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Customer segments are the different groups of customers who we deliver our value proposition to. There are different types of customer segments and we need to customize our value propositions dependning on who we're selling to.
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In the earlier video, we looked at our
value proposition.
0:00
Or in simpler terms,
0:03
the value that this project management
software is going to offer.
0:04
The next section that we need to explore
is our customer segments.
0:08
Put simply, a customer segment is a group
of people or
0:12
organizations that you aim to reach and
serve with your value proposition.
0:16
Your customers are the reason you are in
business, and it is in your
0:20
best interest to serve them effectively,
or else, you'll go out of business.
0:23
But in order to serve your customers to
the best of your ability,
0:28
you need to identify who exactly your
customers are and what they want from you.
0:31
In this section we are going to define our
customer segments.
0:36
We're going to think carefully about the
groups of people we want to try and
0:40
reach and then try and define them as
precisely as possible.
0:43
But before we do that, let's go over a few
different types of customer segments.
0:48
Understanding the common groupings of
customers will help us think
0:53
about ways we can refine our value
proposition.
0:56
One thing I want to point out is that this
canvas is an evolving document.
1:00
If I discover information in this section
that conflicts with something in
1:04
my value proposition, I definitely need to
go back and make some changes.
1:08
Okay, so what are some of the different
customer segments?
1:13
You could have one giant customer segment,
otherwise known as a mass market.
1:16
Certain businesses don't focus on separate
customer segments,
1:22
instead they treat everyone as one large
segment.
1:25
This is common when the group has broadly
similar needs and problems.
1:29
If your customer segment is a mass market,
then you can focus your value proposition,
1:33
channels and relationships, all on serving
the one group.
1:39
A PlayStation is a good example of a
product that serves a mass market.
1:43
There's one main marketing message, one
price point, and
1:48
one customer relationship strategy that
applies to the entire market.
1:51
If you are targeting a niche market, or
niche as some say,
1:56
then you are catering to a very specific
and specialized group of customers.
1:59
Everything, including the value
proposition, channels and
2:04
customer relationships, will be molded to
fit the group's needs.
2:08
If you offer consulting services, you
serve a niche market.
2:12
Your value proposition is very specific to
a small subset of clients.
2:15
There are very few distribution channels.
2:20
And you have a very close and dedicated
customer relationship.
2:22
If I was an iOS or
2:26
Android app consultant, I wouldn't offer
the exact same service for every customer.
2:28
No, each and
2:33
every solution provided is geared around
that specific customer's needs.
2:34
Another type of customer segment is a
segmented market.
2:39
In a segmented market, you can have
multiple customer segments,
2:43
each with slightly different needs and
problems.
2:47
This might mean tweaking your value
propositions, channels, and
2:50
revenue streams slightly for each segment.
2:53
If we think of Apple's, or any other
computer maker's product list,
2:57
you'll notice that their everyday use
desktop, laptops, gamer PCs, computers for
3:01
graphics intensive work, really powerful
server machines, and so on.
3:07
Computer makers basically serve a
segmented market, and the value
3:12
proposition, relationships, and channels
are all different for each segment.
3:15
Next, your segments can be diversified.
3:20
Diversified markets have one thing in
common with segmented markets.
3:23
You have more than one customer segment.
3:27
But the similarities stop there.
3:30
While in a segmented market your different
customer segments are related and
3:32
have slightly different needs.
3:36
In a diversified market the customer
segments are completely unrelated and
3:38
have very different problems and needs.
3:42
The best example of this is Amazon.
3:45
They serve two completely different and
unrelated markets with their
3:48
online retail business, which serves
pretty much everyone.
3:51
And their Cloud computing services, which
are targeted at web companies.
3:55
When you're starting a company,
3:59
it is highly unlikely that you will have a
diversified market.
4:01
This is more common in successful
companies that branch out
4:04
into different markets once their main
business model scales.
4:07
Finally, we have multi-sided markets.
4:11
In a multi-sided market,
4:13
there are two high-level customer segments
that are interdependent.
4:15
There are two different value
propositions,
4:19
customer relationships, key activities,
and so on, for each customer segment.
4:21
But these value propositions can not work
without the existence of the other.
4:26
This is what differentiates multi-sided
markets from a diversified market.
4:31
If you look at Facebook's or
4:35
Google's business model, they have a
multi-sided market.
4:37
For Facebook, one of their customer
segments is the general
4:41
population who uses Facebook as a social
network.
4:44
In this case, the value proposition is
connections.
4:48
Memories through photos and all that good
stuff.
4:51
Their second customer segment consists of
advertisers.
4:54
The value proposition for this customer
segment is access to a database of
4:57
millions of detailed customer records to
whom they can advertise.
5:02
It may not seem like these segments are
interdependent but
5:06
they most certainly are.
5:09
Without the advertisers, we couldn't use
Facebook for free.
5:11
Without the users, advertisers won't have
an incentive to use the platform.
5:14
This is how Google's model works as well.
5:19
We get to use all their products for
5:21
free because advertisers pay to get access
to our search and browsing habits.
