Segmentation drives the focus needed for successful marketing - An interview with Geoff Hansen
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
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Geoff Hansen is the founder and managing director of Rocket Builders, a consulting firm advising firms on go-to-market and growth strategies. Rocket Builders also publishes an annual Ready to Rocket list that identifies the BC companies most likely to show exceptional growth in the next year(disclosure: Ibbaka is on this list and Geoff coaches the leadership team). Geoff is also a senior advisor at Garibaldi Capital where he leads research and advises on M&A.
The 2021 Ready to Rocket Launch event will be on March 23.
Geoff sees more market segmentations in a year than most of us will see over our entire careers and he has thought hard about what makes a good segmentation and how to execute on it. He has also heard just about every excuse there is for why not to target a specific segment. We reached out to Geoff to get his insights into market segmentation and targeting.
For Ibbaka, a good market segment is one that gets value in the same way and that buys in the same way.
Ibbaka: Can you share something from your background and how it shapes your approach to go-to-market strategy?
Geoff: I have a long history in the tech industry and started as a product marketer/product manager and eventually became CEO of several successful tech companies. I became a venture capital investor and currently, I’m an angel investor and advisor to various growth technology companies.
Ibbaka: Does that diverse background lead you to look at go-to-market strategies differently than people who have been working in operations and not in investment, or who have only been working as marketing/product people and not as CEOs? How does that experience shape your approach to these problems?
Geoff: Each has a different perspective. The investor has a bit of a financial lens, the product innovator has a focus on positioning a product and the marketer has a focus on lead creation and conversion. Each of those coming together creates value for the company.
Ibbaka: What role does segmentation play in coming up with the go-to-market strategy?
Geoff: The most important outcome of segmentation is making marketing more effective. The story you tell about your product will vary across each segment, but if you tell just a generic story about your product, you’re not going to be as effective in each particular segment.
Ibbaka: Can you give an example of a case where having good segmentation has helped a company target its messaging and product/market fit?
Geoff: When Blackberry initially came out with the idea you could have your email sit on a device at your hip they struggled at first. They crossed the chasm when they identified the use case of people within investment banks and financial traders who had an urgency to have immediate notifications, no matter where they were. That became their market entry segment and eventually, they gained up to 93% market penetration in that particular segment. Then they were able to move from that segment to other segments that worked with people in investment banking, including investors, lawyers, and government officials.
For each of those subsequent segments, they had to find additional value propositions to actually be successful. That was part of the strategy as they transitioned to broader and broader markets and found specific stories about the success in those specific markets that were going to drive their success.
Ibbaka: When people say market segmentation, they are often thinking of things such as the size of the firm, the geographical location, or the particular industry the firm is in. Is that how you think of segmentation?
Geoff: I always go to the definition of segmentation. The definition I operate on is one that a group of individuals that respond similarly to a marketing action. From that definition, demographics or firmographics can play a role, but what tends to be more important is the use case they have for the technology and the value they extract out of using that technology. Greater specificity about what a segment is will make the targeting of the segment more actionable.
Ibbaka: When you look at companies that are coming to you for advice or who go through the marketing programs that you lead; do you find that companies find segmentation easy or something they struggle with?
Geoff: They all struggle with it and the struggles are different with the various stages the companies are at. In the early market, they are willing to take any customer they can, but that doesn’t usually provide them insights on segmentation.
At first, customers are early adopters who can have a broad range of use cases, but as companies get into a broader market opportunity as they cross the chasm, what is important is that they get specific on the value proposition and what that specific entry market segment looks like.
The fear that most of these companies have is that if they get more precise in their segmentation, they are actually eliminating potential customers. When in reality, getting very precise lets them start to be more effective, and therefore increases the acceleration of adoption. They don’t understand enough about precision marketing to understand the range of effectiveness that occurs. These companies act as if reaching more people is more important than having good outcomes with the people they reach.
Ibbaka: Do you find sometimes that early-stage teams resist, either doing segmentation or making a choice about the segmented target?
