modelH update: Healthcare Customer Segmentation – Users, Buyers, and Intermediaries

Editor’s note: The US healthcare industry is responsible for roughly 18% of US GDP, but the current consumption, delivery, and finance models for healthcare are unsustainable in the future. modelH is a dynamic co-creation forum created by Kevin Riley and Associates, Innovation Excellence, and Batterii where healthcare innovators from around the world are building a foundation for new business models in healthcare. Their goal is to co-create an open-source business model canvas that applies specifically to the US healthcare system.

All systems are go at modelH. Our dynamic community of innovators has been hard at work for the past 2 months tackling the first few projects for building our new healthcare-centric business model canvas. Here’s an update on what we’ve done, what we’ve learned, and what’s up next.

Learnings on Customer Segmentation

In early June, we wrapped up our first project sprint on Customer Segments. We received fantastic participation during that 2-week process, and completed 3 main objectives:

• Created a Revised Image for Customer Segments
• Developed Customer Segmentation Models for Healthcare
• Identified Questions to Ask on the Canvas for the Customer Segment Block

1. A Revised Image for Customer Segments

Through our business model canvas, we are asking all healthcare businesses to think downstream to understand how they impact the patient and the patient’s care – or as we call it, participating in a sense of shared value. So even though a specific business model may have a Buyer who is not the actual healthcare end User, the business model does have an effect on one or all of the “value lenses” we have proposed:

• Improved consumer experience yielding an informed decision maker aligned to their risk and reward;
• Increased access to necessary care through an engaged delivery system; and
• Reduced aggregate cost of care, with a market-driven, balanced incentive and reward model.

Based on this outcome, we are modifying the canvas image itself to have 3 parts within the Customer Segment block.

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

When the User and Buyer are not the same (and they almost never are in healthcare), the business model is split into two (or more) paths.  As an example, one User and one Buyer create two Relationships, two distribution strategies (Channels), two Value Propositions, etc.

We feel that our canvas in both form and function must enable practitioners to account for both the overall value created and the multiple paths to achieve that value. So, along with the revised image, we are applying the following rules to the Customer Segment block.

• Users should always be considered an individual (consumer).
• Buyers can be the user, a business or a government.
• Users and Buyers have different driving motivations and thus different Value Propositions.
• Intermediaries act in conflict or benefit between the Value Proposition, the Buyer and the User.

2. Customer Segmentation Models for Healthcare

We also had some very detailed ideas submitted on segmentation models that can be used specifically for healthcare customers. I highly encourage you to read them directly on the modelH site, use them in your own work, and give us feedback or even case studies associated with their use. In addition to the customer segmentation models put forward in the Osterwalder Model, the healthcare-specific ones developed by our community are listed below in alphabetical order:

Customer Segmentation by Archetype (Behaviors)

This approach looks at segmenting by different archetype categories of people based on their needs, attitudes, and behaviors to healthcare decisions. Some of the defining elements are: health behaviors and attitudes, the perceived control over health now and in the future, and individual preferences for seeking and receiving healthcare information. There are some excellent commercial models available.

Customer Segmentation by Life Condition (Health Status)

This approach looks at segmenting by the different health concerns that can affect us all as we age and seek to understand and assess our health status, and navigate a complicated and fragmented health marketplace. The “status” of health becomes more relevant to consumers once they have been diagnosed, so this model looks at both pre and post awareness of, and management of, a consumer’s health conditions. Life Conditions include segments such as high blood pressure, cholesterol, diabetes, etc.

In fact, Life Conditions are a actually better market indicator for how healthcare consumers will act rather than age. As an example, let’s compare music preferences. Seniors and 30 year olds rarely like the same music (unless it is Bruce Springsteen!). However, a 30 year old diabetic acts pretty much the same as a 65 year old diabetic. And correspondingly, a 65 year old “health nut” acts much closer to a 35 year old “health nut” than a 65 year old diabetic.

Customer Segmentation by Life Stage (Demographics)

This approach looks at segmenting by the major milestones each consumer reaches in life, such as birth, adolescence, young adulthood, adulthood, retirement, etc. With each of these Life Stages come significant healthcare decisions and the jobs-to-done associated within them. For example, the Life Stage for Becoming a Parent may involve the need to tackle multiple jobs-to-be-done such as getting pregnant, child birth, preparing the home environment, etc.

