Business Model – Customer Segments

Business model is a representation of a business that consists of how an organization creates, delivers, and captures value. It should be simple, relevant, and understandable. According to Alexander Osterwalder and Yves Pigneur, business model can best be described through nine basic building blocks, that cover the four main areas: customers, offer, infrastructure, and financial viability.

Block 1: CS – Customer Segments
Customer is an important part of a company. No company would be able to survive without a profitable customers. Customer segments building block divides customer into different groups of people or organization according to their common needs, common behaviors, or other attibutes. At the end, an organization must choose which segments to serve and which segments to ignore.

Several types of customer segments:
– Mass Market
Mass market also known as unsegmented market in which products is produce in an attempt to appeal the whole market. The value proposition, distribution channels, and customer relationship designed to seve one large group with common needs and problems. For example, Coca Cola sells a product to a relatively large market. This has created a remarkable sales volume, and lower production costs.

– Niche Market
This is the opposite of the mass market. Niche market targeting specific customer group. The niche market is highly specialized to a specific customer segements. Hence, the value propositions, distribution channels and customer relationships are all tailored to the specific needs of those niche market. For example: Louis Vuitton, offer premium luxury bags that target high end segment.

– Segmented
This type of customer segments distinguish market with small different needs and problems. For example: a bank distinguish their customer with asset up to IDR 5 million and a small group with net worth more than IDR 5 million. Both groups are similar with slightly different needs and problems that affect its value proposition, distribution channels, customer relationships, and revenue streams.

– Diversified
Diversified customer is when an organization serves two unrelated customer segements with different needs and wants. For example: Amazon.com starts their business selling books online, as their business grows they try to expand their business by selling “cloud computing” services to business customers.

– Multi-Sided Platforms / Multi-Sided Markets
This is happen when an organization serves two or more customer segments that are related through dependency. For example: credit card company and stores / merchants that accept their card, both are dependent one to each other. If either segment fails, the business model will never work. Another example: e-bay operates with multi-sided platform, both sellers and buyers required to make the business model work.

Reference:
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. New Jersey: Wiley. ISBN: 978-0470-87641-1