By Barbara Pellow August 16, 2006 -- Target marketing recognizes the diversity of customers and does not try to please all of them with the same offer. The first step to target marketing is identification of different market segments and their needs. Segmentation is a selection process that divides the broad consuming market into manageable customer and non-customer groups with common characteristics. Effective segmentation provides the marketer with the opportunity to exploit common characteristics of a customer group through effective marketing. Instead of marketing to an "average" customer, you can pinpoint clusters of prospective purchasers with similar business problems, needs and wants. Effective segmentation provides the marketer with the opportunity to exploit common characteristics of a customer group through effective marketing A market segment, then, is a homogeneous group of customers that should respond to offers in a similar way. Picking the Right Segments Ideally good market segments should be evaluated against the following five criteria: 1. Are they identifiable? Can they be measured? Graphic communications service providers focus on either vertical or horizontal target markets. Vertical marketing is a term used to define a company's approach toward targeting that focuses on specific industries. Vertical markets are most often identified using the North American Industry Classification System (NAICS). If you wanted to rent a list to assess the size of a prospective target market or to conduct a direct mail campaign, the list broker typically will create a list comprised of companies who have similar NAICS codes. Horizontal marketing is when you single out a target audience that shares specific characteristics, yet can be found in all industries. The most common way that graphic communications service providers execute horizontal marketing activities is by job title. In this approach, you go after an audience found in many businesses, such as marketing managers, CMOs, or Vice Presidents of Channel Strategy. Here you're less interested in what industries these companies are in, and more interested in the job function. You can afford to do this kind of marketing when your product and service offering has a broader application and it's less dependent on the characteristics of a specific industry. There is substantial data available to help identify horizontal purchasers for specific offerings. The CMO Council has data on Chief Marketing Officers; the Institute for Supply Management has information on procurement executives and the Association for Training and Development (ASTD) has information about training departments regardless of vertical market. (Editor's Note: For more detailed info see Barb's previous articles on Vertical and Horizontal marketing.) 2. Is the segment substantial? Is it a growth market, or is there opportunity to gain share based on your technology? The segments you select need to be large enough to justify the resources required to target them and they need to be profitable. Your firm may be focused on a local market, regionally or nationally. As you look at the attractiveness of a specific segment, the following are aspects that should be considered: o Size of the segment within targeted geography o Growth rate of the segment o Competition in the segment o Brand loyalty of the customers in the segment o Attainable share given competitors expenditures o Sales potential o Anticipated margins For example, the PIA Marketing for Digital Reports estimate that print spending in the gambling and wagering market is $4.3 billion. The casino market is growing in excess of 5 percent annually and 2.5 percent of revenues are spent on advertising. The real estate market spends $11 billion on advertising. It is also a major user of print--$6.1 billion worth in the U.S. alone. Graphic communications service providers targeting these vertical segments can clearly identify substantial business opportunity in markets like these that are growing. Graphic communications service providers targeting vertical segments can clearly identify substantial business opportunity in growing markets. 3. Is there easy access to the segment? Selected segments need to be reachable through marketing communications and distribution channels. The most effective marketing communications are essentially the one-to-one sales call, where the skilled sales person can address the needs of the individual prospect. Due to inherent similarities in a given segment, marketers can address groups as if they were communicating with individuals and direct communications to groups of prospects or existing customers via more meaningful products, pricing and messages. There are two categories of customers you will want access for your segmentation model. a. Current customers -- customers and segments of your customer base that you currently do business with. As you extend new offerings, you want to extend reach within the existing client base. As Worcester, Massachusetts, based LaVigne Inc. transitioned from being strictly a print service provider to a firm focused on ROCI (return on communications investment), existing customers offered tremendous opportunity for service expansion. LaVigne needed to educate existing customers on how its Marketing Communications Command Center could assist them with the development, construction and execution of marketing campaigns, ensuring that the right message goes to the right people at the right time. LaVigne needed to reach the right contact within existing client companies to share its expertise in building scalable, automated systems that deliver real-time targeted marketing communications via electronic and print technology. The company used a combination of direct sales and high quality direct marketing, which is best suited for accessing and building new relationships within existing clients. b. Prospects -- segments or customers in which you are not currently doing business, but