These milestones make for a natural way to define targeted value propositions. For example, seniors have very different healthcare needs than young adults who are starting a family. In fact, the three highest cost milestones in each person’s life are usually their early childhood (including birth), followed by when they have their own child, and then when they enter retirement and on through death.

Customer Segmentation by Life Style (Job-to-be-done – JTBD)

This approach is one that I developed nearly 4 years ago when I built a consumer health-focused ecommerce company called GuideWell. We decided to take a non-traditional approach to segmentation, basing it on Clayton Christianson’s concept of consumer jobs-to-be-done. Traditional segmentation puts a consumer into a single segment ‘bucket.’ We recognize that people are multi-faceted and segmenting them singularly leads to improper product market fit.

The Life Style approach looks at segmenting by each consumer’s JTBD at a specific place in time; put another way, it allows you to look at people based on the tailored guidance they seek for the key activities they pursue. For example, a physically fit individual may not want to have an extensive conversation about basic exercise principles, but may want to know a great deal about better sleep. The same person has a different reaction to their different JTBD even though they are in the same Life Stage and Life Condition. Companies that offer “Life Style” solutions seek to help consumers with their specific JTBD, such as “Look and Feel Younger,” “Get Ripped,” “Get Outside,” “Have a better smile,” or even “Go Green.”

The problem lies in making an educated guess on the consumer’s JTBD. This works well when your business model’s value proposition is designed to bring a tailored set of goods to the consumer from everything that is available, but narrowed down based on their specific JTBDs.

3. Questions to Ask on the Canvas for the Customer Segment Block

We also defined the questions that should be added to our business model canvas for helping practitioners define their customer segments for a healthcare business model.

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

• 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?

We added the following as well:

• 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?
• How do you define a lead (for your Buyers)?
• How do you define a customer (for your Buyers)?
• 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), Life Stage (Demographics)?
• What is the total addressable market size (TAM), or the revenue opportunity available for the value proposition?
• What is the serviceable addressable market size (SAM), or the customers that can actually be reached out of the total addressable market (TAM)?
• What is the target market size (TM), or the size of the initial focus for your minimum viable product release of your value proposition?

Learnings on Intermediaries

In our second project sprint, we examined the Intermediaries who filter, persuade, and affect User healthcare decisions. We learned some important lessons in this project.

Several of our top contributors made the excellent point that our definition of intermediaries really fits into the idea of Channels within a multi-sided market. The Osterwalder model supports this as well. However, many more of have told me that we should keep this as a distinct section in our canvas. I tend to agree. But how?

At this point our findings are inconclusive. We do not have enough insight, research, or foundation to say one way or another how to treat this in our healthcare-specific business model canvas. In order for the canvas to be useful, we will need to show the users of our final canvas a way to understand and account for the deeply entrenched nature of intermediaries within the healthcare ecosystem. I think we can do this best once we dive into the next 3 sections of our model.  We are therefore putting this project sprint “on hold” and will come back to it at a later date.

And that’s ok. When we launched modelH, we made a conscious decision to try to address each of the blocks of the business model canvas in a linear fashion, rather than try to have many projects going on simultaneously. But we also fully recognize the interdependencies that exist within any business model canvas. We are confident that once the community has had the opportunity to dig into some of our upcoming project sprints, we’ll be able to revisit, update, and retire the Intermediaries project.

What is next?

We are just finishing up a double-header project sprint on Jobs-To-Be-Done and Value Propositions in healthcare, so stay tuned for an update on our key findings from the community on those topics. We’ll then get right into a new project sprint on Key Behaviors, which will run for about two weeks.

Interested in what we are doing? Step up to the plate and get involved.

Our community continues to grow and actively participate in this journey. Don’t fret if you do not feel you can contribute to the current project sprint – stay with us and stay active and you will find a manner and place to contribute your experiences, skills and ideas. We still have a long way to go and we need you all.

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Kevin Riley is an entrepreneur, healthcare executive, and business model innovator who works with start-ups and legacy companies alike, across the healthcare industry. Kevin founded and was CEO of a national health care retail company, has played leadership roles for national retail health start-ups, and served as the first Chief Innovation Officer of a major insurance plan. In 2006 he started Kevin Riley & Associates Health Model Innovation to help companies with the convergence of health care and the consumer.