Market segmentation profitable niche finding

Market Segmentation Part 2

This post is a continuation of our segmentation series. If you haven’t already, you may want to check out the first post—Market Segmentation—Focus Where it Counts

In our first post regarding Market Segmentation we discussed the general idea of isolating certain portions of your customers to gain a better insight into their unique preferences. This method of qualification can be used to help you find more interested parties, more in-demand products, and also offer valuable insights into the benefit of your marketing focus and advertising investments. We left off discussing how segmentation can help understand how seemingly dismal conversion rates are really just sometimes a case of misinterpreted data, or at the very least mis-represented data.

To quickly illustrate an example of how market segmentation is applied in the real world, take a website that I recently had the pleasure to work with, The Organic Newsroom who graciously said I could use them as an example. They are a Health-oriented site, focusing on content marketing. That is to say, they market the information they produce as opposed to selling an actual product. While this dynamic is a bit different, all the principles are the same. Now, there is an ocean of Health-websites, many of which are impossible to compete against such as WebMD, Healthline, and even the ever-cheesy Livestrong.com. To get around this obvious hurdle, The Organic Newsroom has focused their attention on the alternative health segment, and even further so—the treatment of health concerns with natural supplements. So they are here: Health->Alternative Health->Supplements & Dietary Nutrition.

Now, in reality they are even further segmented than this, but that’s good enough for our discussion here. This organization, which is a for-profit outfit, has the refreshing goal of simply spreading their information far and wide. For instance, they have a article which compares 8 of the best vitamin brands available. It plunges in depth about all of them, and helps any potential reader learn the pros and cons of each. They in turn make small affiliate commissions from any referrals they may give to supplement retailers. In essence, their goal is to help people learn, and their profit model is facilitating a way for their readers to apply that knowledge. Forgive my tangent, it’s just that in my line of work you very rarely get to work with companies with earnest missions, unless you consider “helping” America’s youth find the latest pair of Jordans to be noble.

I helped the Organic Newsroom to gain a better understanding of their site’s audience, by analyzing affinity categories and interest groups (two powerful segmentations made available in Google Analytics) which can help elucidate audience interests. This helped them better understand how to reach audiences that would most-benefit from their content, and enable them to focus their energy on making that content most-available there. This enables them to spend more time producing content, and less time worrying about conversion rates, audience engagement, and other aspects that can create a void of division in business directions. This type of focus also helps more people that are interested in your unique product or service find your site or store, which in turn greatly increases your organic referrals—through online links or just plain old word or mouth. Ultimately though, this method is a means of analyzing the sources of your traffic, and any additional data that is attached to that data just makes life even easier.

Traffic Sources

We’ve seen how some traffic sources can behave drastically different than others, such as one source representing a strong buyers intent while another offering nearly none. Sometimes however, your business may not necessarily need target interest, and you’re after a strictly numbers game type of consumer base. Take, for example, a small news and media organization that I recently had the pleasure of working with. Without being too specific, they were a fairly old-school Local TV new channel which had an online presence, but certainly nothing that would be considered competitive to major regional affiliate networks. They had all the tools in place, had a website just like you’d expect to see from a larger agency, but had an old school mindset and hadn’t really committed themselves to the investment of reaching out to the new iPad bearing, click-happy, techies that the entire world seems to have transformed into overnight.

They were getting roughly 80,000 visitors to their site a month when I came in, which isn’t all that bad. However, for the amount of content they generate, it was pretty dismally short of where I had a feeling they could be at. They had a presence on social networks, but it was heavily automated, and didn’t really engage the audience with pictures, questions, or other methods proven to increase audience excitement. Now, before I continue you should know that the methods used here can very easily be abused, or taken to extremes, which often results in a very spammy vibe which could hurt the reputation of a business. As with anything, one should exercise a degree of caution and modestly dredge onward.

My first step was to segment out the sources of their website traffic into broad categories; Social, Referral (links from other sites), Direct, and Organic Search. These should be viewed as top level sources, and not to be viewed as overly insightful in most cases. The breakdown was as follows: 35% Direct, 30% Referral, 20% Social and ~15% Organic Search. There are some other random source types in there, but I’m ignoring them right now. Immediately, for previous experience in this field, I knew that their social traffic had the a tremendously underutilized potential. For instance, a single article on a site like Reddit can sometimes generate over 50K visitors a day. Given, that’s a black swan event; they still didn’t have many “spikes” in traffic to get everyone excited. I know these types of results peel back ears, and I wanted to get a further commitment from them, so that’s where I started. I’ll skip the numbers for now, as we’re focusing on segmentation, but within the first month with very little effort their social traffic quadrupled, and new visitor counts grew by 35%.

