B2C - Target customer canvas
The B2C (Business-to-Customer) target customer canvas is a tool for defining your Ideal Customer Profile (ICP). In an ideal world, a single easy-to-capture criterion would tell you who your target customer is. For example, if "Fleet size > 50 vehicles" perfectly identified everyone who would buy your product, finding these customers would be easy. In reality, there are likely to be multiple additional filters on this market. Perhaps you can't provide the functionality needed to manage fleets of over 1,000 vehicles, or you simply don't have the capacity to service them. Having an ICP helps you increase your chance of success:
You can create a product that will better match their needs, leading to them buying more.
Avoid confusing product feedback from people with conflicting needs.
Be more efficient with marketing and sales efforts.
Target the most profitable customers.
An ICP is modelled alongside a product’s value proposition. This can be created in CPF’s Product Positioning stage. The creation of a value proposition and an ICP is an iterative process. For example, you believe social media creators are poorly served by existing photography products and want to build something better for them.
Product Positioning contains a product creation process. As you move through this, from modelling an idea to full release, the quality of feedback from customers will improve. For example, showing a lightweight prototype will give weaker evidence than a customer using a Minimum Viable Product (MVP) later on. Refine the ICP definition as you learn more.
The impact of competitors
Competitors may have a different product offering and not be targeting exactly the same customer groups as you. Despite this, there may still be some overlap. The diagram below shows why, on the basis of the needs your product satisfies, some customers defined in your ICP could still select your competitor:
B2C - Target Customer Canvas
Feel free to recreate the canvas in a tool of your choice. Please attribute the author (Timothy Field), the source of the canvas (this webpage) and add the CreativeCommons BY-SA license
Anti-patterns
There are a number of anti-patterns associated with creating this canvas:
1) Not based on research
Making up target customers is the number one anti-pattern. This means you have made a lot of assumptions about your customers or have based them on poor-quality information. If a product team wishes to get together and create a canvas, that is fine as long as it is validated later.
2) Not using them in product development
You should look for real people who match your target customers and then use them to test out ideas and new products. If you have a large product with many features, you may have multiple types of customers. For example, you have a low-priced subscription tier targeted at start-ups. When creating new features, these may be targeted at these groups. In this case, make it clear in your strategy which customer the feature is aimed at. Gathering feedback from customers who don’t match target customers can lead to confusing feedback.
3) Not using them in product marketing
Consider where new customers can be reached, for example, the social media channels they are on, so you can target your messaging. This avoids marketing to unsuitable customers who will never be interested, or worse, finding them responding to it and wasting time in the sales process.
4) Having an ICP containing customers with very different needs
For example, your ICP accidentally includes start-ups and enterprise customers who want very different things. We need to be focused on who we are building and selling our product to. If we don’t do this, we end up with confusing feedback and bloating a product to meet too many needs.
5) Not refining your ICP
The creation of an ICP is not a one-off process. As competitors emerge and needs change, you may need to re-evaluate.
Market size
Total Area Market (TAM), Service Available Market (SAM) and Service Obtainable Market (SOM) help you define your target market. After you have created your ICP (segmentation tab), you should consider each of these and see if you need to adjust your ICP or product. You may even need to stop development. Fundamentally, you need to ensure that the market you can reach and be competitive in is large enough to warrant entry.
Total Available Market (TAM)
TAM represents winning every sale in the market without restrictions. It is very useful for measuring the market’s potential for growth.
“Total Addressable Market (TAM), also referred to as total available market, is the overall revenue opportunity that is available to a product or service if 100% market share was achieved.” - Corporate Finance Institute.
Too large: For example, you are competing with the entire tyre-building industry with a new road tyre. You can do this, but it will be hard to win when the competition is very high.
Too small: You have an extremely niche product. For example, software for a very specialist type of hospital. You can do this, but expansion opportunities will be very limited or expensive. This can work if the profitability is very high. The investment may not be justified for new products if the TAM is too small.
Serviceable Available Market (SAM)
SAM represents the proportion of TAM that you can realistically target and serve. These restrictions include:
Target restrictions such as regulations, geography and distribution.
Service restrictions such as support and logistics.
Serviceable Obtainable Market (SOM)
SOM is the realistic amount of the SAM you can expect to win over a timeframe (e.g. a year):
For new products, this will be put in terms of stretch targets. For example, five sales in the next 6 months.
Take into account the percentage of customers that match your Ideal Customer Profile, as these are more likely to buy.
For existing products:
The likely level of sales based on previous results.
Your new messaging and features that will drive additional sales.
Your competitor’s new messaging and features that will result in them winning more business.
