Monday, May 24, 2010

Developing a Customer Profile

2nd in a series on Customer Segmentation

Last week, we defined a customer as someone who can pay for your product and wants it.  With this clearly understood, we can move on towards actually constructing a customer profile.  What is a customer profile?  A customer profile is a document that describes:
  • Who the customer is (demographics)
  • What distinguishes that customer from a different type (meaningful differentiator)
  • Customer pain
  • Customer buying behavior
As an example, here is a format that I use with my clients (there are others):

By far the most important part are the sections highlighted in green which deal with customer pain.  This is where your product's features connect with your customer's needs and are the source of your value.

Note the two right most columns entitled "hypotheses" and "hypothesis validation".  That's because in the beginning, particularly for a startup, these are your best guesses, not facts, and require validation.  This point, of course, is a fundamental tenet of Steve Blank's Customer Development methodology and in particular, the Customer Discovery phase.  The validation process is iterative with hypotheses being reclassified as facts only on the basis of specific concrete data (may be qualitative as well as quantitative).

So how does one begin filling out this matrix and constructing a Customer Profile?  A good place to start is with the generic ideal customer.  While there are several different variants of this running around, mine has just three core plus one nice-to-have attribute as follows:
  • Core:  Customer is able and willing to pay for your solution
  • Core:  Customer has a problem and is aware of it
  • Core:  Customer has acute (or overt) pain
  • Nice-to-have:  Customer is able and willing to act as a reference
If the customer does not have a problem or is unaware that they have a problem, then they are unlikely to take action.  In the case of the former, no action is required.  In the case of the latter, you would need to embark on a length education process.  While a large company with resources and time on its side may be able to undertake the process of educating the market, a small company usually can't afford this and would be better off seeking a different customer.  In the case of a startup, having to educate the market can be fatal as the cash usually runs out before the customers get educated.

What's the difference between acute and latent pain? Acute pain can be defined as an immediate discrepancy from a desired state.  This discrepancy can be negative (i.e. a problem that needs to be cured) or positive (i.e. an opportunity that can't be accessed).  In either case, the chance of a customer taking a buy action to relieve the discrepancy is high.  Latent pain can be defined as a potential discrepancy, not yet realized and which may or may not occur, again in negative and positive flavors.  In this case, buy action is less likely and price sensitivity higher.  For examples of each, see my earlier blog post on Confident Selling.

So how does this work?  Again, I'll use an example from my own company.  Here's how the ideal customer criteria flow into the top three row of the Customer Profile:  demographic, overt pain, and latent pain:

From this, the before and after story can be constructed and we can start to identify the basis of some form of ROI or value analysis.  In this case possible ROI bases could be penalty costs, opportunity cost for the entrepreneur's time, and/or expected value outcomes for failing to achieve funding etc.

So once we have this, what can we do with it?  There are three main areas:
  • Value Proposition Hypotheses Development (product/market fit)
  • Lead Qualification
  • Customer Segmentation (basis for competitive strategy)
Next week:  Applying the Customer Profile

1 comment:

  1. "we defined a customer as someone who can pay for your product and wants it." defines a prospective customer surely?

    A customer has parted with his/her cash. More accurate to say:

    "we defined a customer as someone who has paid for your product because they needed it."