Referral traffic is a bit tricky to tear apart sometimes, as it represents visitors from other sites that can be tricky to find sometimes. In addition, there are often thousands of referring websites for larger sites such as the one I was working on, and data can become a bit obfuscated by its sheer volume. I approached it by taking the top 25 referring domains, by number referred, and analyzed them with a custom piece of software that counted the unique pages on each in which they were referred from, and then weighs that against the overall referred amount, returning a “friendly” figure between 0 and 1. So basically if if 1500 hits came from a site that had 1500 links on 1500 pages, I’d get a big fat 0 on my number chart, which basically lets me know that for every link on that site I would only be able to expect a single person. For a site that had 1500 hits, from 10 links, on 10 pages, I’d get a number closer to 1. Don’t worry about the math, it’s a bit relativistic and not really practical, meant only to be representative. So my end result is a list of those 25 domains I’ve chosen, with 25 paired values associated with their link “value.” While Google Analytics doesn’t really have a easy button for this, this is a type of segmentation that can show you the value of a single link from any given source. Ultimately, I found that the third site from the top of my list was a user generated content site which was bringing nearly 1100 visits per link to my clients site. There were only 8 links on the site in total, but I could also ensure that many more would be added at aptly timed intervals.

So, technical babble aside, segmentation of traffic sources allowed me to find a site that was bringing a lot of traffic to the site with very few links. In addition, this site offered the ability for anyone to add as many links as the wanted. This meant that I could add links to my clients site there as often as I wanted, an get roughly 140 visitors per link! That was nearly $75 of paid search traffic per link, FOR FREE. That adds up fast, even for a larger company like my clients.

At the end of the first month, their  traffic had grown from 80,000 to over 200,000, with nearly 65,000 coming form social networking sites alone! This client’s revenue was generated by the ad spaces on their site, which gave them a tremendous incentive to get more people on site, even if it meant a less targeted amount. Now, before you think that I’m some wizard of money making, let me break down the profit increases vs. visitor increases for you. With a roughly 250% increase in overall site traffic, there was seen a 15% increase in overall advertising revenue, which can’t always be broken down as easily as other facets of this project. The overall click-through rate of the site’s ads only dropped by from ~2% to 1.75% which is pretty good considering all the different channels that got added to the traffic flow. One of the largest factors that seems to stand out in this data is the amount of fixed price ad space that is being sold by my client. In other words, the amount of ad space they sell for a monthly rate, regardless of views or clicks. I’m assuming they’ll want to consider changing their approach, as the power of market segmentation has clearly shown that they have the potential to earn much more than they are currently.

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Market Segmentation — Focus Where it Counts

The concept of market segmentation isn’t anything that novel, and you’re probably applying it to your business already. As with many differentiated approaches to reaching your customers, it really pays to be aware of what you are doing, so you can assess and improve. Segmentation is simply the identification of a smaller subset within a larger whole. For instance, if you are selling baseball hats, one segment of the market you are [hopefully] targeting is Major League Baseball hats. Other segments of the hat market would be kids hats, women’s hats, hunting hats, floppy hats, etc… The general idea is that by utilizing market segmentation, one is able to further target the interests of a consumer base. For example, a woman looking for an elegant sun hat would fall within the category of the hat market, but do you think she would have any interest in shopping at a Lids franchise? Ultimately segmentation is a method that can be used for help discover and meet unique demand within your target market, and evolve your overall approach to be more beneficial for you and the consumer.

There are a ton of articles floating around the Internet regarding the theory of market segmentation, so I’ll skip trying to sound academic and simply discuss some practical examples. If you are looking for some theory, check here.

Website Traffic

Website analytical data is one of the most crucial insights that any business owner can have—capable of offering tremendous insight into the behavior and interests of customers. In the era of Google, very complex data can be gathered by even the most green of beginners, and put to practical use. I’m going to assume you don’t care about the logistics of deploying this on your website, and that you’ll most likely just forward this to your IT department. If you want to add a note though, most of these concepts are applicable to very free analytical services such as Google Analytics.

Acquisitions

Where does your traffic come from, and how does on site activity differ between traffic sources? On the surface this may seem like a pretty general question to some entrepreneurs that are new to the world of business. However, take my word for it that these two questions represent a collective rabbit hole that many have spent entire careers attempting to determine. The crux of it all; as soon as you start to have an elucidated mindfulness, your market may change drastically overnight. Even if it doesn’t, competition may drive you out of a market leaving you with a heap of useful information you can readily apply to your business life.

