01
Business model canvas; Customer Segments
It is important for an
entrepreneur to recognize from the onset that your target customer is under no
automatic obligation to buy your product or service. However, every business
that wants to remain viable must appeal to its target customer segment or face
a long and slow dissolution.
To ensure a business’
appeal to its customer segment the business must work to understand who the
customer is. These can be recognized by evaluating the customer’s environment,
experiences and general context. All these factors contribute to how the
customer will respond to your product. So a customer’s geographic, demographic
and social context will define the customer’s persona, creating a customer
archetype for your products and services.
© Entrepreneurial Insights based on the concept of Alex
Osterwalder
In this article, we
will look at 1) what is a customer segment?, 2) types of customer
segments, 3)creating a customer profile (customer jobs, customer gains and
customer pains) and 4) a case study.
WHAT
IS A CUSTOMER SEGMENT?
Customer segments are
the community of customers or businesses that you are aiming to sell your
product or services to. Customer segments is one of the
most important building blocks in the business model canvas for your business,
so getting this building block right is key to your success.
Customers can be
segmented into distinct groups based on needs, behaviors and other traits that
they share. A customer segment may also be defined through demographics such as
age, ethnicity, profession, gender, etc or on their psychographic factors such
as spending behavior, interests, and motivations. An organization can choose to
target a single group or multiple groups through its products and services.
By matching your
customer segment to your value proposition, you can achieve a more lucrative
revenue stream. Hence, it is fundamental for an organization to understand the
trade-off between different customer segments and carefully select which
segment it wants to target. Then, the organization must create a value
proposition and employ a business model best suited to servicing their chosen
customer segment’s needs.
An organization can
categorize consumers into distinct groups if they have the following
characteristics;
1. The customer groups
have a particular need which justifies the creation of a product to match this need.
2. The group needs a
separate Distribution Channel to be reached.
3. The groups require
relationships of different kinds.
4. There is a very clear
difference in the level of profitability each group represents for the
organization.
5. Each consumer group
feels strongly enough to pay for a different version of the product or service,
tailored to their preferences.
TYPES
OF CUSTOMER SEGMENTS
Mass Market
Products and services
which target the Mass Market segment are appealing or fulfill the needs of a
wide cross section of the population and does not discriminate between
different Customer segments. The value propositions, distribution
channels and customer relationships are meant for the consumption to a big
number of people who have a common problem or need that requires fulfillment.
The manufacturer for a fridge will have a very broad target market because
there is very little differentiation required by people from their fridge.
Niche Market
Niche market refers to
a customer segment with extremely defined characteristics and very particular
needs. This segment requires, or rather expects, a highly tailored product,
custom made to suit their needs. Therefore the value propositions, distribution
channels ad customer relationships are closely defined according to the
preferences of this particular customer segment. These business models are
common in supplier buyer relationships such as those between automobile parts
manufacturers who are extremely dependent on automobile manufacturers for sale
of their products.
Segmented
Some businesses choose
to provide products and services to customer segments which may have very
minute variations in their needs and requirements. The organization creates
different value propositions, distribution channels and customer relationships
according to these small differences in the customer segments.
In retail banking, a
bank will create a distinction between consumers whose net worth is $100, 000
and those with a net worth of $500, 000. The differences between these two
kinds of consumers are small but significant. Typically, a bank will find it
more lucrative to invest in creating separate value propositions, distribution
channels and customer relationships for both customer segments.
Diversified
An organization which
opts to serve diversified customer segments is basically picking customer
segments with very different needs and wants. The customer profiles have few
overlaps but due to varying reasons, the organization sees value in investing
in appealing to both these diverse segments. Amazon.com started by selling books online. As it’s
business grew, it’s IT infrastructure became more and more sophisticated.
Leveraging this value proposition, Amazon began offering its IT infrastructure
through cloud services to business customers. Hence, Amazon now has individual
customers and business customers as well.
Multi-Sided Platforms/
markets
When customer segments
are related through dependency, it makes business sense to serve both ends of
the equation. Hence, for a credit card company, it is not just imperative that
customers opt to use their credit cards but equally important for stores to
accept their credit card. If either segment fails, the other will automatically
follow suit. Simply put, it’s a chicken and egg problem. Today, one of the most
successful online ventures is e-bay which operates with Multi-sided platform by
requiring the presence of both buyers and sellers for it’s continued success.