Refine or change your ICP
As you start your sales cycle, you will get feedback on who is and isn’t buying. Your ICP represents the group you should target to maximise success/profit, as shown in the grid below. The profitability represents the entire group, for example:
10 large customers at 100K profit = 1M total profit
500 small customers at 1K profit = 500K total profit
An example of a poor ICP would be a large customer with a very long sales cycle who demands a very low price. Although these customers may feel important, your profitability will suffer.
ICP - Classify sales that meet your current ICP definition and those that don’t.
Classify - Assign each sale to a grid quadrant.
Consider - Does your current ICP match your sales information?
Refine - Update your ICP as required.
Expanding your ICP
In the top left-hand side is an Experiment option. These high-value customers are hard to win. You should identify why this is. For example, they need a lot of high-cost manual product demonstrations. Create experiments to speed this up. For example, automating the product demonstration process.
Your ICP can change
With an established product, your ICP may change over time. There are several reasons you may want to change, including:
Functional depth - You initially have a simple product that only appeals to lower-value customers. You decide to shift when you have built enough product functionality to serve more profitable ones.
Access - You initially only have easy access to smaller, lower-value customers. You decide to shift when you have a strong enough reputation to serve more profitable ones.
Competition - Market competition is very high, and you are struggling with profitability. You decide to pivot your product offering to a different group.
Expansion capacity - You have fully catered for your customer’s needs and have capacity to take on new types of customer.
Expansion opportunity - You spot a new opportunity for higher profit with a different type of customer.
Here is an example using the functional depth factor above applied to a training product. You start by targeting casual runners as they don’t need much functionality. Over time, your product grows, and you decide to target higher-profit competitive amateurs. These decisions should not be taken lightly, as they can impact everything from how you market to what you build. For a new product, you should just use one and focus on better understanding your ICP.
Segmentation and Ideal Customer Profile (ICP)
I’ll start with product-market fit, for which there is no commonly agreed definition. Market in this context is your ICP. Here are the views of some industry experts:
Andy Rachleff: "To me, product-market fit is when you have proven the value hypothesis. So the value hypothesis is the what, the who and the how."
Marty Cagan: "The smallest possible product that customers will buy, can use, you can build, and your stakeholders will support."
Marc Andreessen: "Product/market fit means being in a good market with a product that can satisfy that market."
Sean Ellis: "That product/market fit is how I describe having a large percentage of people that would be very disappointed without the product. If you’re above 40% of the people saying they’d be very disappointed, I tend to say you’ve found product/market fit, and if you’re less than that, you haven’t."
Dan Olsen: "Why do products fail? One of the main reasons why is because they don't meet customer needs in a way that is better than other alternatives. That is the essence of product-market fit."
Segmentation overview
Segmentation attributes help you define your target customer group. This is a reductionist exercise. You are looking for customers with specific needs defined in your value proposition, that you can reach and service. A product like Google’s Chrome browser goes broad and can be deployed to customers worldwide, whilst other product companies may be limited by many factors, such as the costs of servicing outside of their own country.
These are the options you have to define these people, i.e. your market:
Demographic segmentation - e.g. age, gender, income.
Geographic segmentation - e.g. where you are from.
Behavioural segmentation - e.g. time of year, usage, customer loyalty, benefits sought.
Psychographic segmentation - e.g. social class, values, personality, activities and interests.
Common anti-pattern - Demographic and geographic by default
It is a common anti-pattern to rush into creating an ICP and consider only demographic and geographic segmentation. Here is a puncture repair product where my target cyclists are segmented like this:
The female countryside cyclist:
Age: 18-40 years old
Rurality: countryside
Gender: female
I hope you can see that this way of segmenting isn’t helpful, as the product will not change based on these segmentation categories. In fact, an aspect like Age tells me absolutely nothing; a 41-year-old will have the same issues a 40-year-old has.
Common anti-pattern - Segment data you can’t get
Let’s use an example for this anti-pattern. You have an investment product and decide to segment by affordability. You segment like:
Annual wage: >£100k
You are very unlikely to be able to gather this information. You will need to look for a proxy that best represents this.
Common anti-pattern - Weak proxy segmentation
It’s easiest to understand this anti-pattern with an example. Let’s say I’ve segmented a gym class like this:
Age: 18-40 years old
I’ve actually put 18-40 as a loose proxy for fitness. Here, I think people in this age range are likely to keep up. Unfortunately, I may attract very unfit people who won’t be able to complete the class. I should look for a better attribute. For example:
Frequency of gym attendance: >3 times a week.
To evaluate proxies (e.g. Age: 18-40), ask 1) What am I trying to find out? 2) How well does this proxy predict what I actually care about?
Segmentation considerations
The following section will cover segmenting by:
Customer needs.
Competition.
Reach / serviceability.
