My previous blog post introduced to you the Business Model Canvas (BMC) and the nine (9) building blocks. This blog post is going to be the first of three (1 of 3) focusing on the right side of the BMC. Strategyzer.com references the right side (customer segments, customer relationships, channels, and revenue streams) of the BMC as the “front stage.” The Front Stage is where all the interaction takes place and is visible to your audience. This is where you will see all interaction with your clients, customers, and end-users.
The relationship between the value proposition (what you are trying to accomplish) and customer segments represents the business foundation. The two components are so important they have been given their own name, “Product/Market Fit.”
Customer Segments is when you will want to ask yourself if you know who your customers are and to know their needs and wants. Companies tend to organize the customers in specific segments. Commonalities examples can be age, gender, needs and wants, and with the rise of analytics companies are able to complete more thorough data analysis. There will be many different customer segments to choose from. It is up to the organization to make a conscious decision on what customer segments to choose.
Examples of Customer Segments:
- Markets (ex. niche, segmented, diversified, and multi-sided)
- Buyers versus non-buyers customers
- Geographical location
Customer segments help quickly identify most and least profitable customers. Customer segments help you notice who is your most profitable customers to focus your marketing and sales strategies.
ACTIVITY: Look at your customer segments in more detail by answering the following questions.
- Describe the demographics of the customers and break them down into different segments. Label each segment something different.
- Behavioral factors that influence segmentation are consumer attitudes, values, behaviors, emotions, perceptions, beliefs, and interests.
- How are you going to reach each of the customer segments? Look at the different channels.
Value Proposition (VP) either solves customer’s problems or satisfies customers’ needs or wants. Your VP is what creates value and will set you different from your competition.
Ways to measure value proposition:
- quantitative (e.g. price, speed of service)
- qualitative (e.g. design, customer experience)
Examples of value propositions:
- Newness (NEW technology, invention, product category)
- Performance (bigger, better, faster, and more effective)
- Customization (Amazon recommending books, products designed for specific customers)
- Design (color, style, look, feel, usability, and durability)
- Price (priced to sell to new customer segments to grow channel reach, similar to existing products or services)
- Environmental (how does this product impact the environment and is it recyclable)
ACTIVITY: Be able to describe your product or service and its value proposition in as much detail as possible.
Channels are not the same as you have on your television or radio. Channels are the different paths a product will take to reach the customer. They tend to vary in length and size, but all have the goal of getting your end-user your product. Businesses have the option to either choose channels they own, partner channels, or having a mix of the two. Owned channels can be a web site for example. Partner channels can have a partner web site, equipment, etc.
There are 5 Channel Phases:
- Awareness – How will you raise awareness about your products or services offered?
- Evaluation – How do help other organizations evaluate your organization’s value proposition?
- Purchase – How do you allow customers to purchase your product or service?
- Delivery – How are you going to deliver your value proposition to your end-users?
- After Sales – What does your customer support look like post-purchase customer purchase?
Activity: Answer these questions to the best of your ability and email me if you have any questions or need some help guiding you to an answer.
- What channels do you anticipate using? What are the primary reasons you think each channel is useful?
- Are there any negative drawbacks of why you would not want to use a specific channel?
- What new ideas for promoting or selling your company’s products have been generated as you read this blog post?
Customer Relationships look at how your company will interact with its customers in each segment you have created. Remember* each customer relationship will vary from segment to segment. So ask yourself, “What type of relationship does each of my customer segments expect us to establish and maintain with them?”
Customer relationship motivators:
- Customer acquisition
- Customer retention
- Boosting sales (up-selling)
It is important to apply self-awareness about the impact your decisions and behavior will have on each customer segment. Creating a higher sense of self-awareness will support you in a way to view the entire relationship with a different perspective.
Continue your analysis of your customer segments by asking yourself some fair questions…
- Which customer segments have we already established and what one are we need to establish?
- How expensive or costly is each customer segment?
How will each customer segment integrate with the rest of your business model?
A special thanks to Alex Osterwalder. I highly recommend visiting Alexander Osterwalder’s website. Alex has all his material available some free and some for purchase. His offers “Business Model Generation” that outlines the Business Model Canvas.
Stay tuned there will be more to come on customer segments in upcoming blogs. I will dive deeper into customer segments and looking at revenue streams and key activities.
Feel free to leave a comment and I will respond.
Downloadable material: CLICK HERE