If eBay doesn’t have a sufficient customer base for its sellers, sellers will
not be interested in advertising their wares on eBay. Conversely, if the buyers do not have a
multitude of sellers to choose from, they may switch to other mediums to
fulfill their needs.
CREATING
A CUSTOMER PROFILE
© Entrepreneurial Insights based on the concept of Alex
Osterwalder
The customer profile
defines the customer segment more clearly for your organization by
understanding the customer’s jobs and evaluating the customer’s pains and
gains.
Before creating a
customer profile, one must understand the various archetypes customers
typically fall into. These archetypes are as follows:
1. A Curator is someone
who sifts through a lot of information and options available and funnels the
relevant options to his or her audience.
2. A Broadcaster shares
information of value to a huge audience.
3. A Tastemaker is
someone with very specific tastes and is followed by an audience who have
similar tastes and look to him for cues on what products to try and what
services to adopt.
4. A Celebrity is someone
with a dedicated fan following in whose eyes he/she can do no wrong. This is
usually someone famous whose every move is watched and whose purchase
preferences are emulated by the audience.
Customer Jobs
Customer jobs describe
what customers are trying to achieve in their personal and professional lives.
It could refer to the work they are trying to get done, needs that they are
trying to satisfy or challenges that they are trying to overcome. It is
important in this section for the entrepreneur to think from the customer’s
perspective to better understand the customer.
Functional Jobs
These are specific
tasks and results that the customer is trying to achieve and is working
towards. They are simple and easily defined such as cook a meal, complete my
Math homework, eat healthier as a consumer or meet my KPI’s as an employee.
Social Jobs
These describe how a
customer wants to project him or herself in a social setting. This includes
wanting to fit in with a particular crowd socially, or wowing the boss with a
presentation at work.
Personal/ Emotional
Jobs
Customers also work
towards feeling a particular way. Most people will aim for the rush of
succeeding at a difficult task such as participating in a triathalon or having
dinner with their family every night.
Supporting Jobs
Customers also consume
or buy value, thereby performing a supporting job. The following three roles
contribute to supporting jobs:
1. Buyer of value: this
job includes any purchase of value and can cover the spectrum from evaluating
available options and alternatives to signing for a delivery or paying for a
product you have selected.
2. Co-creator of value:
these are jobs in which you have a direct hand in the creation of the product
with the organization. This can include brainstorming for ideas for the design
of the product to testing the product yourself and providing reviews online.
3. Transferor of value:
these jobs represent the close of the product use lifecycle and are
characterized by the consumer disposing off the product or transferring tis
ownership to someone else because they find no further value in it.
Jobs Context
While evaluating
customer jobs, it is equally important to evaluate the context in which the job
was performed because the context has the power to impact the job type itself.
To elaborate, there is a marked difference between how a customer would
approach going to watch a movie with their children and going to the movies
with a significant other.
Job Importance
Different jobs will
hold varying degrees of importance in the eyes of the customer depending on
their impact and the customer’s priorities. It is important for the
entrepreneur to recognize which jobs are crucial to the customer and which one
the customer can easily discard or substitute.
Customer Pains
These are conditions
which either prevent the customer from getting a job done or elicit negative
emotions before, during or after a job. The risks of doing a job or negative
results arising from it also fall within the ambit of Customer Pains.
Undesired outcomes,
problems and characteristics
Customer pains are of
the following types: functional, social, emotional and ancillary. This also
includes characteristics unappealing to the customer.
Obstacles
These are pains which
either prevent a customer from starting a job or hamper the customer in
completing an assigned task.
Risks
These are
possibilities of something going wrong or negative consequences of an action.
Pain severity
Customer pain varies
in its severity from extreme to moderate.
Tips for clarifying
customer pains
It is important to
delve into the depth of what causes a customer pain so we understand its
urgency and importance for the customer. Hence, if a customer complains about
being made to wait in line too long, an entrepreneur can understanding this
pain better by inquiring how long after getting in line did the wait become an
unbearable pain for the customer.
Customer Gains
Customer Gains are
results or benefits that customers desire. Some gains will be taken for granted
by the customer upon purchasing a product or service, but others might be a
surprise for them resulting in customer delight. Gains are of the following
types: functional utility, social gains, positive emotions and cost savings.
