Business Model Canvas: Customer Segments
Summary
TLDRIn this video, Steve Morris introduces the concept of Customer Segments as part of the Business Model Canvas. He explains the importance of organizing customers into different groups based on their needs and how startups should focus on one key segment at a time to maximize efficiency. Steve also highlights the complexity of multi-sided markets, like social media platforms or grocery chains, where different customer groups need to be addressed. The video emphasizes selecting a primary segment and creating targeted value propositions for each side of the market. Practical advice is offered for startups to focus their resources effectively.
Takeaways
- 🔍 Customer segments help organize customers into different groups based on their unique needs or how they should be reached.
- 🍦 A simple example like the milkshake market shows how different segments have different needs and marketing strategies.
- 💡 Startups should focus on one customer segment initially due to limited resources, to ensure clarity in messaging and product features.
- 🎯 It's crucial to choose and focus on one segment first, as trying to address all segments early on is overwhelming and impractical for startups.
- 🚀 Over time, a startup can expand and address additional segments, which is appealing to investors when done progressively.
- 🧩 A multi-sided market means the business serves different types of customers, like Facebook users and advertisers, requiring distinct value propositions for each side.
- 🏪 Complex markets, such as grocery chains, may have multiple sides and value stages, each needing careful attention to provide value at every step.
- 📝 It's recommended to create separate business model canvases for each side of a multi-sided market, as each has unique requirements and propositions.
- ⚖️ When selecting a customer segment, prioritize based on factors like ease of access, product simplicity, or a compelling customer need.
- ✅ Deciding on one segment to focus on is better than indecision, and understanding whether your market is multi-sided is essential to cater effectively.
Q & A
What are customer segments in the context of the Business Model Canvas?
-Customer segments are groupings of customers based on their distinct needs or the different channels required to reach them for marketing or sales purposes.
Why is it important for startups to focus on a single customer segment initially?
-Startups usually have limited resources, so focusing on a single customer segment allows them to tailor their product features, marketing messages, and sales channels to that segment, increasing the chances of success.
What is the milkshake example mentioned in the video?
-The milkshake example demonstrates how different customer segments in the same market can have different needs, leading to different product features and marketing strategies. A link to the video explaining this example is provided in the transcript.
What are multi-sided markets, and how do they affect customer segmentation?
-A multi-sided market involves two or more fundamentally different types of customers. For example, social media platforms like Facebook cater to users who seek value from the platform and advertisers who provide the revenue.
Why is it necessary to create a business model canvas for each side of a multi-sided market?
-Each side of a multi-sided market has different needs and value propositions. Developing a separate canvas for each side ensures that the value provided to all types of customers is clearly understood and addressed.
What challenges do multi-sided markets present for startups?
-In multi-sided markets, startups need to manage and satisfy the needs of different customer types simultaneously. This can complicate product development, marketing, and distribution strategies.
How can a startup decide which customer segment to focus on first?
-A startup might choose a segment based on factors like ease of reaching the segment, the simplicity of the product required for that market, or the urgency of the customers’ needs, leading to faster sales.
What should a startup do after identifying its first customer segment?
-After choosing the first customer segment, the startup should evaluate whether the market is multi-sided and, if so, develop a business model canvas for each side.
Why is it not advisable for startups to target multiple customer segments at once?
-Targeting multiple segments at once can lead to confusion in the market and spread resources too thin, making it harder to deliver clear messaging and focus on the specific needs of any one segment.
What are some factors to consider when listing customer segments on the Business Model Canvas?
-When listing customer segments, consider how big the segments are, their specific needs, and how easy or difficult they are to reach. Prioritize which segment to focus on first, as this will influence the rest of the business model, particularly the value proposition.
Outlines
📊 Introduction to Customer Segments
In this segment, Steve Morris introduces the topic of Customer Segments, which is the focus of this video. He explains that customer segments refer to different groups of customers with varying needs or marketing channels. Morris emphasizes that understanding these segments is crucial for startups, as resources are limited, and targeting one segment at a time helps focus marketing efforts and product features effectively. He also refers to a previous video with a 'milkshake' example to illustrate how different customer segments have distinct needs.
