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How to Write a Business Plan

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Business Model Basics & Customer Segments

4:03 with Pasan Premaratne

A prerequisite to creating a business plan is understanding your business model. In this video we're going to use a book called Business Model Generation as a starting point to explore our business model starting with our customer segments.

[Pasan Premaratne] To run through this exercise, we're going to borrow a model created by a wonderful group of people 0:00
and put together in a book called Business Model Generation. 0:05
Now, I'm a big fan of this process and I've used it in a few other videos because it's a relatively easy way 0:08
for you to get acquainted with your business model. 0:14
We're going to use it as a starting point to create all the business plans we want. 0:16
All of business, big or small, old or new, can be broken down into a set of 9 distinct sections. 0:21
Customer segments, value propositions, channels, customer relationships, revenue systems, 0:29
key resources, key activities, key partnerships, and the cost structure. 0:38
Exploring each section for your business or idea 0:44
will help you generate all the information you need to know to create your business plans. 0:47
Let's start with customer segments--In this section, we're going to think about 0:51
who our potential customers are based on a certain set of characteristics. 0:57
And then, note them down in as much detail as possible. 1:01
Your customer segments are the different groups of people or organizations that you are going to reach out to and business with. 1:06
We call this section customer segments because we can usually identify our customers in separate distinct groups 1:13
that necessitate different strategies in terms of customer relationships, channels, and revenue streams. 1:21
Grouping customers into segments involves looking on their relationships with other parts of our business model. 1:27
For example, if you reach a certain group of customers through a different channel than normal, 1:33
you should group them into a separate customer segment. 1:39
Here are a few different ways we can group customers. 1:41
If you modify your value proposition for some customers, there are different segment. 1:45
Don't worry, we'll get into what a value proposition is in a bit. 1:50
If you get to these customers through different channel than your usual customers different segment. 1:53
If the revenue stream is different, different segment. 1:59
Finally, if the customer relationship is different, we're going to put them in a different segment. 2:02
When trying to define customer segments, start at a high level. 2:07
You could have a mass market segment. In this situation, you don't really have a distinct customer segments with one large market. 2:11
You only offer one flavor of your product or service and don't differentiate it much in terms of pricing, relationships, or channels. 2:19
A good example of this is a Playstation or Xbox. 2:26
They have a single marketing message, price point, and a channel for the entire customer base. 2:30
You could have a niche market where you focus your business on a very specific customer segment. 2:35
Everything is tailored to that specific segment including your distribution channels, revenue streams, and so on. 2:41
Consultants are the best example of a niche market. 2:48
They usually work in a specific section with an industry and with a small group of clients. 2:52
You can have segmented markets where you have different customer segments 2:59
with slightly different variations of the same problem. 3:02
Apple has a large customer base of people who want to listen to music on the go. 3:05
This market is then segmented into people who want a small form factor with the iPod Nano and Shuffle, 3:10
large storage base with the iPod Classic and a touch screen device capable of running apps with the iPod Touch. 3:17
Finally, you can have diversified markets. This is where a company serves 2 customer segments that are completely unrelated. 3:24
Amazon has its retail store where you can buy almost anything. 3:32
Then, they also have a completely separate cloud computing service that targets an entirely different market. 3:36
Those are just few examples of the different types of customer segments you can have. 3:42
Once you have figured out the high levels of who your customer segments are, you can dig deeper and start to define them properly. 3:47
Understanding your market will allow you to better estimate the size of your target audience 3:54
and figure out who your competitors are. 3:59