Entrepreneurial Marketing Strategy

Everybody knows that proverbial low-hanging fruit offers the best opportunity for a start-up company. However, most customers don’t grow on trees so it’s sometimes difficult to identify low-hanging fruit and, after you find it a pick it, how do you determine what to pick next? We need a simple model for segmentation that will work in any industry.

The model I use buckets customers along two characteristics. The first is their overall category requirements and the second is their overall use of my particular brand. The category requirement implies how much of the product or service does the customer need buy from any supplier (not just you). For instance, if you have a young child in diapers you probably buy enough diapers to change your kid four to six times per day. Before you have a child in diapers you probably didn’t buy any at all in which case your category requirements were zero. A family with one child in diapers has a category requirement of four to six diapers per day.  It’s not zero, but it’s also not that exciting. We’ll call a family with one child in diapers “Low” category requirements. However, a day care center with ten kids in diapers will use 40-60 diapers per day- much more interesting. Day care centers would fit into the “High” category requirements. In the diaper industry low-hanging fruit smells like a day care center that uses 60 diapers a day.

Figuring out the difference between low and high category use depends on the category, you will get a pretty good feel for it if you have done your research. Demand may not vary much from customer to customer. Most people only need on house, for instance. Or take the market for human livers, most people aren’t in the market for one and, if they are, they probably only need one or two if the first one is a dud. High category use in the liver market may be someone who needs one new liver. The only person I know who consistently needs more than one or two human livers is Hannibal Letcher.

The other characteristic, Brand Usage, is the degree to which the customer buys your brand of product or service vs. the competition. In the diaper marketing that might be Huggies or Luvs for instance. Some customers are loyal in that they buy most of their requirements from one brand, some customers are switchers meaning they buy whatever brand is available or gives them the best deal, for instance. Some customers don’t use your brand at all which in the start-up world probably accounts for most or all the customers who buy in the category.

This concept fits neatly into a dandy chart:

The chart above shows a basic segmentation of your customers. Segment A for instance, represents top customers. This might be a day care center that uses 40-60 diapers per day and always buys Huggies. A few simple questions will help you put the customer or prospect in the right bucket.

Customers who have not used your brand at all will fall into segments E or F. F indicates someone who hasn’t used your brand and has low category requirements. It is best to ignore this group. Start-ups should focus on segment E. These are high-category users that do not use your brand. You will need to find creative ways to introduce your brand to this group. You might offer a free sample or a special discount for first-time customers.

If you have successfully acquired high-category use customers they will then fall into segments A or C. Segment A represents your best customers. These are the people who you need to stay close to. Keep in touch and when they make a special request you should make it a priority (if it’s feasible). Too often entrepreneurs alter their product or services at the whims customers from other segments. This is a mistake; keep your best customers close and happy.

Segment C represents an interesting challenge. For whatever reason, you have not built any real loyalty with this group. Sometimes a loyalty program of some sort will help shift a portion of their requirements your way. It is very important to focus your loyalty program efforts on this segment and this segment only. Properly done, loyalty programs can be very effective and building the right customer habits. Improperly done the can create an aggravating liability that you will be stuck with.

Segmenting customers isn’t a perfect science. While is it pointless to pursue low category users as customers during the early days of a start-up, you may accidently acquire customers who are low category users. This is fine if they are low-maintenance. If they are demanding customers consider firing them. Firing customers is tough, but you may be better off in the long run. The wrong types of customers can be a drain on a start-ups resources (trust me, I’ve been there). Low-category customers will fit into segments B, D and F. In vesting time or energy into these kinds of customers  will be a distraction at best.

D customers usually represent the worst customer segment for any company- low category users who switch brands. Cultivating a relationship with this group is a total waste.

For larger, more established companies segment B may have some potential. These are customers who don’t buy much in the category; but, when they do buy they always buy your brand. So, if their category requirements grow so will your income. In some cases it may be possible to actually increase overall category requirements. Smart companies with these types of customers will market new reasons for the customer to buy in the category. Hallmark Cards, for instance, invents holidays. What is the point of “Sweetest Day” other than to give card buyers another reason to buy cards? When new holiday’s pop up, Hallmark is happy. Another example is Mountain Dew which was introduced as a breakfast drink (a high-caffeine citrus drink). Give someone an excuse to buy soft drinks in the morning and category consumption increases.

This basic customer segmentation model lays a foundation for smart marketing in a start-up company or any company. Start-ups can afford to waste time and money chasing customers who don’t provide a good return. Segment your customers and prospects properly and you will focus your energy on the real low-hanging fruit.