feel there is significant potential. PrintPelican is a private company owned by the TPG Group (Topline Printing and Graphics) with two major plants, one in Riviera Beach, Florida and one in Toronto, Canada. According to president Grant Morris, as he evaluated the future direction for the business, it was clear that more and more volume would be Internet driven. This was the genesis for PrintPelican. PrintPelican.com is a one-stop shop for commercial printing. Whether the client wants brochures, calendars, catalogs, or magazines, it has the infrastructure and technicians to handle the work. Clients have the ability to order printing and pay for services online and they can receive online proofs. While Topline Printing and Graphics services a number of Fortune 1000 clients, PrintPelican targets its offering to a broad number of mid tier and smaller businesses in a broad array of horizontal markets. 4. Does the market have unique needs that let your organization provide differentiated value add to the customer? To justify separate offerings, the segments must respond differently to different marketing mixes. Firms like Reaching Neighbors (see ODJ August 9, 2006) have established web based direct marketing solutions for the real estate market. Reaching Neighbors believes that regardless of the type of small business, much of its opportunity is within a reasonable geographic proximity, essentially its "neighborhood." The initial focus for Reaching Neighbors was to meet the needs of the real estate market. Its approach was to get real estate agents to "adopt" a neighborhood and build a relationship with it through a 12-month-long integrated direct marketing campaign. Reaching Neighbors designed the campaign for the agent and sent postcards to the neighborhood. The postcards provided valuable information such as sports schedules for the high school team to day trips to suggestions for weekend activities while helping keep the agent "top of mind." The value for the client was that hopefully when it came time to list a home, the agent would be selected. The neighborhood concept can be expanded to more vertical market niches such as promoting the services of a service station, a new menu at a restaurant, or the offerings of local stores. The infrastructure that Reaching Neighbors has deployed to meet the needs of Realtors is equally relevant to multiple different industry sectors and segments. For example, post cards could incorporate coupons to drive store or restaurant traffic or build loyalty programs. Best of all, each new approach can be specifically designed for a different vertical target. 5. Is the market durable? Is it a stable market so the cost of changes is minimal? While everyone assumes print will be around forever, it is not a durable market for all segments. Early successes in the world of digital print came from technical documentation. The Mahoney Group was formed as a COPYMAT Franchise in 1986 in Silicon Valley. In 1990, the firm bought its first DocuTech and became a leading provider of high tech software manuals and documentation. Business was so good that that they closed their retail storefronts in1994 and operations continued to flourish. In 2001, PDF emerged as a pervasive industry standard. Electronic distribution became the rule versus the exception and black and white digital printing rapidly became a commodity. According to VP of Sales, John Mahoney, they quickly realized the need to revamp the business plan to both survive and thrive. Mahoney said. "Based on our experience, as we re-evaluated our segmentation model, we wanted to participate in a market space that was value-oriented versus price sensitive. We never wanted to be in a commodity business again." The Mahoney Company decided that the strategy for success was to participate in a larger revenue opportunity and that meant marketing communications services and integrated campaign management solutions. Through both organic growth and strategic acquisitions, St. Paul based Merrill has become a leading provider of outsourced document management, branded marketing services and other information management solutions to targeted vertical markets. Its initial target focus was the financial services market, but in the late 1980's Merrill began to diversify offerings. In 1986, Merrill established a Document Reproduction Group to offer litigation copying, which helped Merrill weather the 1987 stock market crash that threatened the financial services market. In the late '80s and early '90s, Merrill geographically diversified and continued to open new offices and acquire regional printers to strengthen its national network. Merrill also established relationships with financial printers in London, Tokyo, Melbourne, Toronto and Montreal to create a global network of financial service print partners. Today, Merrill continues its focus on legal and financial services compliance support, but has extended its offering to include horizontally based marketing solutions for a broader number of industries including the realty market, financial services, professional services and major corporations. This strategy ensures minimized risks associated with market instability both from an application perspective and geographically. We wanted to participate in a market space that was value-oriented versus price sensitive. We never wanted to be in a commodity business again. Fundamental to Marketing Identifying needs and recognizing the differences between groups of customers is at the heart of marketing. Graphic communications firms cannot be all things to all clients. It is impossible to satisfy everyone: your resources simply will not stretch that far. You need to know your existing customers as well as define the prospects you want to attract and have a clear value proposition that captures their attention. The ultimate benefit of good market segmentation is that if done properly, it yields the maximum return on marketing and sales expenditures.