Affordability.
Segmentation based on needs/problems
CPF’s Product Positioning canvas identifies the goals of customers and the key problem(s) they currently have solving them. Your target market starts with the group of people who share these attributes.
The impact of targeting very broad customer groups
So let’s say we consider creating a product for all photographers. This is possible, but will result in a very large product. For example, I could create functionality that does exact colour definition for magazine print. A casual photographer with a camera phone will never need this. The product’s large size can make it difficult to keep it easy to use, and it will be very expensive to develop and support. Worse still, it may take a very long time to get to market and be very costly if it fails. So with this in mind, I return to an earlier example. You believe social media creators are poorly served by existing photography products and want to build something better for them.
For a segmentation attribute in this example, we may have selected:
Social media posting frequency - Weekly or more.
Now I know a lot of people in this area aren’t skilled photographers, so I want to segment further. I want to sell the product to people with little knowledge and prioritise ease of use. This may also impact functional depth. In the short term, I can avoid complex requirements from professionals:
Digital photography skill level - Beginner.
Unnecessarily narrow targeting
One person wants to improve the photos for Instagram, and another wants to prepare better quality photos for LinkedIn. The required toolset to improve photos may be very similar. Both will want higher-quality photos (e.g., cropping, brightening, removing a stray object). The LinkedIn one requires additional standards, such as brand-consistent colour schemes and corporate logos, but these aren’t difficult to develop. The cost of servicing these customers is not much different from that for Instagram users, and given the market size, I should build for both.
Segmentation considering competitors
When segmenting, you must take competitors’ offerings into account. Markets change over time, starting with a new type of product creating a new market. Consider AI, few had even heard of this 20 years ago, now it is commonplace and may companies and individuals are using it.
Mature markets
Entering mature markets can represent a big challenge. Products can be large and mature, leading to high entry costs. Additionally, established brands can have customer loyalty based on trust. Here you can see four competing products that are at different price points. Product N represents a low-cost offering where a new product typically starts. It will be very hard to enter this market:
Targeting niche customers in mature markets
One strategy to avoid high levels of competition is to target niche customers. By focusing on needs that are poorly served in the market, you can create a differentiated product that is more likely to sell. Take, for example, digital photography software. It will be very difficult to establish a product in this very well-established market. We discover that the needs of social media creators are poorly catered for, and we may be able to enter the market. In the picture below, you can see that current solutions are not meeting the niche needs of social media users, and we have identified a gap:
When determining if needs are currently being met, consider:
The percentage of customers with very poor solutions, such as manual workarounds. For example, when checking data quality are they doing this manually?
The percentage of customers who have created their own solution. For example, have they built a reports engine in Excel?
The percentage of customers who use a direct competitor:
What do they like about this solution?
What problems are there with this solution?
How easy will it be for them to switch?
Disruptive innovation
If you can disrupt an entire industry with a new innovation, you may target a broader customer group. Your marketing spend is likely to be lower as word of mouth and free press coverage promote your product. New types of product should solve a major problem with existing solutions. They can reset expectations of the ideal product. Consider the invention of the mobile phone. At the start, if your product is not mature, people may still select the old type of product. Mobile phones were very big and difficult to carry at the start. As they improved, they overtook, then replaced, old solutions, in this case, phone boxes. With major increases in value, you may be able to set a higher price too.
Narrowing segments on reach/serviceability
Market entry restrictions can present challenges. It may not be time- or cost-effective to enter all available markets.
Reach restrictions
Only being able to reach a section of the market:
Marketing capacity/budget.
Restricted due to geographic location.
Unable to get in front of target customers.
Legal and regulatory restrictions
A common problem is legal and regulatory requirements. For example, you may have specific countries that would be too difficult to operate in. You may say, for example, that you are UK-only for now. Additionally, different countries could require different functional requirements.
Service restrictions
Consider your service capacity. Some service methods are expensive:
What type of service do your customers expect? For example, consider a legal or finance product, you may need one-to-one support.
How many customers can be realistically supported?
Are there any language barriers?
Narrowing segments on affordability
Asking a customer if they “like” a product contains a major problem. They will be considering how big a problem it is solving for them, but without a price range, this is really not a good question. For feedback to be useful, it must be in the context of value. I may purchase a product at £1 a year and be very happy, but if told it is £5000, I will have no interest at all. Other customers may be very interested but unable to afford your product. The quadrant below will help you filter further. At this stage, consider rough price and affordability. Consider creating a segment that represents affordability if you expect a lot of wasted effort if you ignore it. Be realistic, you may not be able to get people’s monthly wage figures!
Market size
With your ICP now defined, go to the Market Size tab to confirm you are targeting a large enough customer segment.