Customer discovery is the process of identifying and validating the needs, wants, and challenges of potential customers. To effectively perform customer discovery, it is crucial to identify and target the right customer segments. In the context of behavioral segmentation based on the solutions users use to accomplish their intended outcome, there are four segments – users using direct competing products, users using indirect competing products, users using substitute competing products, and users who do not use any of the existing solutions to accomplish their intended outcome. In this article, we will discuss how to choose a target segment from these four segments for effective customer discovery.
Evaluate the Market Potential
The first step in choosing a target segment is to evaluate the market potential of each segment. This involves analyzing the size of the segment, the growth rate, and the potential profitability of the segment. The segment with the highest market potential should be prioritized for customer discovery.
For example, if the market potential for users using direct competing products is high, this segment should be the primary focus for customer discovery. On the other hand, if the market potential for users using substitute competing products is low, this segment should be deprioritized.
Identify the Intensity Pain Points
The next step is to identify the intensity of pain points of each segment. Pain points are the problems or challenges that customers are facing with the existing solutions. By identifying how these challenges with the existing solutions in each segment are translating into pain points, and how strong or week those pain point are, give some indication of opportunity gap.
Evaluate the Competitive Landscape
It is essential to evaluate the competitive landscape in each segment. This involves identifying the strengths and weaknesses of existing solutions and competitors. By understanding the competitive landscape, you can develop a product or solution that offers a unique value proposition and differentiates from competitors.
For example, if the competitive landscape for users using direct competing products is highly competitive, you can differentiate by offering a unique feature or value proposition. On the other hand, if the competitive landscape for users using substitute competing products is less competitive, you can focus on providing better customer support or pricing.
Analyze the Customer Acquisition Cost
Another crucial factor in choosing a target segment is the customer acquisition cost (CAC). CAC is the cost of acquiring a new customer. It includes the cost of marketing, sales, and other expenses associated with acquiring a new customer.
By analyzing the CAC of each segment, you can determine the profitability and viability of targeting a particular segment. For example, if the CAC for users using direct competing products is high, this segment may not be profitable to target. In contrast, if the CAC for users who do not use any of the existing solutions is low, this segment may be more profitable to target.
Determine the Target Segment
Based on the above factors, you can determine the target segment for customer discovery. The target segment should have high market potential, clear and stronger intensity pain points, a competitive landscape that offers differentiation opportunities, and a low customer acquisition cost.
For example, if the target segment is users using direct competing products, the product or solution should offer a better value proposition and differentiation from competitors. If the target segment is users who do not use any of the existing solutions, the product or solution should offer a clear and compelling value proposition that addresses their unmet needs.
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