Where do they live?

Perhaps the simplest way to describe your customers is based on where they are, beginning with a simple geographic breakdown by these factors:

• Country and region
• State, county, and city
• Zip code and neighborhood

But geography can also lead to more specialized groups. For example, you may find it useful to describe customers based on factors such as

• Population density in the neighborhood, even length of the driveway
• Average precipitation and snow in the winter, or heat during the summers
• Available connectivity in the area (or not)

Dividing customers into groups based on geography is a good way to separate them according to local or regional taste — which often is a significant factor in the distribution and delivery of a product or service. Ethnic foods, for example, tend to sell better in certain regions of the United States. Hispanic foods are hottest in the Southwest; kosher products are most popular on the East Coast; and Asian food is everywhere on the West Coast. Per-capita wine consumption is far higher in San Francisco than it is in Milwaukee. And beer? Well, it made Milwaukee famous.

Speaking of the Midwest, instead of trying to sell heavy coats and sweaters throughout the country, you’d be better off concentrating marketing efforts in regions that have cold winters, taking advantage of customer preferences based on weather patterns. By looking at the geographic characteristics of consumers as they relate to your product or service, you begin to create market segments that you can use. But keep in mind that personal identities are shifting quickly these days; don’t get trapped into thinking yesterday’s truths are the same as tomorrow’s. You might want to read (or re-read) the end of Chapter 5 or jump ahead to all of Chapter 13 before you sketch out that new pattern. (Hey, future coat-makers out there, global warming is happening. Maybe they’ll want bikinis in Buffalo next.)

What are they like?

A profile of your customers includes all the attributes that you may expect to find in a national census. Marketing gurus call these attributes demographic data, which includes the following:

• Age
• Gender identity
• Family size
• Education
• Occupation
• Income and wealth
• Ethnicity
• Nationality
• Religion

Your ability to identify, find, and connect to those with narrowly defined characteristics can give you a decided edge over competitors who don’t. BTW, we give you a lot more on this topic in Chapter 7, where we review how understanding generational groupings like Boomers and Millennials can fine-tune your plan.

Company profiles, of course, are somewhat different. These profiles can include basic characteristics such as the following:

• Industry
• Size of company
• Number of employees
• Location of factories and stores
• Years in business

You can often use customer profiles to spot market trends and take advantage of potential opportunities. Why is the market for health-care products like vitamins and varicose vein remedies booming today? Because the fabled Baby Boom generation — those 76 million Americans who were born between 1946 and 1964 — has come face to face with its own mortality. And where can you find a growing market for housing and home loans? In regions of the country with plenty of sunshine where people can enjoy their retirement years. Got it. But keep a close eye on those Millennials, the 72 million or so born between 1981 and 1995. Many are in or rapidly entering their peak years for consumption, and they definitely don’t buy like Mom and Dad did.

What do they do?

Lifestyle is an awfully tired word these days. People use it to describe anything and everything that you do in the modern world. If you’re reading this book, you likely fall into the entrepreneurship lifestyle. When applied to your customers, lifestyle has a particular meaning; it captures characteristics that go deeper than what’s available in plain old census data. Customer lifestyle factors include

• Hobbies
• Online usage habits
• Social activities
• Health-related choices such as foods and beverages

All this information is sometimes called psychographic data, because you can use it to map out the underlying psychology of the customer, which drives much of buying.

Ever wonder why some folks enjoy the DIY stuff around the house and yard? The psychologists tell us it’s because there’s a deeply seated need for the male species to create a warm and safe nest for the partner and kids. This need to be a protector can provide a clue as to how a seller of goods to this crowd might make the pitch. Don’t just focus on the product — play to the underlying motivation. (More on this concept appears later.)

When applied to business firms rather than consumers, lifestyle identifiers might be their desire to be seen as “green,” or socially responsive, or supportive of diversity and inclusion in employee hiring and promotion policies. And let’s not stop there. Some firms want to be associated more with a Wild West, freedom-tinged image: smoking’s allowed, concealed carry tolerated. Hey, it’s America.

You can use these characteristics to understand how you may better serve a particular segment of your business market.

What can your product do?

