How-to – Market segmentation and finding your target customer
Many start-up companies have technologies that are of interest to many different market segments. Given a start-up’s limited resources, the company needs to prioritize which customers to target with their technology and marketing efforts. Defining a target customer is the first step in the market segmentation process.
Types of target customers
In business-to-business (B2B) markets, target customers are categorized according to their roles within their organizations:
- Economic buyers purchase the product (e.g., CFOs/COOs, function or line of business [LoB] executives)
- Technical buyers make the product accessible to end-users (e.g., technology directors, technology evaluators)
- End-users use the product (e.g., departmental managers, lead end-users)
Start-ups must investigate individual companies to identify the different target customers. In large organizations, these roles can be performed by groups of different people or committees. In smaller companies, one person may be responsible for all three roles.
Determining the target customer
The process of determining the target customer for an innovative product differs from the process used in a more established marketplace because the latter process is based on already existing product categories. It is assumed that a start-up’s product is innovative and potentially disruptive to the marketplace thereby requiring a more qualitative approach to determine the target customer.
The purpose of the process is to ensure that the start-up’s technology capabilities are directed toward the most valuable customers for future growth.
The day-in-the-life summary, or application scenario
One way start-ups can start the process of identifying the target customer is through a qualitative process called a”day-in-the-life summary” for a potential customer. A day-in-the-life summary describes conditions before and after a target customer purchases your product.”Before” describes the key issues/problems/pain faced by a possible end-user of your product.”After” focuses on the change in effectiveness of the end-user after purchasing and using your product. This change must affect the economic buyer’s main concern, which is normally associated with achieving one or more of the buyer’s strategic objectives.
This summary is also known as an application scenario . The outcome of an application scenario is a number of possible applications for specific niche market segments. The scenario process encompasses the following steps:
1. Develop market segment candidates for your product.
- Consider applications for industries, functions or organizations that have the greatest potential need.
- Focus on departments or individuals affected by the need.
- Select a specific geographical starting point.
2. Select positive opportunities and convert them into scenarios.
- Identify the end-user function.
- Identify the economic buyer responsible for the end-user.
- Describe a day in the life of the end-user with an emphasis on consequences and rewards for the economic buyer.
Having developed the application scenarios, the next step is to rate and rank the scenarios according to step 2 of the market segmentation process. This will allow you to achieve the objective of focusing on the most desirable niche segments.
Target customers and the technology adoption lifecycle (TALC)
Early Markets develop when an economic buyer (primary sponsor), supported by a technical buyer (secondary sponsor), searches for an innovative product that can provide a significant competitive advantage. The economic buyer has the funding and power to purchase the product. She has the power to sponsor a potentially risky innovation and tends to be less price sensitive. She acts as a bellwether and a highly visible reference across industries. The technical buyer is a technology evaluator. She is interested in: a) what works in practice; b) what others in the industry are saying; c) what groups are forming to support or resist this innovation; and d) the likelihood that the innovation will provide the necessary advantage.
Target customers will likely change in the Chasm and Bowling Alley markets. Both markets have a primary sponsor (the senior-level manager who represents the end-users) and a secondary sponsor (the executive to whom the end-user reports). Both groups are pragmatists and because of that they will not abandon current methods until forced by necessity to do so. The application scenario is the tool that will help you identify the niche segments that can help you cross the Chasm and enter the Bowling Alley.
Wiefels, P. (2002).The Chasm Companion.New York: Harper Business.
Christensen, C.M,& Raynor, M.E. (2003).The Innovator’s Solution.Boston: HBS Press.
Viardot, E. (2004).Successful Marketing Strategy for High-tech Firms.Boston: Artech House.