Customer Relationships, Segments and Distribution Channels

Having covered a third of the Business Model Canvas in previous posts, this entry will focus on the customer and distribution sections.

  • Customer relationships – what are the expectations of our customers, how will they integrate into our model and how costly will they be?
  • Customer segments – where is the value coming from and who are the most important customer segments?
  • Distribution channels – how are we going to distribute to our customers, how do we currently do this and what are the costs involved?

In order to ensure that you have a successful business, companies must identify the type of relationship they want to create with their customers. There are several types of customer relationships which can be built. Employee-customer relationships can be built through personal assistance, such as during and after sales service from a shop assistant. Dedicated personal assistance can provide a more intimate and hands on personal assistance, particularly found in high-end boutique stores which pride themselves on their customer relations.

Costs can be saved through creating automated relationships such as self-service relationships in which the customer is provided with the tools needed to serve themselves. Similarly, many internet companies base themselves on building automated services, which is a more intimate self-service relationship in which customers have the ability to select and identify their preferences (when you buy through Amazon.com for example).

Other companies can help their customers create a relationship, for example eBay use community relationships and offer a platform over which their customers can interact directly.

In order to identify your customers for which relationships are needed to be built in the first place, customer segmentation is required. Customers can be identified and segmented (or grouped) based on their needs and attributes. Once segmented, you can then meet these characteristics through the relationships you build and the product or service you provide.

A few examples of customer segments are: mass market for which there is no specific segment, but rather targeting a wide range of clients. Although on first thoughts this could make your target market limitless, by not adjusting your product for different needs, you may find that you can’t create any loyalty with any customers. A niche market is the opposite and is based on drilling down to specialised needs and characteristics of clients. Within each market, a company can apply additional segmentation within each group based on their characteristics, such as gender, age and income. A company could also serve several different segments with different needs and characteristics by applying diversifying segmentation: tailoring different products to different segments.

Once your customer segments and relationships have been identified, it is important to consider the channels through which you will reach them. Effective channels will distribute the company’s product or service (and essentially their value proposition) in an efficient and cost effective way, which is best suited to the customer. Clients can be reached through a company’s own channels, such as direct selling through shops, or by partner channel through major distributors, or a combination.

As with every aspect of creating a company, there is no right or wrong answer, but the process of customer identification through segmentation and relationships, and then how you will reach these groups, is key in order to ensure that you deliver your value proposition to the customer in the best possible way to meet their needs.

This blog is also available on the Kindle Store and you can follow me on Twitter (@benpfsmith)  to find out more or get in touch

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