Conducting "needs" segmentation: knowing why a customer buys, can do more to help increase customer value than studying behavior: knowing what a customer buys. Here's why. The motivation to purchase may be distinct for different customers who are buying the same product.
For example, consider three customers who purchased the same recently released book on the history of baseball. Let's call them Bob, Larry and Frank. All three men purchased the same book, but each made the purchase for different reasons. Bob is an avid sports fan, with a seemingly endless appetite for sports literature, and wants to add this book to his personal collection. Larry primarily buys books about cooking, but he needed a gift for his brother's birthday, and his brother is a die-hard supporter of the New York Yankees. Frank likes to appear "in-the-know," especially to impress his co-workers and neighbors. Consequently, he is willing to purchase almost any book that has recently received a positive review in The New York Times, no matter what the subject.
Three purchases of the same product--all motivated by different needs. If you understood the different needs of Bob, Larry and Frank, you can use this insight to develop different marketing communications that would be relevant to each of them, and motivate each one to make a purchase.
Understanding customer needs
To begin recognizing customer differences, an organization must understand how its customers can be grouped by similar needs. In other words, what are the motivating factors that a set of customers has in common? This commonality allows customers to be put in groups--or portfolios--to be managed by the organization. The portfolios become the basis for a company's decisions to customize treatment. Without this step, customers are treated the same, as if they are universally motivated by the same need.
Observation, research and analysis uncover the common needs of a company's customer groups; drip-irrigation dialogue with individual customers reveals their individual needs. Once individual needs are known, automated business rules determine the appropriate treatment, and each customer gets treated according to his needs.
Ultimately, an organization can increase its profitability and enhance the experience it provides its customers by ensuring that the treatment customers receive across different touchpoints matches their individual needs. The increased profitability is derived from increased efficiency.
For example, if certain customers prefer email-based communications, there's no need to waste money sending them expensive brochures. And the experience is enhanced since the communication becomes more relevant to them as individuals. Not only are the messages in the communications focused on their primary areas of interest and concern, but they are also communicated to in a way that best addresses their needs and preferences.
Don't follow the demographic path
Demographic information often correlates with customers' needs and can be an effective tool to begin analysis for targeting customer needs, but it is not the end goal. Consider the example of Kribs Ford City, a Ford dealership in St. Louis. The dealer had been sending out mass fliers via direct mail, typically generating a response rate around 1.5 percent. Then, it invested in software to search database information for people in the St. Louis area, and chose to send targeted, less costly mailings to customers who fit the desired demographic profiles. Among these more targeted mailings, Kribs averaged a response rate of 3 percent, a significant improvement achieved at a reduced cost. ¹
However, demographic information cannot be used exclusively to determine customer needs. Consider the ground-breaking marketing article published in the early 1970s that asked: "Are Grace Slick and Tricia Nixon Cox the same person?" Grace Slick, lead singer for Jefferson Airplane and Tricia Nixon Cox, the preppy daughter of former President Richard Nixon who married former President Dwight Eisenhower's grandson, were demographically indistinguishable. They were both urban, working women, graduated from college, age 25 to 35, at similar income levels, household of three, including one child. Demographics could not explain the distinctly non-demographic difference between Grace and Tricia.
Demographic information should be viewed as a building block and not as the end of the information required to understand customer needs. It is important to remember that needs are not defined by demographics, although similar demographic profiles may have some needs in common. But this is not always the case, and there are many situations in which needs extend beyond traditional demographic boundaries.
Think about the financial-services needs of two 30-year-old women, both of whom have high-income jobs, are married, but do not have any children. Given their similar demographic profiles, a financial-services firm can infer certain needs that these two women are likely to share, such as the need for information regarding taxation laws for married couples. However, the financial-services firm would not know the internal conditions that drive each of the women to become and remain customers of the firm.
For example, one of the women wants the firm to act as a trusted advisor, and expects the firm to maintain a high level of contact with her and provide recommendations on how she and her husband can best save for the long term. The other woman prefers to make her own decisions regarding financial matters, and wants the firm to expedite her requests in the most efficient and cost-effective manner. Clearly, these financial-services needs cannot be differentiated based on demographic information-they can only be learned through dialogue.
The key is to combine the two-distinguish your customers based on needs and overlay this information with the relevant demographic information you have. This powerful combination is the key to understanding why customers buy your products and services. Once you have that knowledge, you are on the path to unlocking higher sales and improving customer profitability and value.
¹ Couretas, John. (Nov. 8, 1999), "New tools help dealers manage all their data," Automotive News.
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