Market Segmentation & Customer Archetypes

Introduces precision into estimating g your market size. You want to:

1. Break the market down in small pieces
2. Target small, cohesive, homogenous customer groups with shared attributes

Don't be too general or overly optimistic in how big the market is. Don't inflate/generalize but think about which market you can realistically serve.

Market Segmentation Methods

How do we go about estimating market size? How do we get to the addressable market you will be focusing on?

Market Segmentation Example

Take this example of a High-Volume Washing Machine. Start with the whole UK washing machine market. This includes all potential competitors, company sizes and variations of washing machines we will be competing against. Think next about the value proposition - high volume so single households won't fit here. This already substantially reduces the potential market. Then start the scope of where you will operate. A high-volume washing machine also wont be cheap so you will focus on the households earning 100k above p/a. These are the people most likely to buy our product.

On top of all of this, we also need a behavior change. People need to be introduced to a new washing machine. Focus on people with broken washing machines or old washing machines. Now we have a small homogeneous and cohesive customer segment. We now know who to place the product to, and also interview.

Market Segmentation: TAM, SAM and SOM

Another method of doing so is called TAM, SAM and SOM.

TAM is unobtainable to a startup. SAM is the whole market we would like to address. SOM is considering the competitors, legacy technology (workable technology so not switching,) and 5 years might not be that old. So, what can you realistically capture?

What does it mean to know your market segment?

1. Is there a segment small enough so I can "own" it (understand, and cater to them), yet large enough to sustain my business? From there continue growing. Product market fit comes first. Solve a key problem for a small part of the population, and then you can grow beyond it.
2. Can I offer something superior that no one else can?
3. Is the market segment cohesive (common attributes so they are easy to find with a common message) and accessible so I can build my business around it?
4. Do I really understand the segment: its pain point, preferences and buying behaviors?

Creating and identifying homogenous groups that behave (approx.) the same makes it easier to identify customers and market your product. This includes:

• Gender
• Socio-Economics
• Behaviour & Purchasing Patterns
• Age
• Geography
• Style(s) and Culture(s)
• Media-Usage
• What are they vs what are they not
• Similar pain point
• Similar budget authority
• Similar buying process
• Similar opinion leaders
• Congregate in the same places
• Read the same media
• Similar product requirements
• Reached through the same channels

Market Segmentation Tools & Methods

• What are the characteristics of the customer?
  • Age, gender, ethnicity, family size, life cycle stage, nationality, lifestyle, income, etc.
• How will the customer purchase/use the product/service?
  • Size of purchase, frequency of purchase, brand awareness & loyalty, general purchasing behaviour etc.
• What are the user's specific needs and preferences?
  • Price elasticity, quality requirements, switching costs, etc.

Tools you can use are:

Preferred Witnesses or "Representative Witnesses"

• Experts or people with deep experience in a certain product/market segment
• Bottom-up market size estimation and substantiate personal claims/hunches about market
• Understand all players in the market and needs of customers
• Provide input on sales cycle, who holds decision making power, budgets, urgency etc.
• E.g. sales people, market research agents etc. expert in a given domain.

Market reports

• Google Trends, Google Insights and Facebook ads
• Trend agencies (Gallup for perception changes), National Statistics Agency (for demographic trends)
• Industry and Trade Associations
• CrunchBase for information about competitors and search competitors' media choice & press coverage
• Online studies, news articles and reports about target customers

Customer Archetypes

This is a tool to boost customer research. It asks the question "Will you notice your key customer group when you see them?". Do you know how best to communicate with them and where to find them? The idea revolves around:

• Finding the typical and average representation of your segment
• To some degree stylized (over the top) to make attributes starkly visible
• semi-fictional
• What are they versus what are they not? What describes them?
• Give them a name "Seasoned Connoisseur with Colorful Style", "Swag OG," and "Female Biz Exec" etc.

This lets each team member and each founder articulate who they think that individual looks like. Then the entire group has a common understanding. Only once its formalized do we know for sure we are on the same page.

The way to identify the communication channel is to understand on a "day-in-the-Life" basis: What do they do all day? Where are the common interaction points? How much time are they online? What online services do they access and when? With what device? Do they tweet? Do they use tumblr, Instagram, Wechat, Whatsapp, etc.? What physical spaces do they visit regularly? When, where and how often? What do they do for leisure? How do they spend time in their private lives? How do they find out about new products in general and yours in specific? How often & for how long?

They key is "what communication channel has the highest reach and is easily accessible?". Here is an example of how this can drive strategy:

You can see where you can best place your products. Where you can reach these individuals and what common interaction points are where your message will have the broadest reach. Drawing or sketching this out could help a lot. The more time you invest in this, the more you'll be able to notice your customer. You may also be useful to look at email-marketing to see other ways to research customers.