For the last several years, I have been interested in Design Thinking (a human-centered, prototype-driven process of innovation that can be applied to product, service, and business design) and business models. Recently, I was introduced to a new concept, the Business Model Canvas, and to the book Business Model Generation by Alexander Osterwalder & Yves Pigneur and co-created by an additional 470 people from 45 countries. This is my new favorite business book. The Business Model Canvas is a succinct method to create and analyze a business model. Over the next few months, I will work on highlighting the specifics of the canvas and how it may relate to your business.
The first of the nine segments of the Business Model Canvas is ‘Customer Segments’. This segment of the canvas defines the different groups of people or organizations an enterprise aims to reach and serve. Customers are the life blood of an organization. Without profitable customers, a company won’t survive for long. Before you can build a business model around your customers, you should:
- Group your customers according to common needs, common behaviors and other attributes.
- Define one or several large or small groups of Customer Segments.
- Make a conscious decision about which segments to serve and which segments to ignore. It is difficult and typically ineffective to service all customers in all segments.
There are several different types of ‘Customer Segments’. Here are a few:
- Mass Market – These business models focus on one large group of customers with similar needs. An example of this would be consumer electronics.
- Niche Market – This type of business model focuses on targeting specialized Customer Segments. An example of this would be a laser eye care medical group.
- Segmented – This type of business model focuses on more than one type of Customer Segment with slightly different needs, behaviors and attributes. An example of this would be a metal manufacturing company that makes parts for both auto manufacturers and aerospace manufacturers.
- Diversified – These organizations serve two unrelated Customer Segments with very different needs and problems. An example of this would be GE, who has segments in consumer electronics, medical, aerospace and several other businesses. Each segment has very different needs and problems.
Over the next few weeks, take the time to consider who your customers are segment them accordingly. You may have one customer segment or several. Next month, I’ll discuss how to create value for your customers.