Features refer to all the specifications and characteristics of a product or service — things that you often find listed in a product brochure, a user manual, or the company website. When you group customers based on the product features they look for, the customers themselves turn out to have a great deal in common. Their similarities include

• How much they use the product (light, moderate, heavy)
• How well they use the product (novice, intermediate, expert)
• What they do with the product (recreation, education, business)
• What kind of customers they are (advisor, reseller, user)

Spirit Airlines is a player in the so-called no-frills segment of the airline business. The company caters to people who travel relatively short distances and who often have to pay for travel out of their own pockets — and are very conscience of price (the so-called leisure segment of the market). You can find rock-bottom ticket prices to fly Spirit, but don’t expect a seat assignment in advance, free checked luggage, early boarding privileges, or anything edible up there in the sky. You get what you pay for — not much, hopefully an on-time flight from here to there (even though that’s dicey). But then Spirit’s customers don’t see the point of paying extra for things they don’t want. That’s who they are, and the airline’s management knows it.

Spirit Airlines customers tend to be different from those of United Airlines, a global, full-service carrier at the opposite end of the airline spectrum. United offers service to most major airports around the globe. The company targets business customers, frequent flyers, and global travelers who expect a decent hot meal on a ten-hour flight, sufficient bubbly to ease the ride, superior in-flight service from experienced cabin attendants, help with their international connections, and their luggage to arrive when they do, no matter where they are in the world. And they (or their company’s travel department) are willing to pay for it.

How do you sell the product?

When the Madison Avenue types talk about packaging, they refer to much more than cardboard, shrink wrap, and plastic. Packaging means everything that surrounds a product offering, including the following:

• Advertising (Internet, social media and blogs, radio/TV, magazines, billboards, T-shirts)
• Promotions (online contests, in-store sales, coupons, drawings)
• Marketing (social media influencers, product placement in movies, celebrity endorsements)
• Product service (warranties, help lines, website FAQs, service centers)

The market segments that you identify based on packaging criteria often reflect customer attributes similar to the ones based on product features (see the previous section): frequency of use, level of sophistication, product application, and the type of user.

What does your product cost?

The pricing of a particular kind of product or service creates different groups of customers. Price-sensitive customers make up one camp (remember the Spirit Airlines customer earlier in this chapter?); financially free customers who are willing to pay for a certain level of quality are in the other. If you’ve ever had to endure a course in microeconomics (yuck), you won’t ever be able to forget two facts: Price is a major market variable, and the price/quality trade-off is a fundamental force in every marketplace. People who buy Timex watches at their local drugstore tend to be price-sensitive, whereas shoppers acquiring a Rolex timepiece at a classy downtown jewelry emporium want luxury, craftsmanship, elegance, maybe even a flute of champagne from the elegantly attired sales associate while they browse, and the chance to make a personal statement.

Where can consumers find your product?

Distribution and delivery determine how customers actually receive your product or service. In this case, market segments are often based on where your customers shop. Here are some examples:

• Online platforms (Amazon, eBay, Etsy, or Alibaba and Rakuten in Asia)
• Big-box warehouses (Home Depot, Costco, Office Depot)
• Discount stores (Walmart, Target, T.J. Maxx)
• Traditional department stores (Macy’s, Saks Fifth Avenue, Kohl’s)
• Specialty stores (Dean and DeLuca, Tiffany & Co. [Hah! You knew this was coming])
• Boutiques (New York City Fifth Avenue or Beverly Hills Rodeo Drive shops)
• Catalogs (Frontgate, Omaha Steaks, Sundance)
• Street vendors (pirated DVDs and really good hot dogs or pretzels are both on Fifth Avenue)

Distribution is undergoing transformation these days, as the convenience of the Internet pulls more and more shoppers to this option (keep reading to find out why and how this happened). While the total volume of all online sales is in the low-to-mid double digits, the rate of growth has been spectacular compared to brick-and-mortar stores. Every week, it seems, a new category of products shows up online, and consumers — especially Millennials and Gen Zers — are choosing “buy now” on their laptops or phones more than ever. Heard of Carvana? Robinhood? Noémie? Check ’em out.

Moreover, unforeseen events like the COVID-19 pandemic gave a massive booster shot to indirect modes of shopping. You may want to peek at Chapter 13 to see how stress-testing your business plan for random events can make it more resilient in the face of unknowns.

