Defining Your Micromarket

Many companies, particularly smaller firms, struggle to properly define their target micromarket properly. The natural temptation is to spread efforts widely so as not to miss any possible prospects. For example, one company I worked with said it "focused" on eight (!) vertical markets. You can focus on one, two, possibly even three things simultaneously -- but not eight. The practical result of a "scattershot" approach is that the best prospects are inadequately communicated to, resulting in wasted marketing efforts and dollars, a mushy message, and an inordinately difficult sales process.

By carefully defining and focusing efforts on a micromarket and using the proper micromedia to reach it, companies not only reduce wasted marketing spending but can also finely tune their messages to have the greatest impact on their target market, as opposed to producing lowest-common-denominator prose designed to appeal to a wide variety of prospects, and thereby being of little interest to any.

So how do you define a micromarket? In a word: precisely. For example, "healthcare" is not a market; it's a segment word used by economists, as in "the U.S. spends 14% of GDP on healthcare." The healthcare segment is comprised of several vertical markets, including manufacturing (medical devices, durable medical equipment, pharmaceuticals), financial institutions (insurance companies, banks), providers (hospitals and clinics), professionals (physicians, nurses, medical technicians) and others.

Healthcare is a segment; hospitals and doctors are vertical markets; neonatologists at hospitals with at least 500 beds are a micromarket. By carefully defining and then focusing on a specific micromarket in this way, companies are able to maximize the impact of both marketing dollars and target-specific messaging. The opportunities missed by focusing in this manner are generally those with the most difficult sales cycles and lowest probability of closing -- hardly a big loss.

Once a company has successfully established a beachhead in one micromarket, it can repeat the exercise with others. That creates a path to growth through focused efforts that provide a much higher ROI than a scattershot approach.

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Terms: micromarket, micromedia, targeted marketing, marketing focus

The Internet website marketing portal: WebMarketCentral.com

Contact Tom Pick: tomATwebmarketcentral.com

Marketing Wisdom for 2006

Marketing Sherpa recently published Marketing Wisdom for 2006: 110 Marketers and Agencies Share Real-Life Tips, its annual compendium of practical marketing knowledge. As always, the report features a mix of the off-beat and on-target, but provides enough creative and useful ideas to keep marketing practicians busy until next year's report is published.

One item that immediately caught my eye was a paragraph in the introduction by editor Anne Holland: "The more broad the copy was, in a misguided effort to appeal to more people, the less it appealed to anyone...to write great targeted copy, you need a pile of market research to base wording and focus on. And, in trying to get campaigns off the ground quickly, we all sometimes skip that essential step."

I shared that lesson in a company I was doing some work for a while back. They brought me in at the 11th hour on an email campaign for a new product launch. The copy was watered-down mush designed to appeal to the broad array of companies the email would be sent out to, which meant, as Anne points out above, that it didn't really appeal to anyone. It was too late to rework the campaign at that point, so I tweaked the copy as best I could, but the result was predictable: a whopping 0.1% response rate.

For subsequent campaigns, I persuaded the company to target their messages much more precisely. For example, instead of doing a campaign to "computer manufacturers," do separate campaigns for mass market branded manufacturers (e.g. Dell, HP, Gateway), white box makers (e.g. Systemax, Equus), and high-performance specialty producers (e.g. Alienware). Although precisely targeted campaigns are more costly, response rates are also inevitably much higher.

Campaigns do best when they approach one-to-one marketing, at least using micromedia to target micromarkets.

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Terms: Marketing Sherpa, marketing wisdom for 2006, micromarkets, micromedia, practical marketing ideas

The Web marketing portal: WebMarketCentral.com

Contact Tom Pick: tomATwebmarketcentral.com

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Micromarkets Part 2

A few weeks back, I wrote about the dichotomy of micromarkets and mass markets. On a recommendation from Tom Austin, I just read The Rule of Three -- a book which nicely ties together my musings on how small, focused companies can thrive in the shadow of industry giants.

The Rule of Three, by Jagdish Sheth and Rajendra Sisodia, posits that over time, every industry comes to be dominated by three large generalists, with any number of small niche players also thriving. Examples abound: in athletic shoes, it's Nike, Adidas, and Reebock coexisting with specialists such as Saucony. In airlines, it's United, American, and Delta, with focused niche players like Southwest.

Niche specialists thrive by earning high margins serving a small percentage of the overall market. Generalists focus on efficiently addressing the needs of a large share of the market. Niche companies that try to grow too fast, and generalists who fail to achieve critical mass, are in danger of falling into the dreaded "ditch," as illustrated below. Their market share is too small to enable them to compete effectively against the giants, while their product and market focus is too broad to enable them to compete against the niche players. Northwest Airlines, which is currently flirting with bankruptcy, and K-Mart are examples of ditch companies.



