A fantastic book by Alexander Osterwalder & Yves Pigneur (called Business Model Generation) defines customer segments as:
“the different groups of people or organizations an enterprise aims to reach and serve”.
This excellent definition encompasses the foundation for what I like to call “customer exploration.”
Many startup founders believe that they know their customer base and some have even taken the initiative to create avatars with names and background life-data for their customer profiles. While it is good to see entrepreneurs spending so much time in this operation critical phase- I too often notice that founders are focused on the types of people within their customer base instead of large scale customer segmentation- which is when you systematically define which cohorts of the population you serve and which you don’t.
When do Customers Need To Be Segmented?
Segmenting customers means identifying unique groups within your overall target market. According to many experts on the subject, a new customer base must be defined if/ when one of the following is true:
The needs of a particular customer base require and justify a distinct offer.
A group of customers is sold to through a specific distribution channel.
A group of customers is reached through a unique communication channel.
A segment of your customer base requires a special relationship outside of the norm (think VIP customers and online vs. offline assistance.)
The groups in question have substantially different levels of profitability.
A segment is willing to pay for different aspects of the offer than another segment.
If any of the above statements are true, you need to re-evaluate your target market and see if there is an opportunity for segmentation. You could be losing customers if you aren’t utilizing a sales channel that they prefer. There is also the opportunity to gain customers if you take a look at your offerings and bundle things together to create a package for a specific type of consumer. Segmenting your target market might sound like a lot of work but it’s a great way to really deeply understand the goals of your customers.
The 5 Types of Customer Segments
Here is an infographic I created to help make the process of choosing a segmentation strategy easier.
This article originally published in Medium.