My #7 Money Making Secret – Segmentation

My #7 money making secret is SEGMENTATION.

Which is a big fancy word I learned in my corporate consulting days for “separate your market into reasonably large groups of reasonably unique desire and serve them separately.”

Most internet marketers don’t bother with segmentation at all.  They think their market is comprised of a bunch of white ping pong balls zipping past them, and so they gear all their marketing communications to white ping pong balls.

Which is FINE  IF 80% of your market really IS white ping pong balls… having essentially the same needs, wants, language, emotions, and concerns…

It’s ALSO FINE  if your market is so small that the financial boost you’d see from segmenting it is outweighed by the time and resources needed to manage a separate and distinct sales process…

But if you’ve got more than one color of ping pong ball in your market ( most markets do) AND it’s large enough that boosting the response of the new  segments financially outweighs the resources required to do it… then you’re leaving  money on the table.

Sometimes a LOT of money.

Because you can’t underestimate the value of showing people that what you’ve got is EXACTLY for them.  Not 65% for them… EXACTLY for them.

How do you decide?

The key is in guesstimating, in dollars and sense, what improvement you might expect to see, and what it might cost you to execute the segmentation.

Let’s look at how you might do this.

Generally, I assume that segmentation should boost response by 25% to 50% for minority segments broken out of the main marketing stream. (You can see this effect in Adwords itself when you “peel and stick” keywords into their own group and write ads specifically for those groups… in fact, the impact is often MUCH greater)

I’ve definitely been VERY  wrong about this (in both directions), but as a rough guideline it’s a pretty good one.

Add to the equation the fact you can usually charge MORE for a segmented solution than you can for something perceived to be for the market as a whole. (That’s why we pay more for medical specialists than our general practitioners)

Then do the math, look at the estimated financial bump, compare that to the resources required to make it happen and decide.

A fictitious example will illustrate the point.

Let’s use a new “Mega-Wonderful-Diet-Solution”, and assume we’re attracting 100,000 visitors a month to our site for simplicity, selling a product for $100, and converting 1% of the visitors.

Also for simplicity’s sake, let’s assume we’re selling an e-book with 100% profit margin (we must have a really beneficent payment processor who’s granted us zero fee processing and no customer service costs too).

In this ridiculously oversimplified example, we’d have a visitor value of $1 ($100 x 1%), and a profit of $100,000 each month.

Now, what would happen if we did a little research and segmented our sales process into “The  Low Carb Mega Wonderful Diet Solution” and “The Low Fat Mega Wonderful Diet Solution”

To estimate that, we’d have to know something about what percentage of the market were attracted to Low Carb vs. Low Fat vs. Other Types of Diets.

Let’s assume it’s 40% Low Carb, 25% Low Fat, and 35% Other Types of Diets.

And let’s further assume we’re gonna get just a 40% bump in overall dollar value for each visitor in the new segments.

So now, the Low Carb people (40% of the market)  become worth $1.25 per visitor, the Low Fat people (25% of the market) become worth $1.25 per visitor, and the rest of the market stays at $1 per visitor.

40% x $1.40
25% x $1.40
35% x $1

———-

= 100% x $1.26 (when you do the math above)

So we’d be looking at an overall bump in visitor value of about 26%

Now, at 100,000 visitors per month, we’d be estimating $26,000 per month additional gross, or $312,000 per year.

Is it worth it?

You’d have to ask what resources would have to be put into achieving this segmentation, and compare that to the business owners other opportunities, priorities, and overall goals.

If all that were required were maintaining two separate advertising systems, the answer would very likely be yes.   But if it required developing a whole new product line, the owner would have some harder thinking to do.

But that decision would be a LOT easier with these estimates than in a vacuum (which is how most people make their segmentation decisions… and probably why most marketers never do)

The point here isn’t to give you a hard and fast rule to decide how and when to segment.  It’s to teach you to “think on paper” about it in a more methodical way.

On a practical basis, I’ve found segmenting a market enormously helpful.   I used to run my body language market segmented into 8 groups.  It was the difference between $500/mo profit and $3500/mo profit.

The cost?  Running 8 adgroups instead of 1, keeping people in 8 separate lists in aweber, and 8 separate salesletters.  (I hired a writer to seriously alter one letter 8 times based upon my understanding of each segment)

It was a great marketing experiment,  but maintaining 8 separate salesletters and email follow up lists was a real pain.  So I condensed it into the biggest 3.   And after I got slapped, I just let it run with ONE segment, because at this point I live in a world with more zeroes… my resources are better spent elsewhere.   Though as I’ve built up my outsourcing team and systems, segmenting smaller markets is looking  more attractive, and I’ll once again attend to it.

Do you see how estimating the impact of segmentation helps?   And how the DECISION to segment changes depending upon where you are in your company and the resources involved in execution?

In sum,  unless you serve an exceptionally small market with a very, very narrow positioning, there are almost always unique segments in your market, and money on the table to be picked up by addressing them.   But you’ve gotta weigh the predicted value of segmentation against the resources necessary to execute it.

There are much fancier sets of statistics and procedures for making these calculations, but I hope I’ve gotten you started thinking the right way about these decisions with some simple math.

All my best practices are STILL in the hyper-responsive club.  (Note: that’s the reason I haven’t done anything “shiny and new” for some time… I’ve just been pouring my best thinking into the club, rewarding my most loyal customers.  BUT, I’ll shortly be revealing a Video Marketing service, a Conversion product, and a thoroughly updated Choose Your Market product.  Join the club for best pricing and earlier notice when most of these are launched)

All my best,

Dr. G 🙂

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