Markets are dynamic, of course, and the makeup of the big three can change over time -- and sometimes in a very short span of time. For example, IBM, the undisputed leader in PC manufacturing in the 1980s, is no longer even much of a niche player in the space. Niche players can become market leaders (though the path is fraught with peril), smaller generalists can leapfrog leaders with new technology, or smaller generalists can combine through mergers and acquisitions to emerge as big-three companies.

The Rule of Three also provides a wealth of strategic advice for companies in each market position. Market-focused niche players will be most successful by developing new products for their tightly-defined market. Product-focused niche companies succeed by finding new markets for existing products (the ever-expanding number of uses for baking soda is a classic example).

Market leaders are advised to be fast followers rather than innovators. For example, Microsoft is the leading provider of word processing, presentation, and spreadsheet applications -- although it didn't invent any of them. The third-largest company in any industry normally is -- and needs to be -- the most innovative. For example, Chrysler brought back the convertible and developed the minivan.

The structure applies to b2b companies as well as b2c firms. In the business software market, Gelco Expense Management is a classic product nicher; it has one narrow product (online expense reporting) that suits multiple industries. SoftBrands is a market niche company -- it sells a broad suite of software and services to a narrow slice of the manufacturing market: midsized companies that produce assembled products. The company's strategy may appear confused because it also sells software to the hospitality industry. However, as The Rule of Three points out, niche companies can successfully compete in more than one niche -- as long as operations remain separate and focused. The danger for niche companies is the temptation to grow by becoming generalists. If SoftBrands tried to compete head-to-head in business software applications with SAP, Oracle, or Microsoft, it would find itself pulled into the ditch.

The Rule of Three does an excellent job both of explaining industry structures -- how micromarkets and mass-markets co-exist -- and of providing strategy advice to companies large or small who want to thrive and avoid being pushed or pulled into the ditch.

*****

Terms: The Rule of Three, micromarkets, niche marketing, business strategy, strategic focus

The Web marketing portal: WebMarketCentral.com

Contact Tom Pick: tomATwebmarketcentral.com

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The Age of the Micromarket?

Back in ancient times (that is, before 1996), big companies and big brands ruled the market. Then came the dot-com boom. With the internet and manufacturing lot sizes of one, virtual companies were supposed to spell the end of big brands and usher in the age of the micromarket.

What we've ended up with instead is an odd dichotomy of mass and micro. On the one hand, big brands still rule in many cases: Coke and Pepsi; Bud and Miller; GM , Ford, Daimler-Chrysler and handful of other large auto makers. Even the internet -- supposedly the ultimate micromarket vehicle -- is dominated by Amazon, Yahoo and Google. And of course, no industry is more dominated by one brand than computer operating systems, where all alternative operating systems combined don't generate 10% of the revenue of Windows.

And yet, simulateously, markets are indeed becoming more micro. When I was in high school (too long ago), there were only a handful of teen subcultures: you were either a Jock, a Nerd, a Burnout, or a Quiet One. Today, the pelthora of adolescent cliques include auto shoppers, band geeks, Crombies, emo kids, goths, preps, wavers, rejects, skaters, punks, hippies and several more.

Radio station formats in my youth were pretty much limited to top 40, country, news, religious, and polka (seriously). Now, radio formats include adult album alternative, classic hits, classic rock, college, modern rock, oldies, and just plain "rock," just within the rock category alone.

In "Nobody Home," Pink Floyd's obligatory big band doleful missive about life on the road, David Gilmour complained of having "thirteen channels of sh*t on the TV to choose from." Thirteen? Today, basic cable usually comes with more than 100 channels, and satellite systems offer 500 channels or more.

Micromarkets are a hot topic in publishing, restaurants, and etailing among other industries. There are few markets more mature than the insurance industry, which began in London in the 1600s. And of course there are a handful of very, very large insurance that most people are familiar with: AIG in life insurance, Allstate in homeowners, and State Farm in auto. Yet the industry is still amazingly dynamic, and includes its own micromarkets such as insurance specifically for "black cars" (taxis and limousines) and for classic cars.

So, where are we exactly? We're at a stage where the best entreneurial opportunities exist in micromarkets. To return to the beer analogy for a moment, nobody's going to line up investors to create the next Budweiser, but they might get funding to create the next Summit. Small companies innovate, big companies consolidate. The best new ideas still come out of garages. The challenge for marketers is to choose the right subculture or micromarket, and then use today's micromedia to bring the right message to the right people.

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Terms: teen subcultures, Pink Floyd, micromedia, etailing, micromarket

The portal for Web marketers: WebMarketCentral.com

Contact Tom Pick: tomATwebmarketcentral.com