#customer segmentation strategy

[iamwhitecharlotte]

Manage & Segment Audience List for Improved CRM | DotcomPal Audience Management

As they say, "The money is in the list". But, do you know the audience list management best practices that can help skyrocket your online business? With Dotc...

[819media-blog]

Customer Segmentation and Targeting for Digital Marketing

Advantages of Customer Segmentation are immense it help companies increase the focus of a firm on market segments, it increases the competitiveness in the market, it can help businesses find and explore new market segmentation and target it, proper customer segmentation and targeting help business to retain their customers, specifically segmenting the customers as per behaviour, geography and language help businesses communicate the right message. Implement the proven market segmentation and customer targeting methods to increase profitability. Learn how to do it right in this blog post... Read here.

[sharprank]

How to pick and choose early users / customer for your #napkinStage startup?

How to pick and choose early users / customer for your #napkinStage startup?

The first few customers (or users) usually set the tone for your startup. They are the ones with either acute pain or the burning problem, and the earliest of early adopters. Usually, I have found that most entrepreneurs get their early customers because of the relationship they have with them OR they solve a really pressing problem for their customers.

When I talk to most entrepreneurs, one of…

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[2x2playbook-blog]

What's your customer segmentation strategy?

                                                       Overlapping products in different businesses

Take for example Bazaarvoice and PowerReviews. Both companies build ratings & reviews software for the (primarily retail) enterprise. Their products solve the same problem with the same value proposition and both launched in 2005.Bazaarvoice went after the head and charged a large monthly subscription fee while PowerReviews went after the long tail and offered the product for free. 7 years later, Bazaarvoice IPO’d and is now valued at $800 million and went on to acquiring PowerReviews for $150 million. Even when PowerReviews started charging a subscription fee, the market of long-tail enterprise companies needing review software was too small to compete with Bazaarvoice.  

The same is true about Dropbox vs. Box - on the surface they both offer similar products, but Box launched in 2005 as an enterprise solution and Dropbox launched in 2007 as a consumer solution. Even though they’ve built similar products, their businesses are completely different. Box has a team of ~1,000 people with sizable sales, customer support, account teams and a leadership team that speaks enterprise. Dropbox on the other hand has a team of ~500 people mostly comprised of engineers, user operations, designers, etc. Today Box is valued at $1-2 billion while Dropbox is valued at $4-5 billion. They've both evolved into widely different businesses and it's still unclear where there's a bigger market. Watching how each played out in their respective markets, we're now starting to see some overlap in the SMB space. 

There are hundreds of other examples of products that heavily overlap, but carve their way into different customer segments and build vastly different businesses.  

Here’s the 2x2 matrix on how we think about breaking down distribution strategy for startups:

Consumer/Head =  a limited selection of desired products/content consumed at a high volume

Consumer/Long-tail = a broad range of unique products/content with low consumption per product/content. 

Enterprise/Head = solutions built for a limited number of the most valuable companies at a high cost

Enterprise/Long-tail = solutions built for the SMB market at a high volume and low cost

                    Head vs. long-tail in consumer and enterprise 

The closer you are towards serving the head in consumer, you’re attracting passionate and crazed early adopters who will have a violent opinion and high demands of your product. The closer you get to the tail in consumer, you’re considering a broader audience with broader needs, and a desire to fulfill those needs quickly and at a low cost.

In enterprise, going after the head means building a strong brand and support team, ensuring security on proprietary data, while entrenching yourself deeply into your customers businesses by delivering customized and consistent performance. Going after the long-tail in enterprise means focusing on the most important features to get the job done at a low cost.                                                                                                                                             

Why determining your customer segmentation strategy matters 

Often times it seems that founders jump into building either an enterprise or consumer product after identifying a problem in the corresponding market. They don’t consider how shadowing products in adjacent customer segments play out. Regardless of what segment you choose, it’s crucial to understand how shadow products play out (regardless of whether they exist or not) so you know how long it would take for those companies to exhaust their own market and start moving into your space. 

Thinking about the evolution of each segment also helps you understand how big each can get compared to its counterparts, and whether the solution you’re envisioning would have a higher chance of survival in a different market. So picking the customer segment you’re most comfortable with isn’t necessarily the best way to go.

It's also important to think about what type of business you’re really passionate about building, who you want to solve the problem for, and what kind of business you think you’d be really good at growing. With the Box example, it’s crucial for them to employ an army of knowledgeable customer success people who can educate customers on how to get the most value out of their features, app store, collaboration functions and so forth, and that’s a pretty difficult thing to scale successfully.

After considering each side of the market, the next thing to consider is how you would need to price in order to build a viable business which we'll write about in an upcoming post. 

Lastly, whatever segment you end up building for, you have to have a very clear idea on what your unique distribution strategy is. 

This post is part of a series of posts exploring the following topics:  

Customer segmentation strategy (where you want to achieve product market fit) 

Unique distribution strategy (how you'll reach your target customer segment)

Pricing strategy (the vehicle to get your product to market)