Startups:  Segment the Market to Drive Early Sales

Build a better mousetrap, and the world will beat a path to your door.

Sales are hard, and sales in the earliest stages of a startup are harder.  Many startups assume that a great product or service will sell itself.  Highly unlikely, at best.  By segmenting the market, a startup can drive early sales in that segment.

An important insight is contained in an article called How to Get Your Startup’s First Customers in Entrepreneur’s Handbook.  Avoid a key mistake that many startups make – they position themselves as the best in the market.

Most startups assume that the combination of price and features drive the purchase decision, and that they need to be the best.  But the purchase decision is more complicated and every purchase decision is different.  An opportunity exists for a new competitor that is best at one factor in customers’ purchase decisions.  You don’t have to be the best in the market, just be better than the competition for a segment of customers.  The article contains much more information and analysis on how to consider factors in purchase decisions and position your product or service for a segment.

How does this segmentation approach apply to insurance and Insurtech

An insurance company underwriting executive was giving a presentation to a group of brokers.  After discussing appetite, the executive noted that their pricing, relative to the market, was the middle of the pack.  What?

Obviously this doesn’t make much sense.  That insurance company is not going to write any business if their product is the same and always more expensive than the competition.  But they were writing business. The real question, which was not answered, is what are they winning at?  What type of accounts are they writing, and why?  What combination of price, coverage and service was selling, and for what customer segment?  They did not know.

This segmentation approach applies to all types of insurance and Insurtechs, not just underwriting.  As an Insurtech startup, you might consider how you are segmenting the market.  Consider:

  • Why are you winning customers?
  • What aspect of your product or service is leading to these sales?
  • Are the customers you are winning in your target?
  • Do you know the profile of the customers you are winning?
  • How do you reach those customers? 
  • Are their product or price modifications you can make to improve your competitive position in that segment?

Segment your market to win.  How is your product or service positioned to win a specific set of customers in your market?

Innovate Insurance – Innovation & Entrepreneurship in Insurance

Also, see the related Specialty Insurance BlogNews & Commentary on Specialty Insurance – with an Emphasis on Professional Liability Insurance

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