Choosing a Customer Segment Type

The first step for a new business or an existing business coming out with a new product line is to define the customer segment they are targeting.

During the early stages of the process, I recommend starting out with a broad definition of the customer segment.

The following is a list of five common customer segments types with a brief description to help you understand each of them. Later in the planning process, you will have to put a finer point on the customer segment using demographics and psychographics, but during the early planning stages, all you need to consider is which one of the five broad customer segment types you will be targeting with your product or service.

1. Mass Market – You are making no distinction as to the audience of your product or service. Moreover, the value proposition will apply to all people. The iPod, iTunes, Blu-ray players, house painting, and dry cleaning are examples of a customer segment that appeals to the mass market with little or no differentiations.

2. Niche Market – In the old days before the internet and search engines, the only way to make money was to target the mass market. Today, businesses can target very small segments of the market. For example, a manufacturer of replacement drone propellers is a niche market since it only applies to drown owners that are looking for a replacement propeller. Today, businesses can target them very accurately.

3. Segmented – You have one customer, but you can offer different value propositions or customer relationships. For example, consider banking. Banks have standard and private banking relationships with their customers. An individual may be the bank’s consumer, but with private banking the customer relationship and value proposition is different. In private banking, the customer has a different customer relationship with the bank and is assigned an account person they can call for all issues. Additionally, the have a different value proposition as many services that have a fee, such as wiring money, are provided free of charge to private banking clients. While the bank may serve the same customer, there may be multiple ways they want to segment them with respect to the services offered. Moreover, many companies offer different services for subscribers vs. non-subscribers.

4. Diversified – You have one business model, but it serves two unrelated customer segments. For example, Wilson Sporting Goods sells sporting goods. One customer might be a football player. People who play football generally are young men. Wilson Sporting Goods also sells tennis equipment. Tennis players are generally older and can be both male and female. As you can see, Wilson Sporting Goods has the same business model, but two very different customers.

5. Multi-Sided – You serve two independent customers related by your product or service. For example, credit card companies have two types of customers: merchants and card holders. Their business model addresses both of these customers, but with different sides of the same platform. Consignment shops and eBay are another good example of multi-sided customer segments as they serve both buyers and sellers with a single product/service.

What customer segment are you serving?

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