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Market Segmentation

Market Segmentation 3
15.390x Who is your customer Market Segmentation March – May 2014 Review NotesThe Point of 15.390x 15.390x Who is your customerTHE SINGLE NECESSARY AND SUFFICIENT CONDITION FOR A BUSINESS IS... 15.390x Who is your customerA PAYING CUSTOMER 15.390x Who is your customerWho is my customer “Customer” refers to the entity, such as a household, organization, or individual who pays for, acquires, and uses your product 15.390x Who is your customer 5Customer and End User aren’t always the same Within the broad definition of a customer are: – End User: who ultimately uses your product – Economic Buyer: who makes the final decision to purchase your product 15.390x Who is your customerWatch out for complex cases The customer and end user can be the same person or different persons depending on the situation. In multisided markets or businesstobusiness settings, your customers and end users are likely to be different people. 15.390x Who is your customerMarket Segmentation: Objective The Big Picture: Identify a multitude of markets that could be potential opportunities – markets with a problem that your product/service can solve. Break these markets into segments, do direct market research on several to decide which of these markets is best for you. 15.390x Who is your customerMarket segmentation allows you… … to capture a wide spectrum of market opportunities and understand the pain points of your consumer in order to be able to design a solution that will be of great value to them. This research will also help you select a beachhead market. 15.390x Who is your customerMarket Segmentation • Step 1A: Brainstorm • Step 1B: Narrow • Step 1C: Primary Market Research 15.390x Who is your customerMarket Segmentation: Brainstorm • Start by brainstorming a wide array of market opportunities – Include all the “crazy” longshot ideas because they are helpful in expanding the boundaries of possibilities to where some of the most interesting opportunities might exist 15.390x Who is your customerThen identify potential industries for your idea – List who might benefit in each industry from your idea – Focus on end users, not costumers, because you need a committed group of end users to have a sustainable business 15.390x Who is your customerNext, identify the different tasks your end user performs – There may be similarities between certain subcategories that you can group but do not start combining categories without knowing more about your customer 15.390x Who is your customerImportant Note • When segmenting, you will find there are a lot of segments and that seemingly broad categories have a lot of important differences • Be broad and expansive when segmenting end users for your new product. You are brainstorming now, later you will narrow the list as you analyze each segment 15.390x Who is your customerMarket Segmentation: Narrow • After identifying numerous potential end users and applications for your idea or technology, the next step is to list the top 612 interesting market opportunities • Market opportunity = specific end users + unmet need 15.390x Who is your customerStart by asking the following 7 questions at an industry level • Then consider what the answers would be for the end user of your product • Since you will be researching each of these markets in depth, you don’t have time to consider an unlimited number of options. 612 market opportunities is more than sufficient (with 6 being a much more realistic number) 15.390x Who is your customerNarrow – QUESTION 1 1. Is the target customer wellfunded – If the customer doesn’t have money, the market is not attractive because it will not be sustainable and provide positive cash flow for the new venture to grow 15.390x Who is your customerNarrow – QUESTION 2 2. Is the target customer readily accessible to your sales force – You want to deal directly with customers when starting out instead of relying on third parties to market and sell your product, because your product will go through iterations of improvement very quickly, and direct customer feedback is an essential part of that process. Also, since your product is relatively new and never seen before (and potentially disruptive), third parties may not know how to be effective at creating demand for your product 15.390x Who is your customerNarrow – QUESTION 3 3. Does the target customer have a compelling reason to buy – Would the customer buy your product instead of another similar option Or, is the customer content with whatever solution is already being used Remember, on many occasions, your primary competition will be the customer doing nothing 15.390x Who is your customerNarrow – QUESTION 4 4. Can you today, with the help of partners, deliver the whole product – Your customer usually wants to buy a whole functional solution, not one they have to assemble themselves. You will likely have to work with other vendors to deliver a solution that incorporates your product, which means that you will need to convince other manufacturers and distributors that your product is worth integrating into their workflows 15.390x Who is your customerNarrow – QUESTION 5 5. Is there entrenched competition that could block you – It is rare to enter a market with no other competitor. How strong are these competitors, from the customer’s viewpoint (not your viewpoint or from a technical standpoint) Can the competition block you from starting a business relationship with a customer And how do you stand out from what your customer perceives as alternatives 15.390x Who is your customerNarrow QUESTION 6 6. If you win this segment, can you leverage it to enter additional segments – If you dominate this market opportunity, are there adjacent opportunities where you can sell your product with only slight modifications to your product or sales strategy Or will you have to radically revise your product or sales strategy in order to take advantage of additional market opportunities While you want to stay focused on your beachhead market, you do not want to choose a starting market from which you will have a hard time scaling your business 15.390x Who is your customerNarrow – QUESTION 7 7. Is the market consistent with the values, passions, and goals of the founding team – You want to make sure that the founders’ personal goals do not take a back seat to the other criteria presented here 15.390x Who is your customerMarket Segmentation: Primary Market Research How: • Start a market matrix • The matrix is filled in from Primary Market Research – this information is not collected by you sitting in a class room, debating in a library, by doing internet searches or reading reports • This needs to be Primary Market Research from direct interaction with real potential customers about their situations, pain points, opportunities, and market information 15.390x Who is your customerExample Market MatrixMarket Segmentation: Primary Market Research 3 important things to keep in mind when conducting primary market research: 1. You do not have “the answer” for your potential customers and their needs 2. Your potential customers do not have “the answer” for you 3. Talk with potential customers in “inquiry” mode, not “advocacy/sales” mode. Listen to what they have to say, and don’t try to get them to buy anything 15.390x Who is your customerMarket Segmentation: Primary Market Research The 9 main categories you want information on for each market include: 1. End User: Who specifically will be using your product 2. Application: What would the end user be using your product for What is the task that would be improved by your new venture 3. Benefits: What is the actual value that the end user would gain from the use of your new product What specifically does the user gain from the product. 15.390x Who is your customerMarket Segmentation: Primary Market Research 4. Lead Customers: Who are the most influential customers that others look to for thought leadership and adoption of new technology 5. Market Characteristics: What about this market would help or hinder the adoption of new technology 6. Partners/Players: Which companies will you need to work with to provide a solution that integrates into the customer’s workflow 15.390x Who is your customerMarket Segmentation: Primary Market Research 7. Size of the Market: Estimate, how many potential customers exist if you achieve 100 market penetration 8. Competition: Who, if anyone, is making similar products – real or perceived This is from the customer’s perspective, not yours. 9. Complementary Assets Required: What else does your customer need in order to get the “full solution,” or full functionality from your product 15.390x Who is your customerMarket Segmentation: Primary Market Research How Much Time To Spend: • Full attention to research should last at least a few weeks or a bit longer if your situation allows • The amount of time you spend mainly depends on how good your team is at getting primary market research • You should spend enough time so that you can fill out the matrix for all your top segments with some accuracy 15.390x Who is your customerMarket Segmentation: Primary Market Research • DO NOT just search the internet. • Don’t get stuck in analysis paralysis. This should not be a neverending process. • Goal is to get an accurate assessment of the market opportunities so you can move on to the next step 15.390x Who is your customer4 mistakes in Primary Research 1. You ask people questions who give you the answer they think you are looking for 2. Your research is based on “friends” and is not replicable 3. Your sample size or methodology is flawed 4. You bias your research to give you the answers you want 15.390x Who is your customerGood luck 15.390x Who is your customer
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