Customer segments
Profitable customer segments are the heart of a business model. Customers are segmented into distinct groups based on common needs, behaviors, or other attributes. A business must make a clear decision on which segments to focus and serve and which to cut its losses on to focus on the specific customers’ needs.
Customers can be segmented based on:
- Distinct needs
- Different distribution channels
- Require different type of customer relationship
- Segmented based on profitability (students vs professionals)
- Ability and willingness to pay for different aspect of the offer
Types of customer segments:
- Mass market
- Doesn’t distinguish between different customer segments. The value proposition, distribution channels and customer relations all focus on a large set of customers with broadly similar needs and/or problems. Example of these type of business models can often be found in consumer electronics sector
- Niche market
- Targets specific customer segment, the distribution channel, customer relationships and the value proposition are specifically tailored to suit the need of a niche market. Example of these type of business models can be found in suppler-buyer relationship
- Segmented
- Distinguishing market segments based on slightly different needs and problems addressed this implicates value proposition, distribution channels and customer relationships and revenue streams. As it must adapt to serve different customer needs.
- Diversified
- Serves unrelated segments with very different needs and problems. The value proposition totally varies. The strategic rationale behind this can usually be attributed to pivoting based on existing expertise, example of these is amazon when it launched its Amazon web services and Dyson when it was experimenting on launching Dyson cars.
- Multi-sided platform
- Serves interdependent segments. A common example of this are web services like YouTube, Facebook and twitter. They often require large user bases to attract future users and prospective advertiser’s. Both segments are required for a business model to work.