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Do what you do so well that they will want to see it again and bring their friends." — Walt Disney Whether you are a “one-man band” or a large organization, your customers are why you are in business.  By having clarity on the customer segments, the customer needs, and the potential profitability of each segment, you can choose more effective segments to serve for a more sustainable business. Serving everyone is serving no one.  Customer segmentation helps you target a specific set of customers and serve them exceptionally well.  "Who is the customer?" is a strategic question.  It forces you to figure out who’s in and who’s out. To choose a customer to focus on, you have to weight market opportunity, technical opportunity, value, and differentiation across a set of customer segments or niches.  The problem is, there are many ways to segment markets. To segment a market effectively, there are a couple of best practices.  One practice is to divide the market up based on profitability.  You might find that some markets simply won’t sustain your business.  Another practice is to make sure both marketing and engineering are involved in segmenting a market.  Marketing can determine the price customers are willing to pay, but engineering will help determine the cost.  To segment effectively, you need to know both the value and the cost.   if you’re a one-man band, this means figuring out your development and production costs, compared to the price your customer will pay. In the book, Managing the Design Factory , Donald G. Reinertsen writes about how to segment customers effectively. Divide the Market into Segments

Chunk the market up by profitability.  Reinertsen writes:
“The choice to serve less than 100 percent of the customers is called market segmentation.  This is simply the act of dividing up the market with the goal of finding a group of customers that is more profitable to serve than another group.  This difference in profit can result because the customers...
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