#136 Customer Segmentation: Choosing Your Customers
This post is about the importance of having sharply defined customer segments so that a distinctive value proposition can be offered to these segments.
Perils of Poor Segmentation
If customer segments are fuzzy, it leads to three problems:
You get overwhelmed by options - leading to paralysis (you don't know where to start and which needs to focus on)
You are not moving forward but can't prove yourself wrong
You receive mixed feedback and can't make sense of it
A typical trap that most products/companies fall into is to try and serve everyone - as it feels like a "safer" option and an option that provides them with the best option to "grow". However, it is best to focus on a sharply defined segment that would most likely buy your product.
If you focus on serving everyone you will end with a so-so product. Each segment of the market will have different set of must-have features and must-solve problems. This makes it extremely difficult to prioritise features for development and efforts get diffused into building a so-so product (instead of building an incredible product for one segment).
If you are not finding consistent problems and goals, you do not have a specific enough customer segment.
Customer Slicing
If you are facing a generic or a varied set of customer segments, you can use customer slicing to pick a concrete starting point. Start with any segment and then keep slicing off better and better sub-sets of it until you have got a tangible sense of who you can go talk to and where you can find them.
Start with a generic segment and ask:
Within this group, which type of person would want it most?
Would everyone within this group buy/use it, or only some?
Why does that sub-set want it? (e.g. what is their specific problem or job to be done)
Does everyone in the group have the same motivation or only some?
What additional motivations are there?
Which other types of people have these motivations?
If the answers to the above questions results in generic sub-segments, repeat the questions until you are able to get a clear physical or digital location at which you can find your customer segment. Good customer segments are who-where pairs. If you don't know where to go to find your customers, keep slicing your segment into smaller pieces until you do.
If you end up with multiple segments, you can decide who to start with based on who seems most:
Profitable or big
Easy to reach
Personally rewarding
In order to arrive at sharply defined customer segments, you have to avoid making the following mistakes:
You have too-broad of a segment and are talking to everyone
You have multiple customer segments and missed some of them
You are selling to businesses with a complicated buying process and have overlooked some of the stakeholders
Customer segments evolve over time (they are not static), they may have to be refined, broadened, or given up.
For examples of creative segmentations read my earlier post - How companies like Stripe and Shopify achieved astounding growth in seemingly crowded markets.
This post is a summary of a chapter from the book - The Mom Test, Rob Fitzpatrick