One of the most important building blocks of your business or venture is your customer segment. Without customers, you don’t have a business as they comprise the heart of any business model. Customers – paying customers – enable survival of any company. They are like the oil which keeps the engine running. On the flip side, some entrepreneurs feel everyone is a customer and that is false assumption.
In building your business or validating an idea, you have to effectively understand who makes a perfect customer to aid you in building the business, product, services, sales and support around appealing and serving this closely defined customer segment. Finding and serving this perfect customer segment(s) with your idea is very important for your startup.
Customer Segments define the different groups of people or organizations a business or enterprise aims to reach and serve. Focusing on discovering a narrowly defined customer segment from the beginning will save you months of wandering in the dark trying to be everything to everyone. Have a firm knowledge of whom you are creating value for and who your most important customers are.
To further understand the aspect of Customer Segmentation, let’s look quickly at the different types of customer segments. Here are some examples:
Mass Market
Enterprises which focus on this particular group don’t distinguish different customer segments. The business and its building blocks – value propositions, distribution channels and customer relationships – all focus on this one large group of customers with similar needs and problems.
Niche Market
Businesses focusing on niche markets have their building blocks tailored to the specific requirements of this customer segment. This type of business models are often found in supplier-buyer relationships.
Segmented Market
Some businesses distinguish between market segments with slightly different needs and problems. For example, the retail arm of a bank may distinguish between a large group of customers, each possessing assets of up to $10, 000 or less, and a smaller group of affluent customers, having a net worth of over $200, 000 each.
It is apparent that both segments possess similar but varying needs and problems. This segmentation will in turn affect the bank’s building blocks as each clientele has to be reached and served accurately.
Diversified Market
In this case, a business serves two unrelated customer segments with different needs and problems. For instance, Company X (a fictitious shoe company) has been known over the years to manufacture and sell exquisite shoes – both wholesale and retail, but diversifies its business by selling pure leather to furniture makers. Thus, Company X now caters to a totally different customer segment – furniture manufacturers – with different value proposition.
Another great example is Amazon.com which diversified its retail business in 2006 by selling cloud computing services to a different customer segment, Web companies.
Multi-sided Markets
Business models targeting multi-sided markets cater to two or more interdependent customer segments. For example, an enterprise offering free newspapers needs a large reader base to attract advertisers. It needs these advertisers to finance production and distribution. Both of these customer segments are required to make the business model of such an enterprise work. Other examples of successful multi-sided markets are Google, Facebook and Financial Times.
Without perfect understanding of Customer Segments, businesses risk potential customer discovery, development and retention. Customer development is about questioning your core business assumptions, applying a method of discovering and validating the right market for your idea and building the right product features that solve customers’ needs.
Divine Beneth
Business Developer and Consultant
Eminent Foundation Africa
divine@eminentfoundationafrica.org
