Customer Segments

There are nearly limitless resources (including online articles, books, entire websites) that address customer segments and customers segmentation. Most of these approach customer segmentation from a marketing perspective. This is important, but as an entrepreneur the more critical issue at the start is the underlying need and how/why potential customers make purchases, not how you actually reach the customers.

There are many ways to segment customers. They include, for example:

• Needs / wants
• Behavior (including past purchasing)
• Demographics (for consumers) / organizational characteristics (for businesses)
• Geography

Which segmentation type will be best? It will depend on your product or service, along with a variety of other factors. It is essential to keep in mind that customers should be grouped in a segment because they can be treated similarly in the purchasing process. Think about the AEB again. “Students” seems like a pretty obvious segment, but a little thought reveals that we can do better. After all, some students live in dormitories on campus; some students do not own a car. In the short term, we probably do not want to target those students.

Here are two online articles that my students have generally found useful as a starting point for thinking about customer segments in an entrepreneurial context:

“Customer Analysis for Marketing” from the Small Business Development Centeres of Northern California

“Group Your Customers Into Market Segments” from the InfoEntrepreneurs group of the Board of Trade of Metropolitan Montreal

Geoffrey Moore’s “Crossing the Chasm” framework is primarily a marketing approach, but it emphasizes the importances of market segments based on purchasing criteria with a specific focus on when customers are likely to abandon an older technology or product set for a new innovation. If your opportunity requires educating customers about a new innovation, or convincing customers to upgrade from a product or service that they have relied on for any length of time, then this is a topic you should carefully investigate. We will return to this concept in Chapter 11.