What Market Segmentation Taught Me about Business and Life
When you are your brand, it can be hard to distinguish the two.
Market segmentation sounds like the topic of a college lecture I should have paid attention to but probably dozed off. While I wouldn’t change a thing about my college experience, I’ll admit it would have saved significant time and energy in my case if I learned and applied these techniques sooner.
Fortunately, it’s never too late. Through the process described here—market segmentation—I not only learned a lesson about my business, I learned something about myself.
That, in the end, is much more valuable.
“Know thyself” is an indispensable piece of advice that goes all the way back to the Ancient Greeks. This concise two-word summary was popularized by Socrates and his students. Heeding this advice translates to increased happiness in life and productivity at work. Unfortunately, it’s not as simple to carry out as it sounds.
Nonetheless, some concentrated time spent thinking about your target market and true goals can reap some big rewards.
But who has the time?
If you are a solopreneur, freelancer, or are considering starting a business, market segmentation is something you absolutely want to think about at the outset. As a small business owner, the product you are selling is often based upon yourself and your expertise. The services you offer are an extension of your passions and interests. Your perspective, experience, and ability to deliver is what sets your business apart from others. Even if you are producing products to sell, those products are a reflection of you.
Given all this, the distinction between yourself and your brand might become blurred.
This is common among social media influencers, for example, but also in business as well. If you are selling products or services that you are not passionate about, customers will quickly see right through that. Authenticity is critical, and to know thyself is a prerequisite.
Thus, a minor time investment now can make a huge difference down the road.
My (re)introduction to market segmentation
Recently, I ran a 7-day Google ad campaign. I am the editor of a new website called Freelante whose tagline is “Home for Freelancers.” I wanted to do what any editor hopes for—make potential readers and consumers aware of the content that was now available. To accomplish this, I decided to run some trial ads to see how effective they would be in generating traffic.
Before we discuss the specific ad, let’s define a market segment. Ideally, any ad should target a specific segment with a specific call-to-action. If you consider all of your potential customers, a market segment is a subset of those customers who share a set of chosen characteristics. From the selected perspective, customers within that segment can be viewed as the same or highly similar. I like how the ULP website states it:
“Market segmentation gives you the ability to create highly targeted ads that are centered around one or two traits, which should make your marketing campaigns more effective.”
The granularity and specificity of the selected characteristics is the key to the process. In the case of Freelante, one market segment to consider would be people interested in business. This, however, is a huge segment and it turns out not very useful given the level of competition and content that already exists in this space. The initial market segment I had in mind was people considering becoming a freelancer or those who had already started and are looking for resources and insights.
You can consider different dimensions of characteristics in your segments. Four common types are: Demographic, Geographic, Psychographic, and Behavioral. Roughly speaking, these dimensions are used to target potential customers based on who they are, where they are, their personality type, and relevant behaviors.
In my case, demographics did not seem highly relevant. Whether you are male or female or in your twenties or your forties would not be a good indicator of whether you are interested in freelancing, While many freelancers are people in their thirties or forties with industry experience, I also know people in their twenties who went straight into a freelancing business model. Geography also was of little interest to me as most freelance work can be done remotely from wherever you live. What was important to me was a customer’s desire to become a freelancer or independent worker, as well as individuals with a small business or entrepreneurial mindset.
The importance of market segmentation in small business
In my view, there are two critical functions of this process for your small business: value proposition and targeted advertising. For a small business or someone just starting out as an independent worker, it’s critical to consider this because it’s a crowded field out there. If you have a good network and can find clients that way, you may skip over this step initially. If you are in the mode of finding new clients, it’s essential because you need to be very clear about the value you bring to them. Once you deeply understand your value proposition and have confidence in it, explaining it to customers through advertising or other communications becomes much more straightforward.
In the One Page Marketing Plan, Allan Dib explains that marketing to everyone is marketing to no one.
It is tempting to want to appeal to everyone because after all, who doesn’t want more customers. The problem is that from the perspective of “everyone”, you are undifferentiated as a small business. If you are a large business such as Amazon, you can afford to appeal to every citizen in every state. Most likely they all know of Amazon and in fact, are all potential customers.
You as a freelancer, however, need to define a market segment such that you are a leader or have significant expertise. In a smaller market segment, you can differentiate yourself, show your expertise, and make a strong impression using your value proposition. Theoretically, you would like to get as close as possible to defining a category such that you are the best.
The second function of a market segment then is to tailor your message. Allan Dib in his book referenced earlier says you should have a single ad containing a single message focused on a single goal. In the case of my ad campaign, the message was the availability of a quick start guide I had written and made available on the site. The guide contains a wide array of information collected based on my research and experience getting my business started. The call-to-action was a download by the customer once they reached the site. The guide is free and the goal was to build up a base of readers and subscribers who value the content the site has to offer.
