Understanding Your Customer Segments

A business growth strategy that is focused on a particular customer segment is the opposite of the 'one size fits all' strategy. It's important to learn how to define each segment.

Now more than ever before, it’s important to understand your customer segments.

A business growth strategy that is focused on a particular customer segment is the opposite of the ‘one size fits all’ strategy. One size fits all is the same as trying to be ‘all things to all customers’. When we want to think strategically about the needs and wants of a particular segment, it is important to know how to define each segment.

In their book, The Lean Entrepreneur, Brant Cooper and Patrick Vlaskovits devote an entire chapter to this idea, called “Every Fish in the Sea”. They define a customer segment as “a defined group of people who share the same problem or passion and speak the same language”.  They discourage segmenting your customers by demographics, product category or specific industry group. The authors use the analogy of a commercial fisherman fishing for a particular type of fish which provides a good visual of what segmentation is.

In Alexander Osterwalder and Yves Pigneir’s great book Business Model Generation, they state:

Customer groups represent separate segments if:

–          Their needs require and justify a distinct offer

–          They are reached through different distribution channels (like the web vs a retail store as an example)

–          They require different types of customer relationships

–          They have substantially different profitabilities

–          They are willing to pay for different aspects of the offer

When you think about it, this type of customer segmentation makes perfect sense.

Every business strategy includes determining what features and benefits to include in your value proposition. It has to be a lot easier if the target customer groups you focused on all valued the same features and benefits. When we go even further and define the group to be only those in that group that are willing to pay for the different aspects of the offer, I can see how this kind of strategy could really work!

On the flip side, it is also easy to see how NOT segmenting customer groups properly can be problematic.

I wonder how many small business owners actually group their customer segments this way at the moment?

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