A thriving business is built on serving and marketing to the right customers. But before you can do either, you must know who your customers are.
Customer segments help you define whom you serve and what those people want so you can market to them effectively.
Defining customer segments is a key part of creating your business model canvas and should be done before you invest money in marketing.
Let’s dive into how to create customer segments so you can focus your marketing efforts on attracting the right customers for your business and then giving them exactly what they want.
Understanding Your Customers
Products or services are rarely for everyone. You can achieve more success by matching your customer segment to the value proposition for your business.
When you create a value proposition, you describe what product or feature (value) your customers want.
When you move from the value proposition to the customer segment process, ask yourself, “Who would most need, want, and benefit from the value my business creates?”
If you feel like you aren’t sure who your customer is, start by asking yourself the following questions:
- For whom am I creating value?
- Who benefits the most from my product/service?
- Who really needs my product/service most?
- Would this person be interested in my product/service?
If you have an idea of who your customers are but aren’t sure of whether they’d place value on what you have to offer, ask these further questions:
- How much would the person be willing to pay for the product?
- How often would the person buy the product? Once a week? Once a month?
Pro Tip: You can survey potential customers to find out whether they’d be likely to use your product or service, how frequently, and how much they’d be willing to pay for it.
B2C vs. B2B Models
Some businesses serve other businesses in a business-to-business (B2B) model, while others serve the consumer directly in a business-to-consumer (B2C) model. For example, Target, providing shoppers with groceries, clothing, and homegoods, is B2C, while Cisco, providing telecommunications technology to offices, is B2B.
Are you creating a product for individuals or for a type of business? Your answer will determine what questions to ask yourself next.
There are some cases where you might have both business and consumer customers. Ebay, Google, Paypal, Quick Printers and banks are examples of multi-sided businesses where their customers can be both individuals and businesses.
If you find yourself in both the B2B and B2C situation, create customer segments for both sides of your business.
Once you know whether your primary audience is other businesses, individual consumers, or both, you can begin segmenting your customers for successful marketing.
Segmenting Business-to-Consumer Customers
Pull out your pad of sticky notes and start describing your customer. This information will determine what features your product will need, how you offer your product to the customer, and how much income you can expect to make.
- Demographics: Age, gender, race, language, background
- Socioeconomic: Income, profession, spending habits
- Geographics: rural vs. urban, location within a city
- Behavior: motivations, desires, unmet needs, shopping style, interests
Here’s an example using an art supply business and its potential customers.
Next, we’re going to group together similar customers. By grouping customers together you are creating segments, or customer niches. Other parts of the business model canvas will use these segments to better focus your business to serve the customer.
Taking the example from above, we can group together customers to create our segments and remove any customer groups who aren’t our main focus.
Each rectangle is a different segment. “Artists” and “Retirees” have been grouped together since they have the same needs: Both groups want knowledgeable staff to help them with product selection.
The group “Tourists” was removed since it represents only small potential sales.
Not all the customer groups from your initial brainstorm will necessarily be placed into segments. Like the art store owner, you may realize that a certain customer group doesn’t have enough income potential, or that it isn’t the group you primarily want to serve.
Having all your various customer groups on paper will serve you going forward, though. For example, if the art store from our example reaches a plateau with its other customer segments, its owner may decide to return to the “Tourist” segment, or think of other segments in the future.
Segmenting Business-to-Business Customers
For a business customer, the questions are a bit different. The more specific you are in describing the ultimate users in the business, the easier it will be to continue creating your BMC. Here are some questions to consider:
- What are the company’s demographics, e.g., number of employees, sales/income, location, industry, number of years in business?
- Is the product for a specific department within a business, e.g., HR, sales, or IT?
- Within a specific department, is the product solving a problem for a certain type of person, e.g., managers?
- Is your product solving a problem for the employees of the company or the customers?
When you have a business as your customer, you will interact with people who have various relationships with you and your product. A person may be:
- a user who may provide product feedback,
- an economic buyer who manages the budget,
- an influencer who may provide input to the decision maker(s),
- a recommender who can introduce your product to the decision maker(s), or
- the decision maker(s) who ultimately will approve the purchase of your product.
You will want to think about these roles when describing your business customer.
Mass vs. Niche Markets
Defining customer segments as mass or niche makes it easier to reach them with targeted marketing messages.
Even if nearly everyone would potentially find value in your products or services—and that rarely happens—you will likely need to reach them through different marketing channels. This is why you need to think of your customers in segments.
Segmenting allows you to put customers with the same needs, wants, and behaviors into groups so that you can effectively plan your product development and marketing efforts.
If you find that your product or service solves a specific problem or has a specific benefit to a narrow niche, this is OK, so long as you can capture enough clients to be profitable.
Even if your product or service serves a narrow niche, you may find that a simple modification or customization to your product might bring in a new market segment.
How Will You Segment Your Customers?
Take action! Determine your customer segments so you can describe your target audience.
As you create these segments, you may find that new ideas come up that impact your value proposition. Go ahead and review that part of your business model canvas and adjust as needed.
It’s a lot easier to adjust your blueprints than to change your product production or marketing midstream.
Once you’ve adjusted your value proposition and segmented your customers, you’re ready to move on to setting up channels for your business model canvas, which will be covered in another part of this series.
Not sure how to segment your customers in your business? Talk to a SCORE mentor today and get started on the road to a profitable business.
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