The Google Ad
When you place a Google search ad, you choose search keywords where you would like your ad to appear. Bidding strategies are used given that some keywords are more popular than others and have a higher value according to Google.
What keywords do you use? There are numerous tools and sites that help with this. It is a foundational topic of Search Engine Optimization (SEO). In my case, I used the Google Keyword Planner to look at the frequency of specific search terms relevant to freelancing and starting a business. There are rates associated with each keyword or phrase.
Your goal is to maximize clicks and minimize the cost-per-click. The conversion rate on your site is the final piece of the puzzle. Of the folks who clicked on your ad, conversions are those users who took the call-to-action, whether that be making a purchase, spending time reading an article, or whatever your goal may be.
There were two versions of the ad, each of which ran for seven days.
The revelation to me occurred looking at the first few days worth of metrics. Search terms with the highest number of clicks did not include “freelance” or “freelancer” like I expected. The most effective search phrase was variations of “start a business”. This was quite surprising although in retrospect it should not have been.
Alignment of your market segment, vision, and offerings
While I initially framed the site and market segment as freelancers, my content was not completely aligned with this vision. My journey to becoming a freelancer was by leaving big tech to pursue different challenges and interests. This journey was my inspiration for the website. However, the quick start guide and related content on the site was not limited in relevance to freelancers. For example, all of the steps needed to form an LLC and start a business are relevant to not just freelancers, but anyone starting a small business.
It was time to reconsider the market segment and my goals. While becoming a freelancer was the path I chose, this experience reinforced something which I knew internally but had not manifested itself in this trial ad campaign. My true passion was not purely being a freelancer. It was the extreme creativity associated involved with starting a business, something I talk about in my first podcast.
To me, starting your own business is the ultimate creative endeavor. The number of possible business pursuits is almost unlimited. You form a special connection with any project that you underatke. They aren’t just an investment of time and money, they are an investment of creative energy. This investment can be rewarding both through the process itself but also when you see them succeed and grow.
So why did I not figure all of this out sooner? I had spent time planning my business including what I believed was tremendous attention to detail in terms of getting it started. Nonetheless, this trial ad campaign helped crystallize my value proposition. It reminded me of what I am truly passionate about. The gap between the two occurred because I had not truly applied the market segmentation process to my business. Earlier I mentioned that you need a deep understanding of your market and value proposition. My understanding was good but not completely aligned.
Market segments can definitely overlap, as they do in this case. Independent workers, freelancers, solopreneurs, entrepreneurs, and small business owners can all be part of overlapping market segments. It may seem like minor differences but if you aren’t 100% crystal clear on your message and value proposition, how can you expect your customers to easily understand and engage?
Launch and Adjust
After contemplating all of this, I paused my ad campaign and went back to evaluating my market segment. From there, I looked again at the associated keywords and phrases I needed to connect with that audience. Although much of the content to follow on the site will be of interest to the small business and entrepreneurial crowd, this particular ad was focused on a freelancer’s guide to getting started. I was confusing my future audience and content I currently had.
As Allan Dib says, one ad should have one message with one goal. The goal here was downloads of a guide for freelancers getting started and forming their LLC. I shifted the focus of my campaign to the second of the two ads in order to highlight starting an LLC and how to “Become a solopreneur or freelancer now”. The search keywords I emphasized shifted towards “freelance” and phrases that included freelance “company” or “business”. The results were immediate and noticeable.
While the initial ad resulted in a click through rate (CTR) of only 0.69%, the second iteration with the new keyword focus experienced a rate of 6.91%, a 10x increase. Additionally, the cost-per-click went down from $0.62 to $0.48.
I also ran an ad campaign on Facebook, and I am planning to do so on LinkedIn as well. In a future article, I will discuss the differences and advantages of each of these platforms. Here we just looked at Google Search ads, but your market segmentation can be as valuable, or even more so, on these other platforms. They all know a lot about their users, but in the case of LinkedIn, it knows if you are looking for a job. People in this demographic may be more likely to start an LLC and conduct their own freelance business or independent work. More on that later though.
For now, I’m going to continue working on content and advertising that is in complete alignment with my passions and interests. This process on the surface can be viewed as marketing, but through it, I became a bit more self-aware. I greatly enjoy the freelance work that I do, but I also greatly enjoy the creativity involved in new business ideas, plans, and endeavors. In terms of site content, that will be a focal point going forward.
If you haven’t done so already, take a good look at your target market segment. Know them well, and you might just know yourself a bit better in the process.
Check out Darren’s podcast, blog, and quick-start freelancing guide at www.freelante.com