Required Gains
These are the most
basic gains expected by the customer when purchasing a product. Hence a person
purchasing a smartphone will have the minimum expectation that the new phone
will let him make and receive phone calls.
Expected Gains
These are also basic
gains but ones without which the product or service would still fulfill its
basic purpose. Hence, even if a smartphone makes a call, we expect it to be
sleek and visually appealing.
Desired Gains
These gains represent
the customer’s wishlist. These would be highly coveted and treasured gains by
the customer and would lead to a lot satisfaction from the customers. One such
desired gain is for smartphones to be easily synced with other devices.
Unexpected Gains
These are gains that
haven’t been expressed by the customer. They are ideas and innovations which
have the power to revolutionize the customer’s experience with a product but
the customer isn’t aware of them and their potential benefits until they are
introduced. The Touch screen was an unexpected gain for customers of Apple.
Gain relevance
A successful
entrepreneur needs to be able to evaluate how essential the gain is to the
customer. Gains can vary from essential to nice to have.
Tips for clarifying
customer gains
It is important to
have clearly defined gains for the customer so the products and services can be
tailored accordingly. If a customer gain is “need better performance’ from a
product, it is key to the product’s success for the organization to know what
level of performance will be viewed as a gain by the customer. The more
information one has about customer gains, the better the value proposition will
appeal to the customer segment.
Steps for using the
FRAMEWORK
To summarize, outlined
below are the steps to effectively employ this framework;
1. Pick a customer
segment that you would like to analyse in detail.
2. Figure out what tasks
your customers are trying to accomplish and mention each on a separate sticky
note
3. Pinpoint the pains
customers have including the challenges and risks they face
4. Pinpoint the gains the
customers would have
5. Rank the jobs, pains
and gains in order of relevance and severity for the customer.
Best practices &
Common mistakes when using the FRAMEWORK
Best Practices:
1. If you are targeting
more than one customer segment, have a separate value proposition for each
segment. If your organization is targeting business customers, make sure to
evaluate if you have more than one segment coexisting within the business
2. Jobs are chores that
customers are trying to complete, issues they are trying to find solutions for
or needs they are attempting to fulfill. Gains on the other hand are specific
results that a customer wants to achieve or, in the case of pains, avoid.
3. Do not overlook the
significance of social or emotional jobs. In many cases they are much more
urgent to the customer than functional jobs.
4. While creating a
customer profile, it is imperative not to begin with the end in mind i.e. do
not take your own product or service into account while identifying their jobs,
gains and pains. Instead, make sure that your create a holistic profile by
covering all their jobs, gains and pains regardless of whether they are
relevant to your product or not.
5. A good customer
profile will be full of sticky notes because a typical segment will have many
jobs, pains and gains.
6. When mentioning pains
and gains, it is more effective to be as specific as possible. Ambiguous gains
like salary increase or takes too long, in the case of pains will not give you
much to work on as a business. Instead, specify how much salary increase the
customer wants or what amount of time will be deemed too long by the customer.
Common Mistakes:
1. Creating a customer
profile which covers more than one segment
2. Treating jobs and
results as the same
3. Ignoring emotional and
social jobs in favor of functional jobs
4. Mentioning only those
jobs, pains and gains which are relevant to your product or service
5. Being satisfied with
only having a few jobs, pains and gains on your customer profile
6. Failing to be
descriptive while mentioning jobs, pains and gains
CASE
STUDY
Tidepool is a digital
health startup that provides an open data and software platform to its
customers. It is serving a two-sided market, identified as Patients and Device
Manufacturers.
Customer Jobs
Patients: Keep blood
sugar within target range and make therapy adjustments when it doesn’t record a
range.
Device manufacturers:
Design, build and sell devices.
Customer Pains
Patients: going
through the pain of hypo and hyperglycemia everyday; fearing over losing their
children to Diabetes everyday.
Device manufacturers:
software must have value to providers so they can recommend it to patients;
create data management software; FDA process.
Customer Gains
Patients: a bank of
information at their fingertips which removes the need for guesswork.
Device manufacturers:
innovative features which attract both the providers and the patients.
No comments:
Post a Comment