🎯 Importance of Focusing on One Segment First
This paragraph delves into why startups should concentrate on one customer segment initially. Morris highlights that addressing multiple segments at once can confuse the market and spread resources too thin. By focusing on one segment, startups can refine their value proposition and sales efforts, and once successful, expand to additional segments. This approach aligns with what investors look for—clear, focused strategies rather than attempting to address a broad market from the outset.
🌐 Multi-Sided Markets Explained
Morris introduces the concept of a multi-sided market, where a business serves different types of customers with unique value propositions. Using Facebook as an example, he explains how platforms must balance providing value to both users (who don’t pay) and advertisers (who generate revenue). He extends the concept to other industries like grocery stores, illustrating how a complex market might have multiple sides that require attention. For multi-sided markets, he advises creating separate business model canvases for each customer type.
📋 Action Steps for Customer Segment Analysis
In this segment, Morris provides actionable steps for filling out the Customer Segments section of the Business Model Canvas. He suggests identifying and evaluating the different market segments based on factors like size, accessibility, and urgency of need. Choosing a segment to focus on is essential, and there is no 'wrong' answer, but it's better to choose than to delay. He also encourages considering whether the market is multi-sided and creating a business model for each distinct customer type if necessary.
👍 Conclusion and Next Steps
Morris wraps up the video by encouraging viewers to ask questions and leave comments for further clarification. He reminds them to subscribe, like, and share if they found the video helpful. This video is part of a series covering the Business Model Canvas, and he hints at future discussions in upcoming videos. He also includes a link to the playlist to continue the learning journey.
Mindmap
Keywords
💡Customer Segments
💡Multi-Sided Market
💡Value Proposition
💡Marketing Channels
💡Sales Channels
💡Focused Strategy
💡Boiling the Ocean
💡First Segment
💡Business Model Canvas
💡Distribution Channel
Highlights
Customer segments are ways to organize customers into different groupings based on their needs or marketing channels.
Different customer segments may require different features and marketing messaging.
The milkshake example illustrates how different segments can have different needs.
For startups, focusing on one customer segment is crucial due to limited resources.
Focusing on a single segment allows for tailored features, messaging, and sales channels.
The strategy is to nail one segment before moving on to the next.
Investors prefer to hear that a startup is focused on one segment initially.
The first segment chosen will influence the rest of the business model canvas.
Customer segments can be more complex in a multi-sided market.
A multi-sided market addresses two or more fundamentally different kinds of customers.
Examples of multi-sided markets include social media platforms like Facebook.
Each side of a multi-sided market may require a different value proposition.
It's suggested to develop a business model canvas for each side of the market.
Action steps for filling out the canvas include identifying market segments and choosing one to focus on first.
There is no wrong answer in choosing a segment; the key is to make a choice.
Consider factors like ease of reach, product simplicity, and market need when choosing a segment.
If dealing with a multi-sided market, develop a canvas for each customer type.
The discussion concludes with a call to action for viewers to engage with the content.
Transcripts
So in the last video we provided an
overview of the Business Model
Canvas. Today we tackle the first
section of the canvas Sustomer
Segments.
Hi I'm Steve Morris and I use the
StartupSOS channel to provide
practical advice to first
time entrepreneurs and today our
topic: Customer Segments.
So what is a customer segment.
Well customer segments are simply
ways to organize
your customers into different
groupings, different groupings based
on the idea that they have a
slightly different need
or possibly they
need to be reached through a
different channel a different
channel for both marketing
to to create awareness
and to create leads and maybe a
different channel for sales to
actually collect orders.
Now when it comes to different needs
we have a very simple example
in a previous video the
milkshake example there's a link to
it up here that does a very
simple very effective job of
describing customer segments
and how different segments in
something as simple as a milkshake
market - Different customer segments
can have very different needs that
result in different feature
requirements and certainly different
messaging requirements on
the marketing side.
