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 It's easy to make fun of sales teams caught in the
"ready-fire-aim" trap. But when a product or a company is really new, the urgency of finding customers is far
more
important than comfortable theories about market strategy. So it's OK for
companies to do the "fire-fire-fire" cycle for a little while, but over time these
experiments have got to find a solid market space into which you can
sell profitably.
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Take-Aways
Marketing cannot begin until you can identify repeating patterns in
sales cycles. Everything before that is simply experimenting to see
what sticks. This experimentation is necessary, but burns a lot of
time, effort, and enthusiasm.
Target markets are defined by segments -- clusters of
customers that have similar tastes, preferences, and buying patterns.
Define your segments as precisely as you can.
Sloppy segmentation leads to poor decisions and weak marketing leverage.
Your segments need to be large enough and clearly
enough defined to be actionable. The whole point is repeatability
and profitable deals.
When prioritizing segments, make sure to focus on how
much of the business you can actually get to. Don't
delude yourself about roadblocks and antibodies.
When working a segment:
- Be as consistent across segments as possible, while tailoring the
details.
- Target the right people in the segment, and know exactly how to talk
to them.
- Know that the channel and sales techniques will vary across
segments.
Target markets are never chosen in isolation. Solve simultaneously
for user definition, product concept, and value
proposition. |
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Target
Markets
The
whole point of choosing target markets is to get repeatable business, to find
the customers who will most consistently respond to your marketing message and
competitive advantage.
Markets
are defined by buyers, not by vendors. Except for "800 pound
gorillas", vendors have a lot less influence on the market than they
think. So it's important to understand a market space as a cluster of
buyers, not a cluster of sellers. The buyers are the business unit or
functional managers who get enough business benefit to generate the purchase order, carve
out the budget, and sign the deal with your sales people. The
buyer is not the same as the user -- keep them separate in your thinking.
B2B markets by definition do not explicitly include the user of your product, because the user
does not actually do the purchase, the way they do in consumer markets.
The
goal of selecting a target market is to identify the groups of buyers who have
consistent tastes, preferences, and purchasing patterns. These groups - segments - can be defined along a wide range of axes:
-
Knee-jerk: company size
(e.g., $250 M-$2 B), company location e.g., US),
vertical industry (e.g., automotive and defense/aerospace)
-
Buyer
technology base: users of BEA WegLogic, or IT operations people
using CISCO
-
Buyer
functional: business process (e.g., bid-to-cash cycle, product
development cycle), organizational affiliation (e.g., CFOs needing
Sarbanes-Oxley compliance)
-
User
required qualities / attributes: for example, industrial engineers needing
gasses with parts-per-billion purity, or time-domain reflectometers needing
an 80 dB signal/noise ratio
-
User
behaviors / psychographics: for example, open source java developers, or WiFi
road-warriors.
Generally
speaking, the more of these axes you can use in defining a target market, the more you understand the
prospective customer. The biggest mistake you can make in
segmentation is to make the segment too general, too large -- in other words,
to specify your target only using #1 and #2 above. Targeting something
like "US telecom companies using Cisco" represents something like a
$500 B market. This isn't a market - it's a country. Targeting
something like this doesn't bring any part of your marketing or sales into sufficient
focus to be actionable (unless you're doing marketing for Cisco itself).
 By
the same token, you don't want to have dozens of microscopic segments. You
can only afford to have a few segments (probably no more than one for every $10
M in business volume), so create composite segments to make them large
enough. For example, merge "WebLogic developers, WebSphere
developers, and JBOSS
developers" into "J2EE developers."
A
common problem in segmenting markets is "fuzzy borders." Due to
impatience, lack of information, or just lack of energy, the company's
description of its target markets seems
to go in and out of focus, sometimes overlapping with other segments and sometimes not. If you
can't keep your market definitions crisp and consistent, you're just not done with
this homework assignment. It isn't easy.
Quantifying
and Acting on Target Markets
Any
properly-defined segment will behave consistently, but it has to be profitable to
be commercially interesting. Making good marketing and sales investments
means quantifying the amount of business that you can actually get to. Be
realistic about commercial roadblocks and logistical complications that make the
customer inaccessible (or at least uneconomical) to you. Demote segments that have these kinds of
problem:
- Spread.
Each of the customers requires personal visits during and after the sales cycle. But they're geographically dispersed and there's no economy of scale.
- Size
mismatch. Large customers tend to buy from large suppliers that
can
afford to handle the overhead of dealing with purchasing
bureaucracies. Smaller companies
tend to buy from smaller suppliers who can afford to customize and "scale down"
their offering.
-
Unwilling to buy from a company like yours. Customers often
have very
specific ways of buying, and you need to understand if their standards and
expectations exclude you. If they do, you'll need to find a partner
they are willing
to buy from.
- Odd-Ball.
Every sales cycle will involve a ton of customization, one-off
demos/POCs, unique feature requests, and un-leverageable learnings.
For example, selling to the
CIA won't help you sell to other US government agencies or even Britain's
MI-6, let alone commercial customers.
- Partner
unavailability. Some kinds of customers are best approached
through particular partners. If you don't have access
to these partners (e.g., GSA-qualified resellers), you may be hosed.
- Sewn
up. Some segments have long-term vendor relationships that
are difficult to break. If a segment is absolutely dominated by
Microsoft and IBM, you need to think again.
-
Unable to accommodate technology change. Some customers may
actually
need what you have, but aren't able to cope with or effectively use the
latest technology.
- Customer
can't pay what you need to charge. You can't make money
selling to homeless people, no matter how much they need the product.
As
you start to market and sell to a target segment, be mindful of these issues:
To
the degree possible, keep the message and product offering consistent across your
segments. Segment-specific variations are expensive and time-consuming
for every part of your company.
Make
sure to target the right part of your customer organization. Know
where the budget comes from, and where the decision will be made. For
example, any
single IT product decision, either central IT or the functional
/ business organization will be the driver -- not both.
Every sales rep wants to sell high,
but many product categories are decided at the director level even in small
organizations. There's not much leverage in showing up in the VP's
office if your
product category is bought by low-level managers.
Understand
where the buyers hang out. Where do they look for product
information? Whom do they trust for advice? What professional
organizations are they members of?
Determine
how best to get to them. What do they read? What events do they
go to? What's it going to cost to actually start a conversation with
them?
Understand
the sales cycle: What sales channel will work for this segment?
How will you design-out channel conflict? How many steps and moving
parts are involved in the sales cycle? Where are the roadblocks and
antibodies?
Target
markets are never chosen in isolation
As
I presented in a recent VC/entrepreneur
conference, target markets can never be identified or understood in
isolation. To make for a solid, repeatable business, target markets
must be developed and understood in conjunction with the target user, the
product concept, and the value proposition.
Answering
these four strategic
questions simultaneously is not easy,
and it isn't ever
done in one pass. An
iterative approach is what you'll do
anyway, so the
important question is
"where to start the iterations?"
The MarketQuad™ diagram
above shows the main elements of the product and market strategy cycle. It is
tempting to start in the lower-left corner - with the product concept that you
think you know - and
proceed counter-clockwise to define the target market. However, it is often more
informative to start with the target user, and proceed clockwise through all
four corners of the quad.
I recently made the case for designing your customer
before you design your product. User-centered product design not only
produces easier-to-use products, it also helps you think clearly about the value
proposition that will drive engineering, marketing, and sales over the entire life-cycle of
the product.
Digg
This!
If
You Have to Ask, You Can't Afford it -- coming in April
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