niche

Customer segmentation by usage

differentiation, Marketing, Positioning, Product Management, Sales, segmentation

One of the flaws of identifying a niche by doing pure demographics is painting all customers with the same brush.

My suggestion for identifying a niche is to first segment by demographics and then segment by usage.

Lets say you are a company which provides backup and disaster recovery services. There are a whole lot of companies who can put on their brochures that they provide backup and DR services.

All it needs is a company which has some backup software and access to the cloud platforms to say that you could provide a DR solution.

So how can you differentiate your company’s offerings.

How about offering DR to users of ERPs in zones which are prone to hurricane activity. You could talk about how you are geared to move complete IT operations of your customers to another site in case a hurricane strikes.

Your messaging then becomes very specific to those kind of customers. You then look at what all are the possible options that the customer has to achieve the same objectives. Something similar to what Clayton Christensen speaks about the job of the Milkshake

Based on this you further fine tune your niche and accordingly build your messaging and your go-to-market plan.

This was a B2B example from IT. Tomorrow we will take an example from the consumer side.

Till then.

Carpe Diem!!!

Growing your business in the niche – Part VI – identifying your constraints

differentiation, Marketing, Positioning, Product Management, Sales

In part V we spoke about identifying different channels to reach your prospects.

To grow any business you need to identify the one key constraint which could hold you back.

In professional services its your time, in manufactured products its the time of the slowest machine, products which are dependent on natural capacity like farm produce or eggs are dependent on the the capacity of the farm or number of hens respectively.

If you can plan your business based on the constraint – highly recommend reading the Theory of Constraints by Eli Goldiratt and his second book The Goal – then you can take better decisions.

So if you are in professional services, and you can only work 8 hours a day, you need to figure out which is the niche which can help maximize the return on your time. If you’re a property / real estate agent then you need to focus on the segment where you can get a higher value for your listing as in designer homes versus condos.

Or you build partnerships so that your constraint can be a leverage to someone else.

Till next time.

Carpe Diem!!!

Growing the business in a niche – Part IV – funds for customer acquisition

differentiation, Marketing, Positioning, Product Management, Sales

Yesterday we spoke about the life time value of a customer. The LTV helps identify 2 things

  1. What is the amount of money you can spend to acquire a customer
  2. What activities do you need to do to ensure that the customer can do business with you as long as physically possible and keep referring customers like themselves to you.

Now that you know the above 2 things because you calculated the LTV, our next item is how much can you spend to acquire a customer and therefore what channels/mechanisms can you use to spend that money

Suppose the lifetime value you define is $60000 and the font end first sale gross margin is $10000/-, on a revenue of $100000/- then theoretically you can spend $10000/- up front to acquire the customer. However you have to be sure that your product or service is so good that the customer will keep coming back for more and also gives you referrals. Otherwise this same strategy which can catapult your business to the top can also bring it to a grinding halt in a matter of time.

As a product management person, you have come out with your first version of the product, you have identified the most economically viable, smallest niche from which you can start and then you have identified the possibility of spending $10000/- to get a customer.

Within the most economically viable market niche, your next step is to understand how many customers can you handle at a time. If you are in a service business, like a coach or a consulting professional or a video editor then your physical constraint is the amount of time you have in a day. if you have a product then your production capacity is your constraint. if you are selling eggs then the number of hens/ducks that you have is the constraint. On the other hand if your selling an ebook then there is virtually no constraint.

So going ahead with the earlier example of $100000/- order value, lets assume you can sell only 12 of these in a year or $1.2 million. The upfront gross margin that you make is $100000/-.

So when you make your plans for your marketing and selling activities you can look at this possible pool of money which is theoretically available for you to use to acquire the first set of customers in the first year.

Which will lead us to issues –

  1. Now you look at finding the options of how you could spend the $100000/- to acquire these customers
  2. How to scale by identifying the constraints.

We will pick up on each of these in the future posts

Till next time then.

Carpe Diem!!!

Growing the business in a niche

differentiation, Marketing, Positioning, Product Management, Sales

One of the biggest arguments that I hear against identifying a niche is “How will we grow and adrress the full market”

First trying to address the “full” market is a fallacy. Its not ever feasible….but we will address it in a separate post.

For this post let’s keep our focus on the niche you have and how to grow it.

We will take 2 examples – one from the low value “eggs” that we had touched earlier and another from the IT services segment which is B2B and ultra high value.

This topic will be carried over multiple posts, because any product management process will need to go through multiple steps to make it successful in the market. The logic will hold whether you are selling financial services or consumer products or technology services

The assumption over here is that you have a ” Market in the niche” . If you are reading my blog posts for the first time, I would suggest you look at my previous posts where I give a detailed explanation on this topic.

The second assumption is that you have a very good product or service and you can differentiate it in the market.

The third assumption is that you have analyzed and seen that there’s what Dan Kennedy used to call a “Hungry Crowd” or a market for your product or service.

So if you are trying to sell eggs in a locality which is predominantly populated by vegetarian people , then however good your product is, you will never be able to grow your business because there are not enough people who eat eggs. So there will hardly be anyone willing to eat a “red” egg ( see my previous post on this red egg example)

With the above 3 assumptions in place, it means you have been able to identify your market, identify the niche in the market and size it.

From the next post we will start looking at making an entry into the market and growing it.

Till next time.

Carpe Diem!!!