Business Model Generation Notes 2 - Block one: Customer Segments

Customer Segments: defines a different groups of people or organizations an enterprise aims to reach and serve.  Customers from each segments have common needs, common behaviors and/or other common attributes.

Some important questions to ask:  For whom are we creating value? Who are our most important customers? 

Decision 1: which segments to server and which to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The standards to identify separate segments for customer groups:

(1) Their needs require and justify a distinct offer

(2) They are reached through different distribution channels

(3) They require different types of relationships

(4) They have substantially different profitabilities

(5) They are willing to pay for different aspects of the offer

Examples of different types of customer segments.

(1) Mass market: A large group of customers with broadly similar needs and problems. Eg: electronics sector.

(2) Niche market: cater to specific, specialized customer segments, often found in supplier-buyer relationships. Eg: car part manufacturers and major automobile manufacturers.

(3) Segmented: distinguish between market segments with slightly different needs and problems.

Eg: banks may distinguish a large group of customers, each possessing assets of up to $100,000 and a smaller group of affluent clients, each of those net worth exceeds $500,000. Both segments have similar but varying needs and problems; Micro Precision Systems servers three different customer segments - the Watch Industry, the medical industry and the industrial automation sector.

(4) Diversified: serves two or more unrelated customer segments with very different needs and problems. Eg: Amazon on retail services and AWS cloud computing services.

(5) Multi-sided platforms/markets: serve two or more independent CS. Eg: A credit card company needs a large base of credit card holders and a large base of merchants who accept those credit cards.  Another example is an enterprise offering a free newspaper needs a large reader base to attract advertisers. It also needs advertisers to finance production and distribution.