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BMC Part Two: Customer Segments

BMC Part Two: Customer Segments

(If you’re using the Canvas, you’ll love my free Business Modelling eBook, full of tips for inventing and testing ideas that will change the world)

Our first task is to understand is “Who is our customer?”
Without that piece of information, all the other parts of the canvas are useless.
You can’t design a good model without this knowledge; a strategy is only “good” if it matches our customer’s preferences and budget.

Business Model Canvas Customer Segments

What is a customer?
A customer is somebody who you need to persuade and delight, because they are the person who is making a purchase decision.

In every business (and especially in social enterprises), there are three types of people:
A Customer – who makes the decision and pays us money.
An End User – who ends up experiencing our product/service
A Beneficiary – the person or group who are better off because of our product/service.
For your business, these might all be the same person, or it could be three different people.

As an example; who is the customer of a primary/elementary school?
Who pays and who makes a decision?
It’s firstly the parents, who shop around and make a purchase.
It’s also the government, the department of education who fund the school and allow it to operate.

Customer End User Beneficiary

The child is the end user.
They’re the ones who attend the classes and run around the playground.
They experience the service, despite not paying for it.

The beneficiary?
All of us.
We’ve collectively agreed that our society is better for everyone having a primary education.

By contrast, who is the customer of a high school?
It’s still the parents and the government, but now we have a third voter; the student.
Sure, they’re not paying for their school fees from their own pocket, but they get a vote in the process.

That means a high school has three groups to appease:
They’re selling high academic performance to parents.
They’re selling cost efficiency and compliance to the government.
They’re selling the sports facilities and broad range of subjects to the students.

Who is the customer of a university?
Now it’s predominantly the student.
They take on the debt; they make the call.
The customer and end user are now the same person.

We also now have two types of university student, local and international.
They both attend the same classes, but pay very different amounts.
We tell them different stories, and offer different value propositions.
For that reason, we’d treat them as two separate customer segments.

It’s common in social enterprise to have the customer be quite separate from the beneficiary, which is why storytelling and value proposition design is so important.

If we’re asking our customer to make a purchase that benefits someone else, we’ll need to tell a compelling story about how their actions will help people they can’t see.

BMC Customer Profile

Painting The Picture
So now we know who our customer is, how do we describe them?
The first area to explore is the Demographics – the kind of thing you’d fill in on a census.
Descriptors like age, gender, height, race, location, wealth, maybe even occupation.
e.g. “We’re selling to 35-45 year old women who live in the outer suburbs”

Demographics are useful, but limited.
What’s often more interesting for social enterprise is the Psychographics.

Psychographics are invisible and powerful – attitudes, worldviews and beliefs.
This could be who our customer votes for, how they feel about homelessness, how conscious they are about their “footprint”, what sort of ideas they value and how they make tradeoffs.
e.g. “We’re selling to environmentally conscious consumers who enjoy herbal tea and minimalist design”

Think of it the other way around: What does someone need to believe in order to see enormous value in what we offer?

You probably have more than one customer segment, but you shouldn’t have more than five or six.

BMC Customer Segments

Remember, two seemingly different people who buy the same product for the same reason are the same customer segment – even if they look nothing alike.

Vice versa, two identical twins can buy the same product for different reasons, and be in two different customer segments.

For this reason, it’s useful to create customer personas – examples of your typical customer that are based on real people.
e.g. Susan might represent one segment, Terry represents another.

This makes it easier to humanize them, to walk in their shoes and think about their motivations. It’s also helpful for the next few boxes, where you can ask yourself “Would Susan really care about…?”

Four questions for your business
·      Who is my customer?
·      Are they separate from the end user and beneficiary?
·      How do we describe their demographic and psychographic characteristics?
·      Who would be a good persona to use as a reference point?

Now we’re on to the most important box: Value Proposition

This is a multi-part series on the Business Model Canvas.
If you’d like to jump straight to a particular section, go to:
Overview: How To Use The Business Model Canvas
Desirability: Customer Segments, Value Proposition, Customer Relationships, Channels
Feasibility: Key Resources, Key Activities, Key Partners
Viability: Cost Structure, Revenue Streams

Then once you've made your first canvas:
Reviewing: After Your First Model, Alarm Bells
Reinventing: Testing, What If?
Improving: Metrics, The Business Model Environment
Extensions: Pitching, Social Impact, Making It Great, What Next?

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