Segment of opportunity
Thursday, June 7, 2007/
The quiet of wintertime Bicheno gave me time to reflect on some basic business questions.
Anyone heard of Bicheno? It is a seaside village on the east coast of Tasmania, about 150 kilometres north of Hobart. It is a beautiful location within easy distance of some great state forests and exciting (and challenging) bush walks.
It is saturated with holiday cottages and motel accommodation. I rented a little cottage in a resort right near the water with wonderful views. Sounds fantastic doesn’t it? And it was.
However, guess what? I was the only occupant in the 20-cottage resort and the whole place was deserted. “Nothing happens in the winter time here,” I was told. “The season is from Christmas to Easter.” For a great part of the year, a huge amount of real estate is deserted and accommodation managers do their knitting, a bit of house keeping, send emails and plan their own holiday.
It was pretty cold in Bicheno. In fact, there were days when it was freezing. I went around the town and could not find one holiday apartment that had an open fire and yet there was firewood by the bucket load all around the place.
Sure, they had the electric heaters but I might be different because I don’t find it romantic to sit in front of an electric heater and look at it with excitement. I love log fires but, living in the city, I don’t get to sit in front of one very often. However, I see advertisements for other holiday locations in the winter and people advertise “log fires”. A spa and a log fire after a great bush walk or run through the forest isn’t the worst way to spend a part of a holiday or at least, it appeals to me.
So I then started to think about that fundamental driver of growth. I know that it sounds very boring but people ignore it at its peril: “market segmentation”.
The market for Bicheno is that segment of people who head there in the summer holidays. Yet plenty of people like to go on holidays in the winter, too. Bush walks, great scenery and log fires are very attractive to many who want to go on holidays.
It is probably baloney and the people at Bicheno have probably done their homework, but I did some figures. Suppose they decided to target that market segment that is attracted to winter as against summer holiday, and occupancy increased in the winter from zero or thereabouts to 10% of the summer population; the bottom line would have to look more impressive.
I discussed it with one of the owners of an accommodation resort and he said that he had never thought of that market segment and just accepted that the place would always be very seasonal.
Now this is all probably nonsense so far as Bicheno is concerned, but it is my long-winded way of introducing this concept of market segmentation, which seems to bore a lot of people and is overlooked by many.
Jack Welch, the former and famous CEO of General Electric, said that what impressed him about Peter Drucker on their first interview was Drucker’s question: “What business are you in?” The temptation of the people in Bicheno is to say that they are in the accommodation industry. That is not a business; it is an industry.
A business is successful for one reason and one reason only and that is that it solves problems for customers at a price that represents value. Businesses are in the business of solving problems and in order to sell your product, it is necessary to identify the problems that you can solve. You can’t do this unless you identify a market segment that experiences problems for which you have a solution.
People who can really understand the market segment for which they have a solution and concentrate on constantly improving their offering so that the solution becomes better and better are on the growth path.
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