How to Identify the Right Target Segment for Your Customer Discovery using Behavioral Segmentation

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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Customer Discovery Questions That You Must Know About!

Customer discovery is a process of learning about your target customers, their needs, pain points, and preferences. By conducting customer discovery interviews or surveys, you can gain valuable insights into what motivates your customers, what challenges they face, and how you can better meet their needs.

Here are some example questions you can use in your customer discovery process:

  1. What is your biggest challenge in relation to [your product/service]?
  2. Can you walk me through your typical day? Where does [your product/service] fit into your daily routine?
  3. What made you interested in [your product/service] in the first place?
  4. What would make you choose [your product/service] over a competitor’s product/service?
  5. How do you currently address the problem that [your product/service] solves?
  6. How much are you willing to pay for [your product/service]?
  7. Can you tell me about a time when you tried a similar product/service? What did you like and dislike about it?
  8. Have you recommended [your product/service] to anyone else? If so, why did you recommend it?
  9. Can you describe your experience with [a specific feature of your product/service]?
  10. How would you describe our product/service to someone else?

These questions can help you gain a deeper understanding of your customers, their needs, and preferences. When conducting customer discovery interviews, it’s important to actively listen and ask follow-up questions to clarify and expand on the customer’s responses.

In addition to these questions, you may also want to consider asking questions about your target customers’ demographics, psychographics, and behavior patterns. This can help you create a more accurate and detailed customer profile, which can inform your product development, marketing strategy, and customer acquisition efforts.

Overall, customer discovery is a critical part of building a successful business. By asking the right questions and actively listening to your target customers, you can gain valuable insights into their needs and preferences, and use this information to create products and services that truly meet their needs.

If you can’t find early adopters, you can’t build a business

It’s as critical as that for you to get your early adopters or early users.

First of all, the discovery of early adopters gives you the first signal that you are not doing badly.

Early adopters happen to have the problem that you are trying to solve and so, when you discover them, you know the problem that you want to solve exists, and there are definitely some people out there who have the problem that you want to build a solution for.

In other words, early adopters validate the problem.

With their discovery, you turn your assumption that there exists the problem into validated learning.

They give the most valuable insights for product building. When you the starting up, just the way you start with the assumptions about the pain point or the problem, you also start with assumptions about a  potential solution that would work for the customers.  If you build a new product based on your hunches or assumptions about what matters to the customers, there is a chance that you may build something that doesn’t meet their key requirements.

You need customers’ perspectives, rather than your views about their perspectives.

When you find early adopters who happen to be aware of the problem and happen to be aware of how they think it needs to be solved, they will give you feedback and insights that you aren’t able to gain on your own.

And these insights are the ones that would ensure you build something with features that people want.

Building a product is NOT “the product” of your startup. Your business model is “the product”.  Once we acknowledge that the solution is not the whole product and that we don’t need to pretend to believe our made-up answers, we shift from pitching to learning — from other people – your early adopters.  They validate or invalidate all crucial elements of your business model – value proposition, channels, price, and more.

Working with early adopters allows you to ship early.  Early adopters will go for your product even if it is not a finished one. They don’t mind the bugs so no need to wait till “it’s perfect” before you ship.  As long as it meets the core requirement of theirs or you are willing to work towards what they need, they will be willing to live with you even with the not perfectly finished product.

Early adopters are a necessary step on the way to convincing the pragmatist customers your company needs to sign on.  The early adopters should help you get references to selling to your ultimate target market.

In the diffusion curve, the early adopters are the ones that represent the group that buys or uses a new product/service first. The early adopters are followed by the early majority, late majority, and laggards.  But there’s one thing you have to do before your early majority will jump on board – you have to get your early adopters.   Without Early Adopters, there’s no one to tell your early majority about your product. If you don’t get your early majority, no one will convince your late majority to use your product, and of course, you’ll never find your laggards.

Early adopters are the most critical element for a new business building.

If you can’t find early adopters, you can’t build a business.

Early adopters and beta testers

Early adopters are the early users. They come on board because they are looking for a solution to some challenge and your product seems to hold potential in that regard.

They are not beta testers.

A beta tester is someone you pay to evaluate your product, use it, and give feedback on bugs therein.

A beta user could also be a friend, acquaintance, or friend of a friend doing you favor using your product. 

Beta testers are anxious to test your product to the extent that you are paying them. Or, beta users will be willing to test your product to return a favor or barter for a future favor.

On the other hand, an early adopter is someone who believes that your product will help to solve a problem or meet a need and who you believe has a  reasonable prospect of deriving value from your product. If they are evaluating your product they may not have paid for it yet but the expectation is that they will pay if they achieve a satisfactory outcome in a given period of time that is mutually agreed to.

Early adopters are anxious to see if your product will produce a better result than the existing alternatives that are available to them. They are not anxious to “test” your product.

Typically, early adopters will live with some bugs in your product, as long as it meets their core requirement or as long as they see you are gearing up to go there.

Both early adopters and beta testers have their own place in your product building process, You only need to know which one you need and in what context.