Yesterday I highlighted the 9 building blocks that make up a business model. Today, I want to take you all a layer deeper into customer segmentation. First let’s start by answering what customer segments are:
Customer Segments define the different groups of people or organizations an enterprise aims to reach and serve.
There are many ways to slice and dice customer segments. Often times enterprises find it most difficult to separate their customers intouniquesegments. Unique segments can be created based on common needs, behaviors, or other attributes. To be more explicit, customer groups represent separate segments if:
- Their needs require and justify a distinct offering
- They are reached through different distribution channels
- The require different types of relationships
- They have substantially different profitabilities
- They are willing to pay for different aspects of the offer
There are also different types of customer segments. I want to take a moment to highlight a few examples:
- Mass Market: Business models focused on mass market don’t distinguish between different customer segments. The value proposition, distribution channels, and customer relationships all focus on one large group with similar needs and problems.
- Niche Market: This segments is very specialized, characterized by very tailored value propositions and distribution channels. Such business models are often found in supplier-buyer relationships.
- Segmented: Some business models distinguish between market segments with slightly different needs and problems. The retail banking arm of a financial services institution may segment its customers into below $100,000 savings and above $500,000 savings. Both customers are similar, but have varying needs and problems.
- Diversified: This business model serves two unrelated customer segments with very different needs and problems. Likewise, they offer two different value propositions, channels, and relationships.
- Multi-sided platforms: Some orgs serve two or more interdependent customer segments. For instance, a credit card company needs a large base of credit card holders and a large base of merchants who accept those credit cards.
As you can see, some thought should be put into thinking about whether the customers your company services have unique needs and problems. The choice of customer segmentation strategy has implications for the other blocks within the business model.