Posted by Although the ambition of almost every start-up company is to serve as many customers as possible, and each version of the product for its creators is equally important, the iron rule in the field of corporate finance is the Pareto rule. It says that only 20% of a company’s customers create as much as 80% of its profits. The other 80% of buyers give the company only 20% of the benefits. This does not mean at all that the latter group is not important. Slowly, perhaps they too will become the company’s key customers. However, you should consider who will be most valuable to the company at the time of start-up.
Small companies, and therefore yours, tend to have more difficulty choosing a market segment than large companies. ING Bank Slaski in the mid-1990s chose as its most important customers people from towns with a population of more than 20,000, with incomes slightly above the national average and who are middle-aged. Mercedes Benz has consistently insisted on car market customers with the highest expectations and incomes for almost 100 years.
But what are you supposed to do if you own a small grocery store in a nearby neighborhood? While every customer will be important, not every customer will be the same. If he decides to describe them accurately, you need to ask yourself questions:
- what do they buy (what kind of groceries, do only vegetarians live on the estate, is margarine better than butter and juice in a carton than juice in a bottle)?
- how do they buy (are they in a hurry, do they like to gossip, is price important to them, do creamers have to be only from Wadowice)?
- how much do they buy (a whole case or two beers, one or a dozen rolls)?
- where do they buy (is it on their way from work, or do they prefer to go to the supermarket, or maybe to the store next door)?
- when do they buy (on Saturday by noon or every day in the late afternoon, or maybe before 6 a.m.)?
- and the most important question – why exactly should they shop at your shop!
Once you’ve divided your customers into fairly homogeneous groups and thought carefully about what they are, all that’s left is to choose the ones on which your company will make the most money. However, to avoid a hasty decision, you need to evaluate the segments according to several criteria:
- whether there is a market niche among any of the customer groups, i.e., whether there are customers who feel disregarded by the competition and expect interest,
- whether customers will pay enough for products to be enough not only to run the business, but also for Nowak to achieve his planned goals,
- how competitors will react once the new company is established and how long it will take until that happens,
- whether the pre-selected group of customers is likely to grow or their income will increase and they will buy even more from Jan Nowak,
- whether there are already many companies offering a similar product and in what financial condition they are,
- which market segment is consistent with Nowak’s long-term intentions, the mission he has formulated and his own business idea.
The choice he makes before he even hangs his sign on the company’s door will have big consequences in the future. The thickness of his wallet will depend on how satisfied customers are with the products he offers. That’s when you’ll know if your business idea has succeeded.