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Alignment to the market taking into account segmentation and differentiation

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This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Opinions expressed by Entrepreneur contributors are their own.


Businesses large and small are being affected by the pandemic, and entrepreneurs are not immune. To survive and prosper in these difficult times, it may be necessary to reinvest in your business concept and redesign your offering.

As a successful entrepreneur, you have aligned yourself with your market, but are you still aligned? Do your customers need the same as before, with the same mode of delivery? For example, imagine a previously crowded restaurant that has lost its clientele during the pandemic. Does the owner really know the current needs of his clients beyond the menu he used to offer or the pleasant atmosphere he provided?

What is market segmentation?

In short, it is about grouping heterogeneous people into homogeneous groups, or segments, according to some criteria related to their needs. By defining a segment and focusing on the needs of that segment, and aligning products or services with those needs, you have taken steps toward alignment with the market. The key characteristics of a market segment could be the similar needs or preferences of customers. In a multi-location business, one segment will likely take into account geography, demographics, and the choices people make, the kinds of services they value, and the quality they expect. In a smaller company, it could be a subset of these criteria.

Let’s go back to the restaurants. Assuming that the use of masks is a fairly universal requirement, the first pressing question for owners is how to proceed for the next several months. Should the restaurant continue to offer service inside? If so, how are you going to protect customers? In general, this is solved with greater distance between the tables, requiring the waiters to wear masks and the kitchen staff to wear masks and gloves. But what about the growing number of people who now want takeout? Should they be forced into the restaurant where people are eating to collect the food? Or, more conveniently, can the restaurant offer to bring the food to the car? And the payment? Does the client have to enter the facilities to give their credit card? Or can you pay by phone or on the website when ordering?

These issues have solutions, but many restaurants seem unable to adapt. Perhaps it is a rigidity in the way owners view their establishments and an unwillingness to reassess the new needs of the market segment they served. Reassessing customers and perhaps re-segmenting your market based on the new reality is critical. Otherwise, valuable resources could be wasted on activities that are no longer aligned. Flexibility and creativity at this juncture can mean the difference between success and failure.

What is differentiation?

After redefining your market segments, you will need to identify what is important to customers in a segment likely to buy your product. Value factors can be price, quality, features, safety, shopping experience, after-sales service, etc. In a restaurant, they might include the price of menu items, the quality of the food (for example, whether it is organic or not; whether it uses meat, poultry, and seafood from sources that care for animals in a healthy environment), the variety in the menu, the safety in the process of acquiring food and eating, the experience in the restaurant and the treatment received once the service is finished.

For each segment, rate the importance of each relevant factor to customers on a scale from low to medium to high. For example, quality could be a high value factor for a segment, while price is a medium value factor. Security could be high and follow-up service could be low. The evaluation should be based on data, not just opinion. You may need to conduct customer surveys.

Next, evaluate the same value factors in terms of how your offering differs from your competitors. For example, is the quality you offer significantly better than that of your competitors? Is the price you offer considerably lower than that of your competitors? Are the features you offer unique and can’t the customer get them from other providers? By measuring your value factors, you can assign a low, medium, or high rating to each. For example, if your value factor is features, and you offer unique features that no one else provides, your differentiation would be high. If everyone offers the same characteristics, then your differentiation is low. Again, the evaluation must be based on data.

After determining your differentiation for each of the value factors, you have a set of two evaluations for each: the first is the importance of the value factor for the customer in a segment, and the second is the differentiation of that factor of value with respect to your competitors. You can represent the two evaluations in a two-dimensional table, with a low, medium and high scale on both axes.

The value factors that fall into the category (High: High) should become your main objective, both in terms of the message you send to the customers of that segment and in terms of ensuring that those value factors are perceived by your customers as and as you promised, or even better. For example, if the quality and safety have been assessed as (High: High), you should direct your resources to ensure that your customers are aware of your differentiation and that your quality and safety are at the highest possible levels.

Strategies for each segment

Not all of your market segments require the same attention. You could discard some segments and invest in others, especially during these difficult times. As an entrepreneur, you will have a preference based on emotional ties. This is dangerous, as what you prefer to offer may not be appropriate for all segments. Having re-segmented your market during this pandemic, you are in a position to decide where to put your energy and investment. You will have to choose the segments that are going to grow, those that can remain at the same level of growth and those that you must abandon.

How do you make these decisions? There are guidelines in the management literature to help you do this. Basically, for each segment, you do a double assessment: How strong are you in the segment compared to your strongest competitor in terms of the internal processes that add value to the customer? And how attractive is that segment to an investor?

If you are much stronger than your strongest competitor, your strength in that segment would be high. If you are at the same level as your strongest competitor, your strength would be medium, and if it is weaker than your strongest competitor, your evaluation in that segment would be low.

Regarding the market attractiveness, you will have to evaluate if the market of a segment is extremely favorable, (considering a set of external criteria) or not. External criteria could include market size, market growth, and market profitability. If the market segment is favorable, the assessment for that segment would be high. Otherwise it could be medium or low. The value of this exercise is that it will allow you to compare the relative position of your different segments.

The segment where your strength is high and the market attractiveness is also high (High: High) is the one that most deserves your attention, and the segment where the strength and market attractiveness are low (Low: Low) can be stopped from hand, unless it contributes something to another segment that is attractive. The other segments will require appropriate strategies based on their evaluation.

Strategic mindset

The strategic mindset that we propose in this article will help you define a set of appropriate strategies for each of your market segments. To develop a strategy, you must have identified your market segments, your differentiation and the relative position of your segments based on the business strength / market attractiveness analysis.

Choosing where to put your time and investment will be key to your survival and growth, allowing you to make the right decisions and use your valuable human and financial resources to offer maximum value to your clients.

Alignment to the market taking into account segmentation and differentiation 2

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