Not everything will go digital, of course. Markets based on physical delivery will likely stay viable for any number of products that can’t be digitized or delivered easily to ultimate consumers. These will include personal services (dentists, manicurists), vehicle fueling stations, some forms of food, beverage, or medicinal products (cannabis, some prescription products, some age-regulated drinks), and others, too. But don’t undersell the power of technology and the resourcefulness of entrepreneurs — like yourself. Home delivery of food and meals is booming today; so is telemedicine. And in countries with a deeper penetration of online infrastructure and culture — and shall we say a more casual attitude about vehicular traffic on sidewalks and in buildings — almost everything can be brought to the door lickety-split. (If you’re ever in Shanghai on the street, watch out; traffic signals are more likely regarded as suggestions than commands.)

What do they get?

As you try to figure out exactly why customers buy products and services in your marketplace, start a list of the benefits that you think they look for. We discuss this a bit earlier in this chapter, urging you to look beyond the easy-to-see veneer and dig deeper for answers. Product benefits may sound an awful lot like product features, but in subtle yet crucial ways, product benefits and product features are really quite different.

Features are defined in terms of products or services. A car, for example, may have a manual transmission (as opposed to automatic) and may come with power windows, anti-theft locks, or a dashboard screen with rear-view camera, route mapping, and other capabilities. Benefits, on the other hand, are defined by the customer. Depending on the customer, the benefits of a manual transmission may be in handling and responsiveness or in improved gas mileage. A dashboard screen may represent an added luxury for the weekend driver but could be an absolute necessity for the parent who wants to see what’s behind them in the driveway with the embedded camera (or someone who insists maps are only for wimps). Again, the benefits are in the eyes of the customer.

Recall Spirit Airlines noted earlier in this chapter. The policies of the market leaders often create opportunities for the new little disrupter who has an ear closer to the ground for sensing customer desires. You need to understand the difference between benefits and features if you plan to use the market segments that you come up with to create an effective business plan. Take a moment to think about the business situations sketched out in Figure 6-2.

Which of the benefits listed represents genuine benefits to the customers of each company? A trick question, of course: You don’t define benefits — only customers do.

How do they decide?

Different customers approach your market in different ways, and you can often identify market segments based on certain customer traits as they relate to your product or service category. Some of the conditions that guide customer buying decisions include the following:

• Speed of the purchase decision: The decision-making process (DMP) that customers go through before they purchase a product or service varies, depending on the product or service’s complexity and price tag. People may buy chewing gum at the convenience store without much thought. But real estate agents or financial service advisors face a completely different DMP with their customers, resulting in a slower decision to buy. (For a basic primer on DMP, see Chapter 7.)
• The actual decision-maker: Families as a whole that buys various consumer goods represent a common decision-making unit (DMU). But who in the family has the final word? When deciding the location of the next vacation spot, for example, it makes a big difference whether the kids or the parent(s) have the final say. For B2B firms, does the IT guru select the hardware vendor, or the CFO who signs the check? Knowing the real decider-in-chief for the thumbs up or down on your goods should drive your marketing and sales planning efforts.
• Customer loyalty: The way that companies relate to their customers can easily define a set of market segments. Service industries, for example, go out of their way to identify and encourage customers based on their loyalty (that is, intent to repurchase from them). You’ve probably been asked to join more than one frequent-flyer program or apply for endless credit cards that promise to reward you for being a member of a loyal customer group. (For more on customer loyalty, see Chapter 7.)
• Level of product use: In many industries, a small percentage of consumers account for a large percentage of sales. The so-called Pareto Rule says the top 20 percent of folks in most any universe account for 80 percent of the action. Recent research found that some 63 percent of Americans drink alcohol — but only 10 percent of that group consumes more than half of all alcoholic drinks. Now if you want to pour beer, you should note that consumers in Montana, Vermont, and New Hampshire down the most per capita, and Utahans imbibe the least. Overall, it’s been estimated that only 5 percent of households account for a whopping 87 percent of total beer sales. Targeting this segment is the cap-popper for profit (though if you live in a college town, we’d suggest you steer clear of Fraternity Row after dark or anytime on the weekend).