And that's what makes customer
segments so important for
a startup.
Realistically when you're an early
stage startup you have very few
resources you
can not send marketing
branding messages to a bunch of
different segments or you're going
to confuse the market.
You just don't have a big enough
budget so it generally makes
sense to really focus in on one
customer segment so you can really
focus in on the features
exactly for that segment
and really focus your messaging in
on that segment and focus your
sales channel in on exactly
that segment.
Nail that segment and then
go after the next segment
and the next segment.
So the ideas is
focus on a first segment
but over time you'll address more so
over time you're addressing
a big market which is certainly
what investors want to hear.
But most smart investors want to
hear that initially you are laser
focused on a first segment
instead of trying to boil
the ocean and be everything to
everybody which is pretty tough
for a startup to do.
So the overall moral of that story
is it's a really good idea
to choose one segment
as your first segment
to focus on.
So that's part of the
challenge in filling out that first
segment of the canvas is
to list the different customer
segments in your market, the
segments you'll eventually be
addressing, and then choose the
one that you want to address
first because frankly the rest of
the canvas, the value proposition
in particular, will depend
on focusing on that
one segment.
So you'll want to choose one.
Unfortunately customer segment is
even a little more complicated for a
lot of entrepreneurs because
you can also have a multi
sided market.
What does multi sided market mean.
Well it means that you're addressing
two or more fundamentally
different kinds of customers.
So simple example a social
media play let's say a Facebook.
There's at least two sides
to that market.
On the one hand are the users - the
users that are using the social
media site Facebook users who
aren't paying anything but have to
get value out of the site to show
up at the site in
order for the second part
of the business model to work.
The second customer segment which is
advertisers the ones who actually
are paying the revenue to Facebook.
So you have advertisers who pay
and users who don't pay but
need to be offered the value
that they're seeking on the site.
Two very different kinds of
customers.
Now that's just a two sided market.
Think of something like a grocery
store - you could be selling through
a wholesaler to distributors
to a whole
chain of stores down to an
individual store.
And then finally to the customer.
Wow, that's maybe a five sided
market at least.
So markets can get pretty
complicated. The challenge is
you need to be worried about every
side of those multi sided markets.
If you're Facebook you have to
provide the right value to both
the advertisers and to
the users.
Likewise when you're selling a food
product through a grocery
chain you need to
be aware of the value proposition at
each stage in that
value chain because everybody
needs to get a win through
the process.
So not only do you need to
understand customer segments and
choose one to focus on but
you need to understand how many
sides does your market have.
And my suggestion is develop
a canvas a business model canvas
for each side of
your market because each side
of your market really is
an entirely different value
proposition.
So your action steps for filling out
your canvas.
Take a look at the market segments
in your market.
Identify what they are
how big they are and decide
which one will you focus on
first. Now how do you decide
what you know to a great extent
there is no wrong answer.
Choosing one is better
than not choosing.
You might choose one because
it's easier to to reach
through a distribution channel.
You have access to or one that
requires a simpler version of the
product that you can get to market
first. Or maybe there's a segment
of your market that has
a more compelling need.
Its customers that are going to buy
faster maybe you addressed that
one. So there are a lot of different
rationales you can have for
choosing which segment.
But my suggestion is
choose one.
Once you've identified the segments,
chosen one segment, then ask that
question is this really
a multi sided market.
Are there different types of
customers that you have to deal
with. And if so start developing
a canvas for each side
of the market.
That wraps up this discussion of
customer segments.
Any questions. Please leave
a comment. I'd love to try to answer
questions you have.
If you haven't subscribed yet please
do that down in the corner.
And if this is helpful please like
it and share it and
stay tuned because this is just
the first segment of 9
we have a lot more coming up
in this playlist
and a link to the playlist is
right below here.
That's it for today.
Thank you very much for watching.
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