotion.
For example, the home label machine mentioned earlier can help housewives with label classification, but 99% of housewives have no need for this, which means the product provides value that the target market does not need.
A few years ago, I also encountered an entrepreneur whose company made household automatic plastic film shoe covers.
I think they targeted a market that had no demand.
At that time, they gave me a sample, but I threw it away after keeping it at home for half a year.
So you see, a complete market segmentation action actually includes the following points:
We need to be able to easily identify our target customers, know how big the market capacity is, know how to find them, and study how they respond to our marketing activities.
Only when all of these are done can we consider the market segmentation action complete.
Behind market segmentation is to make your product gain a competitive advantage.
This is the key to the problem.
Isn't it? Don't confuse the primary and secondary.
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