Bigger is not always better. Most of the time it is actually worse. If your company has a target market which is too wide, you will end out losing not gaining customers.
It is a bit of a paradox: lose customers to gain them. It seems counterintuitive to cut out potential customers. After all, you want as many customers as possible right? Right. However targeting everyone is not the way to get as many as possible.
There is a native American saying that goes like this:
If you chase two rabbits you will lose them both
The same can be said for market segment selection. Chasing two completely different segments will leave your pockets empty. There was a fantastic article written by Al Ries called The Discipline of the Narrow Focus. Here are two fantastic examples from Ries article about how vital segmenting is:
In 1992 IBM was operating at a loss of $2.8 billion. That’s nearly eight million a day. The company was doing exceptionally well when it focused only on mainframe computers. They delved into pcs, work stations, mid-range computer, software, networks and telephones. Hardly any pieces of tech haven’t been touched by IBM!
With all these offers, you would naturally assume IBM is successful. When in actual fact, these offerings have been IBM’s demise. By trying to be something to everyone, IBM was stretched so thin it became nothing.
Atari Corp also faced this all-too-familiar situation. Atari was the brand most heavily associated with video games. However the 1983 video game crash spelled game ver for this company. Atari’s CEO James Morgan claimed “Atari’s strength as a name also tends to be it’s weakness. It is synonymous with video games. Atari must redefine its image and broaden its business to consumer electronic goods.”
Another business saw this as an opportunity to creep in on the specialised market. That company was Nintendo. Today Nintendo has 75% of a multibillion-dollar market. And Atari? Well I doubt you even heard of this company until reading this.
Now let’s run through examples of strategically specialised businesses. And then you can see how to apply this to your own business.
Case 1: Gallagher
Gallagher is a global leader in all things farm life. Need pigtail posts? What about EID tag readers? Or possibly wireless water monitoring? If you’ve grown up on a farm or in a Gallaghers store, you should know what these terms mean.
With Gallaghers extensive technology and innovation, they could expand far out of farming technology. They could move into commercial security or start a plumbing group. But they choose not to. They wouldn’t be world leaders if they branched into other areas.
Case 2: Goldstar Heat Pumps
Goldstar Heat Pumps are award winning installers of heat pumps in Auckland, Hamilton and Tauranga. They have been widely successful, picking up an award for being the top distributor of Fujitsu heat pumps.
With this great success and recognition it would be easy to move into other home electronics. Or perhaps they could branch into general electrician work. But what would be the point of being a jack of all trades and a master at none.
Case 3: Archery Direct
It didn’t seem appropriate to write an article about segmentation without using an example directly related to taking aim! Archery Direct is New Zealand’s one stop shop for archery equipment, supplies and products.
There are a few ways Archery Direct could branch out; Sporting goods, general hunting goods, training etc. But at least in the immediate future, Archery Direct seems to have their target locked in.
So how could you apply this to your own business? If you notice your company slipping into the growth= power mentality then stop it right there. Get your strategic leaders together and redefine your company’s target market. Look back at the past and see what has worked for you. Test it against trends if it will continue to work.