- Business Model Innovation
- Learning Module
The module – in brief
The purpose of the Customer Analysis is to focus on your customers since understanding who your customers are will enable you to deliver what the customers need and are willing to pay for. This increases the likelihood of your survival in the future. The Customer Analysis makes it possible to describe current and potential customer segments, to select the ones you want to focus on and to describe the customer segments in more detail. The Customer Analysis is carried out after the Pre-analysis of the Surrounding World and the Pre-analysis of the Company’s Situation, and the results are used for Service Design and Business Model.
The overall process
Your customers are the most important actors when it comes to ensuring the future survival of your business. Do you know who your customers are? Do you understand their wishes and dreams? And do you know how to assist your customers in order for them to perform better and to help your customers’ stakeholders? By understanding the customers, their needs, wishes and values, you as a company can become aware of how you offer optimal value for your customers.
The customer analysis is segmentation and description of current and potential customers and aims to uncover possible customer segments which,
- will gain value through your services and expertise,
- you can make money on,
- can strengthen your position in the value chain,
- you may have overlooked so far.
The Customer Analysis thus aims to give you more information about your current customers and their wishes, and it aims to spot new potential customer segments.
The Customer Analysis consists of two parts.
1) The first part is customer segmentation where current and potential customer groups are described at an overall level and the most relevant ones are selected. Here, it is possible to analyse your success concerning existing customers as well as to identify potential customers who are either outside your business scope at the moment, or who are an underestimated customer segment.
2) The second part is a more detailed description of the individual customer segment, which, via a fictional but realistic person’s description, aims to provide you with more information about who your customers are, their motives, and how you best target and create value for them.
Segmenting and describing your customers requires knowledge. This knowledge can be accumulated through the collection of data about your customers. This can be sales data, interviews, consumption data, communication data etc. Face-to-face interviews are always the best as they provide an opportunity to ask further questions and to understand the underlying reasons for the customers’ answers. Some companies have been good at collecting data about customers and their interaction with the company, while others have a more flimsy database. If you have a flimsy database, it is recommended that you start by interviewing a sample of your customers to confirm or disprove the assumptions you have. If you have data, it is recommended to gather it across the company; hence, you can use the data to segment customers in the best way possible.
Customer segmentation is a method that makes it possible to centre the company’s activities on selected customer groups and to identify common features that make it possible to target customer groups in the most efficient way.
A customer segment is a limited group of customers who have a number of common characteristics. It is important to keep in mind that there is a difference between whether your market is B2B or B2C. Therefore, a tool for B2B and B2C, respectively, is recommended.
Some of the classic customer characteristics used for customer segmentation are:
- Demographic factors (geography, age, industry, education, finances, business ownership etc.)
- Behavioural factors (how they procure, what do they buy, how often do they buy etc.)
- Psychographic factors (values, lifestyle, attitudes etc.).
Depending on your level of ambition and the available data, customer segmentation can take anywhere from 2 hours to a couple of days.
It will be a great advantage to collect qualitative and/or quantitative knowledge about the customers before the segmentation or to collect knowledge afterwards to check the assumptions on which the segmentation is based. In addition, you should utilise the customer data that may already be available.
1) Start by deciding on which parameters the segmentation should be based. The tools provide inspiration regarding the conditions with which you can delimit the customer segments but these can be replaced and extended, depending on what you want to focus on.
2) Once you have decided on the parameters, you have to decide on two existing customer segments that you then provide with a name.
- Start by filling in the tool by describing FACTS. Facts are factual matters about the customer. In the tool, we chose the following facts for B2B and B2C, respectively: geography/home address, industry/gender and age as well as the company’s customers/family life because we consider these as key factors in an initial delimitation of the customer segment. Other factual matters could be the size of the company, the age of the company, technological maturity and type of ownership for B2B. For B2C, other factual matters could be position, education, language, family relationships etc.
- SALES are then described. SALES are used to delimit the customer segment concerning buying behaviour, financial leeway, what they buy etc. In the tool, we have chosen to focus on what they buy from you, e.g. products, services, advice, data etc., how much money they spend, as well as how often they return. Other aspects of SALES could be how high customers prioritise doing business with you, how often they shop with competitors, loyalty etc.
- Finally, you should describe VALUE. VALUE is used here to delimit the customer segment in relation to values, lifestyle, goals, ideology etc. In the tool, we have chosen to focus on what goals these customers want to achieve and what value you create for them.
- You have now described two existing customer groups. Knowledge from these can be used to find new potential customer segments.
3) Once you have described the existing customer segments, you should also describe two potential customer segments that you then provide with a name.
- You can start anywhere with the description of the first condition. Potential customer segments may be based on selected conditions regarding existing customer segments. You can check, for example, customers who have the same position in the value chain, who have the same set of values or focus areas, who are within the same industry etc., but who differ from the existing customer segments by, e.g., having a different geographical location or being in a different industry. It may also be relevant to identify customer segments with which you do business to a very limited degree, or to which you offer unique services to see if the limited degree of business with this customer segment can be increased or if the unique services can be offered to other customer segments.
- When the first condition is described, you should then go back and start by describing FACTS for the two potential customer segments.
- Once you have described FACTS, you should then describe VALUE. The reason why VALUE and SALES have changed places regarding the potential customer segments is that it is necessary to identify what goals they want to achieve and what focus areas the customer segment has before it is possible to identify what is relevant to sell to them.
- When you have described VALUE, you should then describe SALES. SALES focus on the scope of the customer segment’s financial leeway and how they will strengthen your business. Focusing on how they can strengthen your business provides a greater incentive and justification for why the customer segment is important to you.