5:23
So, which group do we fit in best?
5:28
In my example, I don't have interdependent
segments.
5:31
And I'm not offering different value
propositions.
5:34
So we can eliminate diversified and
multi-sided markets right off the bat.
5:37
Since I want to make project management
software specifically for
5:42
small teams, with an identical value
proposition for
5:45
all groups, then that sounds like a niche
market.
5:48
Now, you could consider this a mass
market,
5:51
since it's quite a large market, but it's
not the largest segment of the market.
5:53
Smaller groups are a subset of the larger
market.
5:58
Therefore, we're going to treat it as a
niche market.
6:01
With a niche market, we focus our business
model to the needs of a subset,
6:04
not the needs of the general market.
6:09
This means, that when thinking about a
hypothetical customer,
6:11
we need to capture the characteristics of
our niche market specifically, and
6:15
not everyone who uses project management
software.
6:19
We can get to know our segments better by
defining customer archetypes or personas.
6:22
This kind of exercise is more often seen
in the context of user experience.
6:28
But it is a very useful exercise to carry
out in our project too.
6:32
There's a lot of study done on the
different methods you can use to
6:37
achieve this task.
6:40
We're going to keep it fairly simple.
6:42
We'll start with a high-level view.
6:44
Who are the different kinds of people that
could need our product or service?
6:46
What context will they be using our
service in?
6:50
In this context, say it's their job role,
what are the pain points?
6:53
What problems need to be solved?
6:57
What current methods do they use to solve
those problems?
7:00
What is their usual decision making
process?
7:03
And finally, who influences them?
7:06
Start by capturing demographic
information.
7:08
Get to know who your customers are first.
7:11
You can use things like Google Trends and
7:14
Google Insights and ads to narrow this
down.
7:16
You can even look at who your competitors
are selling to.
7:20
Once you know who your segments are, get
out and meet them.
7:23
Interview them and understand what they do
and how they behave.
7:27
Continue to update your archetypes as you
gain more information about them.
7:31
Write all these things down.
7:36
Why?
7:38
Because then you can craft the rest of
your business model around it.
7:39
Using the highlights from your archetypes,
7:43
you can develop customer acquisition
strategies and relationship guidelines.
7:45
For example, if one of the insights you
gain was that the biggest pain point for
7:49
a typical customer was that they had a
hard time communicating project time lines
7:53
with their clients, your acquisition
messages can be framed around this.
7:58
If you know which blogs or trade
publications they read,
8:02
you can advertise on those websites or
each out to those bloggers.
8:05
How do your customers find new products?
8:10
And, where can you find your customers?
8:12
You can even take it further by looking in
to what a day in the life of
8:15
your customer looks like.
8:18
All this information will give you
valuable insights in to the type of
8:20
activities your customer partakes in.
8:23
And how you can use that to engage and
8:26
acquire your customer by highlighting
relevant parts of your business model.
8:28
Once I have all this information, rather
than giving a generic message like,
8:33
my project management software will make
you more efficient.
8:38
If they're a software developer, I could
say things like,
8:41
my project management software makes agile
development a breeze.
8:44
You can view all your projects in one
place, plan products in sprints, and
8:47
collaborate extremely efficiently.
8:52
If I tell them exactly how I'm solving
their problems,
8:54
they're more likely to do business with
me.
8:57
Once you have all these details down,
write them down on your canvas, or
9:00
stick it up with Post-It notes.
9:03
All this information will be really useful
later on.
9:05
Now remember, if you're having difficulty
identifying your
9:09
different customer segments.
9:12
If the lines have blurred and you don't
know if this group over here is
9:13
actually a different segment, the book
offers these simple guidelines.
9:17
If you have to change your value
proposition to meet their needs.
9:21
If you reach them through different
distribution channels.
9:25
If they require different relationships,
that is their acquisition, retention and
9:28
up-selling strategies are different.
9:33
If you're implementing a different revenue
model.
9:35
Or if they have different levels of
profitabilities.
9:37
And finally, if they're willing to pay for
different aspects of your
9:40
different value proposition, then these
are different customer segments.
9:43
Let's recap.
9:48
A customer segment is a group of people or
9:49
organizations that you aim to reach and
serve with your value proposition.
9:51
There are different types of customer
segments.
9:56
The main ones we talked about are,
9:58
mass market, where we treat all customers
as if they're one segment.
10:01
A niche market, which is a very specific
and specialized group of
10:05
customers that is a subset of a larger
market with similar characteristics.
10:08
A segmented market, which is a market with
multiple customer segments,
10:13
each with slightly different needs and
problems.
10:17
Then there's a diversified market, which
is a market with customer segments that
10:20
are completely unrelated and have very
different problems and needs.
10:25
And finally, a multi-sided market, with
interdependent customer segments.
10:29
Now, the goal of this section of the
business model canvas is to
10:34
get you exploring your customer segments
and
10:38
defining who your hypothetical customers
are.
10:40
Once you have identified the type of
segment, you develop your customer
10:45
archetypes to get a better sense of how
you can gear your business model to them.
10:48
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