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The best way to identify your customer segments is by asking yourself a series of questions about who they are and what they need.
Related: Customer segments are just one part of the easiest business plan you can create: the business model canvas.
Table of Contents
- 1 What is a Customer Segment?
- 2 Types of Customer Segments
- 3 The Value Proposition Canvas
- 4 Figuring Out Your Customer Segments
What is a Customer Segment?
Customer segments are the community of customers or businesses that you are aiming to sell your product or services to. – Cleverism.com
In other words, it’s the type of people you want to provide value to.
It’s who you build your products for.
There are tons of ways customers can be segmented, including:
- Intrinsic & Extrinsic motivations
If you don’t determine who you are going to sell to, your products and services will likely fall flat when you launch or try to sell them. You may make a few sales, but you won’t be able to speak their language, and you’ll likely run into a lot of churn, or people using you once or twice and then bailing.
Types of Customer Segments
Here are a few types of customer segments that help you narrow down who you’re going to be targeting.
1. Mass Market
Businesses who focus on mass markets don’t really have specific customer segments. They focus on extremely broad audiences with similar problems and needs. This would be something like a grill manufacturer or consumer electronics brand.
2. Niche Market
Business models targeting niche markets have very specific audiences. These are common in supplier-buyer relationships, most commonly the example given is auto parts manufacturers who are very dependent on auto manufacturers for sale of their products.
Businesses who have segmented customer targets have very small variations in their needs for a service. For example, a financial planner who targets a few segments:
- Net worth individuals from $0-$100k
- Net worth individuals from $100k-$150k
- Net worth individuals from $150k-$250k
While their net worth varies, the needs they have might not be so different.
A company that has diversified customer segments is serving markets with quite different needs and wants. An example could be a company that serves both business to consumer (B2C) and business to business (B2B) markets.
Each has a wildly diverse set of needs, yet the company is able to serve both markets effectively.
5. Multi-Sided Platforms/Markets
Multi-sided markets are essentially one that relies on two sides of a transaction in order to be successful. This could be something like Etsy, which relies on both sellers to provide goods to sell, as well as buyers to actually purchase the items.
Since they rely on both in order to make money, if one side fell short, their profits would be harmed.
The Value Proposition Canvas
Designed by business management theorist Alexander Osterwalder, the value proposition canvas is a tool for more easily determining what makes your service or product, well, valuable.
The canvas breaks out the pieces of a great value proposition and helps you work through them one by one.
The value proposition of your service is part of the Business Model Canvas, which is essentially a one-page business plan that helps you get extremely clear about who you serve, why, how you’re going to make money, and what kind of resources you need, etc.
The canvas helps us solve 2 of those pieces of the Business Model Canvas, but right now we are just focused on determining our customer segments.
Here is what the Value Proposition Canvas looks like.
Let’s start diving in and working our way through the target customer side of things (the big circle). We cover the rest of the canvas over here in the unique value proposition article.
What you want to do is figure out one target market you are going to go after for the purposes of this exercise.
Essentially, these are the things a customer is trying to get done. It could be a task, a problem they need to solve, or some type of need they are trying to satisfy.
There are four types of jobs they could be trying to solve:
- Functional jobs – functional as in a task or specific problem
- Social Jobs – looking good, building authority in front of their audience, achieving some kind level of status
- Emotional jobs – security, aesthetics, feeling good about something
- Basic needs – I look at these similar to Maslow’s Hierarchy of Needs. So these could be things like food, water, shelter, health, communication, sex, etc.
Building on the customer jobs you’ve identified already, try and determine what are the pains associated with accomplishing those jobs.
It helps to look at the before, during, and after of each as you will find different pains for each stage of the problem being solved.