Geoff: Often a marketing team that isn’t very mature will not have enough market knowledge to decide on segmentation. They have to invest time and energy to get enough information about the marketplace to actually make those segmentation decisions. Even if they could make those segmentation decisions, they have to have a sufficient budget to take action.
Sometimes people fall into the trap of just having a general market message that they hope will appeal to all segments because they only have enough budget to do one set of messages. For each market you enter you have to have an extremely specific set of marketing materials. If you don’t have a large budget that can become a big barrier.
Ibbaka: One approach to this that I’ve seen early-stage companies take, is to test a number of segments in parallel and then focus on one. I’ve seen other companies that take more of a serial approach and try one segment and another and so on. What leads companies to take one of these approaches before the other?
Geoff: The challenge of doing these tests is that you can have a lot of false positives. There can be segments that respond positively at the top of the funnel, but don’t actually go too close. You have to have a good understanding of each segment and how effective they will be in your whole funnel before you can choose which segment you’re going to put all of your resources into.
A parallel approach will be more expensive, but it will generate the best results faster.
Ibbaka: What other advice do you have for companies approaching segmentation for the first time?
Geoff: Not only will you change your message as you penetrate each segment, but the set of partnerships that are possible, the set of definitions of your whole product, will change and the dynamics of the competition you face may mean you can charge a quite different amount in terms of price in different segments. Often that difference in price is justified by the different components of the whole product offering.
Ibbaka: Let’s go deeper on that last thought. How do segmentation and pricing play together?
Geoff: One particular segment may have a high pain threshold, so the perceived value will be much higher. The whole solution may require consulting, and complementary products, so the complexity of assembling can suggest they are going to be paying a higher price.
Ibbaka: When you are coaching or advising these companies, what do you suggest they do in their first few steps so they can get started on the process?
Geoff: Get beyond the belief that you have one broad market definition. The best way to do that is to find the ideal customer, and then start to look at customers that can meet that ideal customer profile you’ve defined. You will find there are a series of differences, in terms of how customers buy and what value they perceive. That means you don’t have one ideal customer but one ideal customer in each segment. It’s that movement from one ideal customer to a series of ideal customers that leads down the path to segmentation.
Ibbaka: When one understands the segmentation and the ideal customer in each segment, is there any method for choosing which segment to approach and target?
Geoff: Companies always think they come up with their strategy and they discover their segments later. To come up with the optimal strategy for your company, you need to discover the segments first.
In each segment, you’ll have different competition, different potential channels, and different whole product offerings, so you need to develop a clear understanding of the segments before you develop a strategy.
The opportunity within each of those segments is a certain revenue potential and a different specific strategy in how they win within that segment.
Ibbaka: When should companies target multiple segments parallel and when should they take the sequential approach that you described for Blackberry?
Geoff: In the case of Blackberry, their first segment was investment banks and financial institutions. The following segments were lawyers, government, and venture capital. These other segments had referral value from the initial segment that they had penetration in.
That referral value makes it easier to move in subsequent segments if those new segments refer to the segment you’ve already succeeded in.
Go to market strategies and seek that leverage point in order to get their opening and into the markets faster.
Ibbaka: Are there any other ways that segmentation is used by these businesses?
Geoff: The other way is to identify channels as a mechanism of identifying segments. Some particular channels will lead to a segment definition because of how they will have access to the customer.
Ibbaka: What is your sense of how the pandemic has impacted the innovation economy? Do you think things will revert to the way they were before, or has this caused a long-term change?
Geoff: The companies I see that are succeeding the most are the ones that have a certain surge or acceleration due to demand. The other group of companies succeeding are those, where, although demand hasn’t surged, they’ve rearranged their segment focus to concentrate on those segments least impacted by the pandemic.
As we emerge from the pandemic, they’ll have to re-examine those segmentation priorities again, because there may be other segments that have been neglected that become highly activated post-pandemic.
They will have to change their marketing investment allocation across those segments to reflect the demand they see across those segments.
Geoff has a rich skill set. We put this interview through Ibbaka’s skill extraction AI (part of the Ibbaka Talent Platform) and this is what we found. This is an experimental use of the platform, but it shows that one can get useful insights into a person’s skills from many different sources.
