Customer Insight

Businesses have been using computers to collect and analyze data for decades. What’s changed? First, the scale: there’s more data, more sources of data, more features in the data, and more connections between data sets. Second, the speed: data moves faster and can be processed faster — decision-making must keep pace. Third, the stakes: business leaders must get increasingly complex, high-stakes decisions right; they need to correctly frame problems and evaluate alternatives; to do so, they need better information and better analysis, not more data.

Small business owners have some interesting choices to make when Groupon (or one of its many clones) calls. Here are some useful articles, blog posts, and research papers to help you think through the decision of whether to do a deal and, if so, what type of deal to choose.

A small business has two locations: its address and its positioning. An address tells customers where to find a business in the real world. Positioning, meanwhile, is a marketing concept: it’s (roughly) the location of a business in a customer’s mind relative to its competitors.

Positioning in a nutshell

Positioning was popularized by Al Ries and Jack Trout in their 1981 bestseller Positioning: The Battle for Your Mind. Their premise is that in an over-communicated world, consumers screen and reject much of the information being offered and only accept whatever matches their prior knowledge or experience.

Businesses have to adapt to this environment by oversimplifying their message and by concentrating on narrow targets, the consumer segments that are most likely to listen and respond to their marketing. By focusing, businesses can hope to find some unoccupied space in a target consumer’s set of perceptions and set up shop, if you will, at a safe distance from competitors.

80% of your sales come from 20% of your customers. As a small business owner, even if you’ve never heard of the Pareto Principle, you know this rule of thumb intuitively. You’re in business largely because of the support of a fraction of your customer base: your best customers.

From a marketing perspective, it makes sense to put in the effort to understand the characteristics and preferences of your best customers for at least two reasons: 1) to continue to provide this group with what they’re looking for and keep them as customers, and 2) to target your marketing efforts toward prospects who resemble your best customers.

By targeting your acquisition marketing through insights into your best customers, you attract customers who are likely to respond to the strengths of your small business and remain loyal to it. Instead of moving random customers up loyalty ladders, you focus instead on getting the right customers, customers who will be loyal from the start.

But, before you can start to understand your best customers, you first need to identify them. And that’s where a simple database marketing tool called recency, frequency, monetary analysis (or RFM) comes in handy.

The loyalty ladder is a relationship marketing concept that sees customers gradually moving up through relationship levels, starting at the bottom as prospects (those who have the intent to purchase but have not yet done so) and ending up at the top as advocates (intensely loyal brand champions). The loyalty ladder typically looks something like this:

According to the Wikipedia article: “The relationship marketer’s objective is to ‘help’ customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step”

Customer satisfaction surveys often allow customers to provide open-ended feedback or comments on their service experience. A while back, we gathered these responses from a retail client survey, in part to try to determine the differences in the language used by very satisfied and very dissatisfied customers. We felt that these differences, if they could be found, could provide insights to help fuel employee training and marketing and communications programs. I intend to post on how we actually went about this text mining exercise at a later date (and on all the wonderful analysis that can be done with customer satisfaction data), but, in the interest of getting some sleep, I’m going to just jump ahead and tell you the two words most used by very satisfied customers in that survey: friendly and helpful.

At the 2009 Sasquatch! festival in Washington, a guy got up, started dancing, stayed dancing. No friend in sight, just a guy by himself, sort of losing it on the hillside as Santigold played ‘Unstoppable’ on the stage far below. What happened next was…

At the end of the video, you can hear someone in the crowd asking in happy disbelief “How did he do that? How did he do that?” Because I’ve accounted for about 100K of the video’s nearly 3M views, I can suggest some answers.

The Harvard Business Review article by Daniel Yankelovich and David Meer contains some interesting thoughts on the use of market segmentation. Some highlights:

• If properly applied, market segmentation guides companies in tailoring their product and service offerings to the groups most likely to purchase them.
• Psychographics is very weak at predicting likely purchases.
• Segmentation, as currently practiced, takes an excessive interest in consumers’ identities. This distracts marketers from the product features that matter most to current and potential customers of brands and categories.
• Segmentation places too little emphasis on actual consumer behaviour, which is unfortunate because behaviour definitively reveals consumer attitudes and helps predict future business outcomes.
• Practitioners are guilty of an undue absorption in the technical details of devising segmentations. This estranges marketers from the decision makers on whose support their initiatives depend.