For example, let’s say the customer job is running a marketing campaign to drive sales. Here are some of the pains they might experience along the way:
Before the Campaign
- Uncertainty about what to expect
- Worried the campaign will hurt their brand
- Worried they might lose money, time, and effort
- It could be the most money they’ve spent on any one campaign
During the Campaign
- They might not know if it’s performing well
- Not sure what the next steps are
- It may have started off bad and they aren’t sure if the results will recover
- They aren’t sure they’re reaching the right people
After the Campaign
- They ended up wasting money
- They aren’t happy with the results
- A customer didn’t sell enough products/services
- They’re not sure if the campaign actually helped
Customer gains are the benefits your customer is looking for, what they expect, or what they might be surprised by.
Customer gains could include saving time, money or effort, as well as some kind of outcome that just blows their previous idea of what they would get of the water.
This section is where you determine their expectations AND how you could go above and beyond their wildest dreams.
I’m going to build out a value proposition canvas for my business so you can see an example of what goes into it. Be nice, I’ll probably screw up a bit. 🙂 I always loved the live examples in class, I hope this helps!
Figuring Out Your Customer Segments
I went through this exercise for my own business to help show you what this would look like using a live example.
This is using my marketing consultancy geared towards a specific client type of mine, conference and event planners.
Here are the ideas I came up with for each area of the customer side of things.
Remember these are the tasks and problems your target customer is trying to solve.
- Sell tickets
- Get sponsors
- Raise awareness
- Help attendees make the most of the event
- Running their own Facebook ads (time, wasted money, effort – even if done by a virtual assistant or in-house team member)
- Frustrating to learn and optimize
- Transparency in results
- Could ruin the reputation of the conference
- Selling enough tickets
- Upsetting sponsors/Not giving enough value
- Sell extra tickets
- Confidence in solution
- Extra person on their team to help
- Get extra tickets at very low costs
- Lower risk
- Additional reporting features
- Tracking conversions when they couldn’t before
- Make sponsors happy so they come back next year
To be able to provide value to someone, or a group of people in this case, you need to understand their fears, pains, needs, and wants. Who they like being around, where they like to hang out (online and offline), and what kind of message is going to appeal to them.
Here are some prompts/questions that I’ve found helpful in determining who my audience is:
- B2B or B2C?: B2B is business to business – examples here would be a marketing agency or a company like Hubspot. B2C is business to consumer, this would be like McDonalds or Target, who service primarily customers, not business owners. I like starting with this question because while it may seem obvious, it helps you narrow down your audience right away.
- Gender: Are you targeting a specific gender more than others?
- Age: Is there a certain age range the people you are trying to reach fall into? Maybe they fall into a specific generation over others?
- Marital Status: Are they single, married, divorced?
- Location: Where do they live? This could be as specific as a city or state, or more broad as in they live in urban areas, or are more likely to be 50+ miles from the closest shopping mall.
- Life Stage: Did their kids just head off to college? Are they retired? Do they travel full-time?
- Industry: What kind of work do they do? Are they self-employed? Do they want to be self-employed in the next 3 years?
- Hobbies: Do they like gardening in their free time? Do they like exercising or going hiking on the weekends? Do they go to a lot of concerts and music events?
- Values: What do they deem important to living their best life?
- Next 5 years: What do they aspire to do, have, or be in the next 5 years?
- Life Goals: What kinds of things do they want to have accomplished when they are on their deathbed? Do they want kids, to be married, create something that changes lives, travel to every country in Europe, etc.?
It might be hard to pinpoint the last few bullets which are more psychographics to figure out and are difficult if you don’t have an audience yet. However, I think it’s super important to make an educated guess on what you think those include, even if you have to update this list later.
NOTE: It’s important to keep in mind that your target market does not include everyone you will ever sell to. It’s just a type of person who is more likely than others to want what you are offering.
While this exercise might be hard, don’t do yourself a disservice of saying, I target women ages 21-65 and then stop. That group of people is far too large for you to really narrow down your message and marketing efforts.
No business can truly target everyone. And by narrowing down just one level, you’re essentially trying to target everyone. Spend some time and really get this right. There is a reason that most “how to start a business” courses start with finding your avatar or target market.
Now you should have a good idea of who you are going to be targeting, and some of the pains and jobs they are trying to solve.
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