In the early stages of the venture, markets are typically segmented by entrepreneurs on geographic (locations), industry classification (telecommunications) or demographic (particular gender, age cohorts) segmentation bases. These are called ‘identity bases’ for segmentation.
However, this does not lend itself to generating a sustainable competitive advantage for the entrepreneur. Many competitors will address the market using these identification methods (or ‘identification bases’) for targeting customer groups. An innovative new product, promoted to a customer group on the basis of identity factors above, may be possible in the short term and during the early emerging stage – however, it may not be sufficient to carry the business into rapid growth and next level.
The danger for entrepreneurs is to continue using only this initial customer targeting approach. As competitors produce me-too versions of the ‘new product’, price becomes the competitive determinant. Large established, profitable brand leaders will beat emerging stage entrepreneurs in those battles.
Successful entrepreneurs avoid this trap and evolve their ‘identification bases’ segmentation methodology by adding the ‘Response bases’ segmentation method. This method works by discovering and sizing – through proprietary conducted primary qualitative market research and then quantitative market research – key information about what can make customer groups very responsive to a product offering , for example. This information is known only to the entrepreneur and therefore becomes his/her proprietary method for reaching and communicating groups of responsive consumers. This in turn creates a sustainable competitive advantage to carry the venture into rapid and next level growth.