Trending Toward Micro-Markets

Markets are fragmenting into micro-markets. Instead of going after broad markets -- say, women aged 18 to 49 -- companies are segmenting their customers into narrower profiles based on lifestyle.

Today it's not just about understanding the demographics of your target market. Instead, sellers have to understand attitudes and lifestyles. Intuition is as important as or more so than demographic data.

And those attitudes and lifestyles mean smaller and smaller niches.

However, as this quote from a recent Entrepreneur article notes, small businesses have a ways to go before they become proficient at segmenting customers:

Instead of boxing their customers into one profile, large companies are segmenting customers into ever-narrower lifestyle profiles and categories to understand their core values. They're targeting the 20 percent of customers who generate 80 percent of their business, says James Chung, founder of Reach Advisors, a Belmont, Massachusetts, strategy and research firm. Electronics retailer Best Buy, for example, now focuses its business on five customer profiles instead of trying to broadly tailor its marketing to fit every customer profile.

Most entrepreneurs, however, still try to be everything to everyone by targeting a wide demographic. "Most small businesses are afraid of planting a flag and saying that their business focuses on a specific, high-value target audience," Chung says. "[But] it's a lot easier to focus on a profitable target, then do everything you can to engage them."

I actually believe the landscape for entrepreneurs is more complex than the above quote suggests.

On the one hand, some small firms can't find enough customers in their local areas for the niches they would like to specialize in. So, out of necessity they feel forced into generic offerings that cut broad swaths. Given an abundant supply of potential customers, I think most would gladly specialize in niche products or services.

On the other hand, as Professor Cornwall notes, entrepreneurs are well-suited for niche marketing. "...[M]icro marketing is what we do best. We love finding niches and giving them what they need."