Defining Healthcare Users & Buyers with modelH (2 of 8)

Defining Customer Segments in modelH

In our previous installment, Understanding Your Healthcare Customers with modelH, I looked at how the muti-sided market of healthcare splits its “customer segments” into three categories:

1. a Buyer (the customer of the business),
2. a User (the person using the product or by-product of the business), and
3. an Intermediary (the person who filters, persuades, and affects User healthcare decisions).

Today, I will do a short post in a series of 8, focused on answering the Customer Segment questions in the modelH canvas. The modelH Customer Discovery Process is designed to refine one lens of your business model (the “Who”) by validating your Customer Segments in the context of your value proposition.

Defining Customer Segments in modelH

We have 2 objectives today:

• Questions to ask on the canvas for the Customer Segment building block
• Help on how to size your potential markets

Properly identifying your Customer Segment is too often overlooked as companies rush to get “to market.” Too often, product owners launch before they have validated a real need and a sizable market to justify the expense. Just because you can — does not mean you should.

Speed to market cannot bypass the necessity of answering important aspects of your business model:

• Who is your customer?
• How will you serve them?
• Do they want what you offer?
• Are they ready and willing to pay for it?
• How many of them are there?

When the User and Buyer are not the same (they seldom are in healthcare), this splits elements of the business model into two (or more) paths. For example, a User and a Buyer require two Relationships, two distribution strategies (Channels), and two Value Propositions. A healthcare business model canvas (like modelH), in both form and function, must enable practitioners to account for 1) the overall value created and 2) multiple paths to get there. I suggest applying the following rules to help define the Customer Segment block in your modelH canvas:

• Users should always be considered an individual. This can be a consumer, an end-user at the business, or both.
• Buyers can be the Users in a direct-to-consumer model, but in an enterprise model they are a business or government entity.
• Users and Buyers have different driving motivations and, thus, should have their own Value Propositions (we define these at a later stage).
• Intermediaries act in conflict or benefit between the Value Proposition, the Buyer, and the User. We will discuss them in more detail in a future post.

So, what questions should be answered when developing Customer Segments for a healthcare business model?

modelH Business Model Canvas Placement: Customer Segments

In addition to the questions asked in Osterwalder’s model:

• For whom are we creating value?
• Who are our most important customers?
• What type of market is this business model: Mass Market, Niche Market, Segmented, Diversified, Multi-sided Platform? Hint: healthcare is almost ALWAYS a Multi-sided Platform.

I recommend several more as they are needed and unique to healthcare business models.

• Is the User of our product, or its derivative, also the Buyer of the product?
• What is the relationship between the Buyer and the User?
• What nomenclature does the market use to define the User in this business model: Patient, Provider, Member, Insurers, Other?
• What is the total addressable market size (TAM), or the revenue opportunity available for the value proposition? (more on this in Part 2)
• What is the serviceable addressable market size (SAM), or the customers that can actually be reached out of the total addressable market (TAM)? (more on this in Part 2)
• What is the target market size (TM), or the size of the initial focus for your minimum viable product release of your value proposition? (more on this in Part 2)
• How do you define your Buyers as a Persona (more on this in Part 2)? How do you define a lead (for your Buyers)? How do you define a customer (for your Buyers)?
• How do you define your Buyer’s And User’s Jobs to be done (JTBD)? (more on this in Part 3)?
• What model will be used to distinguish between various User types (customer segments): Archetype (Behaviors), Life Condition (Health Status), Life Style (Job-to-be-done), and Life Stage (Demographics)? (more on this in Part 4)

Estimating Market Sizes for Customer Segments

We also want to understand the potential market size for your identified customer base. This data will clarify the validity of your business model, test views about your market, and enable prioritization.

To do this, analyze concrete data against business model hypotheses to discern your Total Addressable Market*. TAM represents the total opportunity (in terms of revenue) for a product or service if it were to capture the entire market. It’s like the holy grail, assuming a scenario where you win over every potential customer. Here’s a breakdown of how TAM is calculated:

• Total number of potential customers: This refers to the entire population that could benefit from your product or service.
• Average revenue per customer (ARPU): This is the average revenue you expect to generate from each customer.

By multiplying these two figures, you arrive at the TAM, which gives you a sense of the maximum potential revenue for your product or service.

Similar products’ current and potential market sizes can then be measured against your business model. Additionally, assessments of your business model are based on data derived from the latest US Census data to reveal its market potential.

This workstream explores the following questions:

• How big is the total addressable market?
• What do they currently pay for it?
• How are they currently paying for it?
• How would they prefer to pay for it?

The deliverables for this workstream include:

• Complete a Market Sizing per concept.

* Note: There are other sizing variations besides just TAM. Here are a few.

• Total Market Opportunity (TMO): TMO refers to the potential market size and revenue captured with solutions similar to the one in your business model. TMO represents the total available market demand from all potential buying organizations for the highlest level of related similar solutions.
• Total Addressable Market (TAM): TAM refers to the total revenue that could be generated if we captured 100% of the buying organizations that are directly addressable by your solution. This measure assumes the organizations are a suitable fit for the product and have the potential to adopt the solutions based on their requirements and capabilities.
• Total Serviceable Market (TSM): TSM refers to the portion of the TMO or TAM that you can realistically and effectively target and serve. It accounts for your specific strengths, resources, and constraints in reaching and servicing the Customer Segment. Said another way, it is the market segment you can serve efficiently based on our capacity and strategy.
• Market Sizing Opportunity (MSO): MSO is a “bottoms-up” granular measure of the market opportunity you can capture in the short term. It focuses on market segment size, growth potential, competition, and capabilities to address the unique needs of your Customer Segment.

What is Next?

Next, we will stick with our Customer Segments and walk through a few methods for clarifying your Problem-Market Fit. We will then look at doing the same for Problem-Solution Fit. Then, we will look at how to apply Customer Segmentation models in healthcare. Finally, we will return to how Intermediaries affect a healthcare business model. This will conclude our Customer/Who section of modelH.

Interested in what I am doing and want to learn more? You can read all about modelH business model innovation for healthcare on Medium.

to your health,

- Kevin Riley