4) You have now described two existing customer segments and two potential customer segments. It can be an advantage to describe several customer segments in order to scrutinise the customer segments as thoroughly as possible.
5) Once all relevant customer segments have been described, you should select the four customer segments that are most relevant to the company.
6) When you have selected the customer segments, you should identify the size of each customer segment to investigate the potential for focusing on them as a customer segment, and to ensure that you do not spend too much time targeting just one customer segment, which may be too narrow.
- Which customer segments:
- can get the most value from your services and expertise?
- will be able to give you the highest earnings?
- can strengthen your position in the value chain?
- have you overlooked so far?
- What other hypotheses or sources of knowledge do you have about the customer segments?
- Which customer segments:
- Which customer segments are the most interesting for you in the development of new digital services
Description and selection of customer segments can be used internally to clarify your success with current customers and to describe potential customer segments that could be relevant to focus on, as well as why they could be relevant.
Customer segmentation can be used to look more generally at the behaviour and trends of a delimited customer group. This delimitation can be used to examine to which customer segments you can successfully upsell and cross-sell, the percentage of their purchasing budget that each customer segment spends on doing business with you, when customers are likely to switch to a competitor, your lifetime value with the customer segment etc.
The next natural step after choosing customer segments is to describe each customer segment in more detail. By using the tool Persona, the individual customer type is identified more precisely in terms of what the customers do, what collaborative partners they have, what problems they struggle with, what they dream of etc.
There are various tools and models for describing a customer type in more detail. One tool for illustrating customer types in detail is Persona. A persona is a fictional individual representing a customer segment. The Persona primarily aims to create an understanding of the customer segment, its situation, its actions and motives, and, secondarily, to create a common understanding of the customer across the company. This can be applied in product and service development, sales, marketing, etc. The method makes it easier for you to identify with the customer and to put a face on the customer.
The Persona is prepared based on the data you have about the type of customer that the Persona should represent. The Persona can be designed via your company data, e.g. sales data, dropout data, customer satisfaction data, etc., via interviews or a mix of the two. If you do not have this knowledge, you can start by designing the Persona based on your assumptions and then test whether these assumptions are correct. The best way to gather the necessary knowledge is to interview customers face-to-face about how they use your product, how much they use your products, what work tasks they perform, what causes problems in their daily routines, what they dream of etc.
Set aside 1-2 hours to describe the persona.
In this task, it will be a great advantage if different key employees participate, each possessing insight into the customer segment, and if you can combine this with interviews and your data from the customer.
A large print of the Persona tool should be used in either A3 or A2 format. In addition, you need some pens with which you can write directly on the sheet. It is highly recommended to perform the analysis on paper rather than on a computer, as it is much more flexible and makes it easier to stay focused.
1) Select the customer segment of which the person is a part.
2) Describe the person. What is the person’s name, what is the person’s position, what company does the person work for, and who are the person’s collaborative relationships both internally and externally?
3) Describe the products or services that the person offers, the tasks that the person must perform as part of his/her work, and the goals that the person must help his stakeholders to achieve.
4) Next, describe the circumstances that affect the person. This will indicate where you have the opportunity to influence or help the person, and where the person is affected by other factors on which you have no influence.
5) Then describe what troubles the person concerning work tasks, responsibilities and room to manoeuvre.
6) Finally, describe what provides value for the customer both personally and professionally. Define this by describing what motivates the customer and what the customer dreams of.
7) You now have a description of who the customer is, what the customer does, what the customer is affected by, what troubles the customer, what motivates the customer and what the customer dreams of.
8) The description should then be distributed in your company to key persons or should be presented at a meeting with key persons so that you get a common understanding of the customer types you are addressing.
- How interesting are the individual customer types for your company?
- How can this tool perhaps be used across your company?
The Persona provides a deeper understanding of the customer segments and provides – across the company – an understanding of who the customers are. This can be used for the development of products, services and business models that target customers where they are and where need help in their daily work, and within marketing and sales to better target customers with exactly what motivates them and matches their dreams. Within one customer company, there may be several relevant Personas, e.g. there is a significant difference between a purchaser, an operator and a manager. Make sure that the right key persons in your company have the right Persona and the relevant data.
- Initially, describe many customer segments, so that you can select the customer segments that you want to describe in more detail on an informed basis.
- Enter into a dialogue with the customers after having filled in both the Customer Segments and the Persona to make sure that the data described are correct.
- When completing the Persona tool, it is relevant to quantify what is most important to the customer regarding what troubles him/her, wishes, work tasks etc., in order to evaluate what provides the most value when assisting them.
The Customer Analysis has now provided a description of existing and potential customer segments and a more detailed description of selected customer segments via Personas. The results from Customer Analysis can be used in Service Design and during the Development Process of a new digital business model because it helps to draw attention to the customer’s needs. It is also useful input in the modules Design of a New Digital Business Model regarding what you should focus on to target the customer in the most precise way and in Early Usability Testing and Pretotyping regarding outlining scenarios in which a new concept should work.
The natural next step after the customer analysis is Service Design where you have to outline a solution that can help the customers solve their work tasks, mitigate their problems and maybe even realise their dreams.
The content elements above have been developed through two projects:
‘Digital Business models for the Future’ by Aarhus University, Aarhus School of Marine and Technical Engineering and Danish Technological Institute supported by The Danish Industry Foundation. The material from this project has been adopted in alignment with CC BY-SA 4.0