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Many startup companies have technologies that are of interest to many different market segments and target customers. Given a startup’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.
In business-to-business (B2B) markets, target customers are categorized according to their roles within their organizations:
Startups 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.
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. A startup’s product is assumed to be innovative and potentially disruptive to the marketplace. And so, determining the target customer requires a more qualitative approach.
The purpose of the process is to ensure that the startup’s technology capabilities are directed toward the most valuable customers for future growth.
One way startups 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:
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.
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.
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