Lots and lots of website traffic is generated from social websites now, with Facebook being the obvious front runner having Twitter not far behind. However, with the rise in popularity of mobile devices and social networking, many other sources such as Pinterest, Linkedin, Stumbleupon, and many many more platforms are offering robust contributions to traffic reports. While these can seem very exciting on the surface, there are often many times when the numbers rain on the parade. For example, a site I recently audited was receiving roughly 3500 visitors a week from social sources, and only about 150 from organic Google searches. Of the nearly 3650 visitors each week, they were averaging only 12 sales. They had already changed marketing firms several times, and had held off on shifting a handful of part-timers into full-time positions until they felt more confident. So, by the numbers, their website had a less-than one percent conversion rate—which is pretty dismal. They had a lot of time and investment in their website, and had a very professional sales funnel in place to qualify buyers to a degree. Regardless of their investment though, they just couldn’t seem to convert.

To show you the power of market segmentation in providing insight; I took their Google Analytics data and  with a few clicks separated the traffic from social networks from the traffic of organic Google results.  The results? of the 3500 social network visitors, not a single one had bought a product. That sounds horrible until you consider the implication it gives towards the organic Google traffic. All 12 sales came from those 150 clicks originating from organic Google results—a whopping 8 percent conversion rate.

While the content they had invested in to get on their website certainly wasn’t free, it’s presence in the Google search results was pretty much. You don’t have to pay Google to put your site in search results, although you can utilize their AdWords service. Regardless, this company was spending roughly $1000/mo on Facebook and Twitter ads, combined with the time their part-timers were spending managing their social profiles. The company had seen the sudden spike in traffic to their website, and assumed that their money was making an impact. Truth be told, their money was making an impact, just not one that was showing them a monetary return. This is a great example of how focusing on one segment of a market can help offer insights about the whole market, and help you make better holistic decisions to get you to where you want to be.

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Entrepreneurial Spirit

The curse; that drive that has pushed so many of us to seek novelty—there’s no reward such as that which is given for sheer determination. Not much of a sentence, but truly a powerful sentiment. Entrepreneurs across the universe, regardless of their personal diversity, all share a very similar experience of pitting themselves against odds and driving to succeed. Some want to make money, some want independence, some even want to change the world—but they are all striving to make real an image of their own will. Often learning every lesson the hard way, being dragged through financial hardship, these rare-breeds of species possess something that other people simply do not. While this may sound like some hidden gene to those who don’t share it’s affect, to those serial entrepreneurs and independent business owners—it’s often regarded as a curse.

The stakes are high, and the game is ever-changing which means anyone getting their first foothold in an industry finally could still lose it over night. It helps to find oneself in a market with high demand and low competition—but that’s usually a pipe dream unless you want to serve an isolated segment such as Amish dairy farmers from Southern Nebraska. Most companies have an online presence these days, and if possible offer their products to the widest range of people possible.

To drive improvement, to evolved understanding, to inspire interaction, and to know—even in the face of compelling evidence to the contrary—that they can make an impact on the world on their terms;

Gone are the days of being geographically isolated, but also long gone are the brigades of geo-location which helps isolate competition. The truth is, all things considered, the market is probably similar to the way it has always been. More people, more competition. More competition, more markets. More markets, shorter product lifespan. For every step forward in the business world there is often an equal and opposing step to help maintain a zero sum relationship between consumers and manufacturers. The trick, is to live and operate within the in-betweens; to make hay before the hay-makers find immigrant labor; to sell frozen water before ice-makers hit the shelves; to push your company to the limit before your patent expires and competition explodes.

The modern world is filled with as much opportunity as there has ever been; don’t let the liberal propaganda fool you. If the entire world were to be radically socialized there would still be a tremendous amount of demand in the world waiting to be met by those willing to strive to be better. At the end of the sun’s trip around our Earth, that’s what it’s all about; the world has demand, and among it’s people are those obsessed and driven to meet it. Maybe it’s for their own betterment, the betterment of the fellow man, or perhaps some very personalized  subconscious web in which they find themselves sprawled upon—regardless they all share a similar experience. To drive improvement, to evolved understanding, to inspire interaction, and to know—even in the face of compelling evidence to the contrary—that they can make an impact on the world on their terms; that is the Entrepreneurial Spirit, and in those for whom it dwells life is a bit different than it is for the rest. This site is dedicated to those few that stand driven, even in the darkest of odds, to bring about their own personal vision for the world.