2 – Customer Segments
A look at the business model from the product manager's point of view
CANVAS 13 - Great guide on the business model, from the product manager's point of view
1 – Customer Problem
You are here ➔ 2 – Customer Segments
3 – Value Propositions
Value Proposition Formulation Map
4 – Customer Relationships
5 – Channels
6 – Revenue Streams
7 – Key Activities
8 – Key Resources
9 – Key Partners
10 – Cost Structure
11 – Eco-Social Costs
12 – Eco-Social Benefits
13 – KPI (Key Performance Indicators)
What are Customer Segments?
Customer segments are a key element of the Canvas business model and an important task for product managers. In the context of our work, we consider them through the Customer Development (CustDev) tool.
Customer segments are groups of people or organizations that a business recognizes as its target audience. They turn to your product or service to solve their unique problems. They are defined based on common characteristics, needs, and behaviors, and each of them may have different needs that your product or service must meet. Understanding your customer segments allows the business to better meet their needs and offer more valuable products and services.
In this article, I will explain what customer segments are, how to identify them, and what types of segments exist in the context of the Canvas business model. I will also mention the main participants in the purchasing process to build effective market communication.
The Importance of Customer Segmentation
Customer segmentation plays a key role in business success for several reasons:
- Personalization of offer: By understanding the features of each segment, a business can offer more suitable products and services.
- Efficient use of resources: Marketing and sales efforts can be focused on the most promising segments, which increases efficiency.
- Improving customer relationships: A business can build stronger and longer-lasting relationships with customers by offering them what they really need.
Types of Customer Segments
In the context of the Canvas business model, several types of customer segments can be distinguished:
- Mass market: Oriented towards a wide range of consumers with similar needs and problems. Examples include electronics manufacturers or retail chains.
- Niche market: Oriented towards a narrow circle of consumers with very specific needs. An example would be suppliers of specialized medical equipment.
- Segmented market: Includes several small segments with different needs and problems but related to each other. For example, a bank may offer various types of credit products for students, retirees, and young families.
- Diversified market: Oriented towards several unrelated customer segments. A classic example is Amazon, offering both cloud services for businesses and retail goods for end consumers.
- Multi-sided market (multi-sided platforms): Includes two or more interdependent segments. An example is the Uber platform, connecting drivers and passengers.
Main Participants in the Purchase Process
An important aspect of developing a sales strategy is understanding the main participants in the purchase process. These participants play a key role in the turnover of your product in the market.
Users are the people who use your product or service in their daily life or work. They experience problems or needs that your product or service can solve, and they directly benefit from using your product or service.
Influencers are people or organizations that have an influence on the decision-making process regarding the implementation of your product or service in a certain company or environment. They may not be direct users of your product, but their opinion and status can significantly influence the purchase decision.
Recommenders are people whose opinion has a significant influence on the purchase decision-making process. Their influence can be so strong that they can contribute to the success or failure of a sale. They may not be direct users of your product, but their opinion is taken into account when making the final purchase decision.
Buyers are the individuals who actually make the purchase of your product or service. They may also be users of your product, but in some cases, this is not so. The buyer is the one who finances the acquisition of the product or service.
Decision-makers are people or organizations that can encourage or discourage the successful purchase or implementation of your product or service. Depending on their interests and position, they can simplify or complicate the sales process.
How to Identify Customer Segments?
The process of identifying customer segments may include the following steps:
- Market research: Analysis of demographic data, consumer behavior, and market trends.
- Development of customer personas: Creating detailed profiles of typical representatives of each segment.
- Identifying needs and problems: Understanding what tasks and problems are important for each segment and how your product or service can solve them.
- Competitor analysis: Studying competitors' offerings and their target customer segments.
- Testing hypotheses: Prototyping and testing products or services on different segments to confirm or refute hypotheses.
Understanding who you are creating your product for and who your ideal customer is is of paramount importance. However, it is also important to be able to identify those who are not suitable as customers.
This is not just a demographic category such as "women aged 30-40 with two children and an average income level." This group may have diverse problems, and defining a segment solely by demographic criteria is often insufficient.
A consumer segment is a group of people or organizations to whom our project is addressed and to whom it provides value. In other words, these are users whose problems we strive to solve or whose needs we help to satisfy.
When defining our consumer segment, we can consider various characteristics.
- Demographic data includes parameters such as age, marital status, and income level.
- Psychographic characteristics describe the consumer's attitude, lifestyle, and personality traits.
- Behavioral characteristics can include hobbies, interests, and daily routines of the user.
It is important to understand that these characteristics can vary greatly depending on the specific consumer segment, and they should be taken into account when developing our product or service.
Working with a multi-functional platform and working with dealers or distributors each have their own specifics. For example, if your product is a multi-functional platform like a taxi service, you have different groups of users: passengers who need to quickly, conveniently, and inexpensively get from point A to point B, and drivers who want to earn money by serving passengers willing to pay more for short trips. At the same time, it is important to understand which aspects are most important for your service: speed, comfort, or cost.
My favorite Notion is a very versatile tool that can be adapted to many needs, but they don't say – our product is for everyone. They say here's a habit tracker, here's a book tracking template, here's a product development template, here's how it can be used in school, and here's for travel planning.
You cannot just go to market and claim that your product is for everyone. Even such great companies as Apple, Facebook, and Instagram cannot claim that their products are suitable for everyone without exception. Although theoretically, this is the case. They are forced to show people who are not their current customers detailed and targeted stories of how they can use their product.
Conclusion
Customer segmentation is a key element in the work of a product manager when creating digital products. It allows you to accurately define the target audience and develop digital products and services that best meet users' needs. Deep understanding and management of customer segments ensure effective work in the field of digital products, increase competitiveness, and contribute to creating sustainable market positions.
