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Customer insight: An analysis of customer behaviour
Identifying and knowing each customer, as well as doing correct market research are, without a shadow of doubt, an important source of information for companies, since they allow to understand and meet their customer needs, to launch new products or services according to their requirements and even to discover new growth opportunities. In relation to this topic, Leadership spoke with Mindaugas Zickus, professor of ESIC Business School, who during his stay in Lima lectured on "Customer Insight" in the Master in Marketing Intelligence, a joined course program by Universidad ESAN and ESIC, Spain.
What do we understand by customer insight?
Customers are the atoms of business. The importance of individual customer might be small but together those small forces will determine whether the business will prosper or decline.
The objective of customer insight (CI) is to "decode" the customers - the hidden forces of demand. Knowing who are the current and potential customers, what benefits they seek and get from your product, how much they are willing to pay allows explaining and predicting performance of the company in increasingly turbulent markets.
Within the organization the CI unit is the place where all scattered information pieces of the customer puzzle are integrated, patterns identified and interpreted. From here actionable recommendations for other business units are provided.
To identify and distribute insight within organization the CI analysts have to posses a mixture of business, data and data analysis skills. That's why in CI unit the greatest brains in the company can be found. As CI always reveals something new about the customer therefore good persuasion and presentation skills are required for insight to be effectively communicated and adopted within the organization.
What are the methods to identify and present customer insight?
Two major sources of information of CI are customer database analysis and market research. By analysing transactional data stored in internal databases the companies can estimate the value of each customer, their preferences, price sensitivity and usage patterns. Using this information the efficient pricing, retention and cross sell measures can be developed.
However to identify growth opportunities companies have to go beyond analysing their current customers. To manage share of wallet, to attract new customers with new products the companies have to research the whole market. Market research will also reveal what are the needs and attitudes of current and potential customers and how the company offering compares with competition. Knowing the attitudinal "why" behind the "what" of demand will enable companies to create services that both increase the share of spend of existing customers and will attract new customers.
The CI can be presented in the form of segmentations, results of test vs. control experiments, confirmed or rejected hypothesis of customer behaviour, what-if simulation tools, correlational and cause - effect relationships and scores on various marketing and financial metrics. Companies with large number customers use specialised CRM or bespoke software packages to embed CI in decision making process.
What is the importance of customer insight in marketing strategy?
Strategy is all about where and how to compete. CI is crucial for identifying both "the where": customer segments, their needs and "the how": the segment response to 4 P's. The synergy of deep understanding of customer needs, trends and technological advances enables business to create and improve products that will only delight customers.
Focus on customer also enables to measure and predict long term impact of marketing activities which is crucial for setting long term strategies. A good example is retail marketing where companies have been struggling to measure long term impact of promotions. Only after adoption of customer measure - the impact of promotional activities on customer retention - it was possible to estimate the long term impact of promotion on the customer loyalty. Some promotions that seemed to be unprofitable in short run turned out to be required to support the low price image and to maintain customer loyalty in the long term.
The greatest hockey player of all time W. Gretzky has said once that "I skate to where the puck is going to be, not where it has been". In business the deep customer understanding leads to ability to predict the demand and will propel the company ahead of competition. An outstanding example is the Apple company that has recognized the underserved need for style, mobility and simplicity in high tech products. Successful companies follow not competitors but the needs of customers.
What are the characteristics of contemporary consumer?
We live in a consumer society therefore the general trends in society are closely mirrored in consumer behaviour. Striving for authenticity has increased demand for local products, fascination with staying young and healthy has spurred the demand for healthy products, concern about environment is correlated with increased demand for organic products, increasing time pressures and decreasing number of housewives is behind the grow of demand for convenience products.
Recession made everyone to tighten their budgets which lead to the increased price sensitivity across all customer groups. Even the more affluent consumers are increasingly looking for value - good quality product but for a reasonable price.
Another feature of today's markets is the overwhelming choice, ubiquity of advertising and ease of switching. This however didn't make life easier for consumer. Too much choice often leads to confusion and delaying the purchase. Also a stable relationship with company is preferred by consumer over the cat and mouse game of switching. Companies and brands that consistently and fairly treat their customers, and provide relevant product recommendations will earn the trust and long term loyalty.
What are the key factors that influence customer purchase decision?
Different customers have different drivers of purchase. Customers with low income but with plenty of time are more sensitive to price because they shop around for the best deal. Advertised promotions and coupons will attract such customers to the store. On the other hand the time poor but money rich customers are more likely to shop for groceries in "autopilot" mode so they can be more easily traded up or affected by in store advertising.
Another key factor that impacts the purchase decision making is the price of the product itself. When buying high price items (cars, TV, computers) consumer arrives to the final purchase decision after a lengthier process of information gathering and comparison of alternatives. In early stages of product consideration the advertising is effective to make customer aware of product but price promotion will be most effective when customer is deciding when and where to buy the chosen product.
What is marketing optimization?
Today companies maintain a large number of offerings, can use different communication channels and types of media, can charge different prices. Marketing optimization applies mathematical methods to determine the best decision alternative that maximizes business objectives. Optimization helps to increase efficiency and to reduce costs of achieving business objectives. Improving efficiency is very important in mature markets where companies have to move from "customer hunting" to "customer farming" mentality.
Optimization has been successfully applied for setting optimal prices, product recommendations, customer selection for direct marketing campaigns and marketing budget allocation. Optimization has proved to be most effective in the areas where a large number of small impact decisions have to be made (e.g. what voucher to send to which customer). In such cases optimization allows to fully automate the decision making process. Another benefit of marketing optimization is that it instils the discipline of data driven decision making and requires rigid marketing performance measurement using both marketing and financial metrics.
A great story of success of marketing optimization is the marketing mix modelling and optimization in FMCG companies. Companies like Kraft, Coca Cola and P&G now have fully embedded the marketing mix modelling and optimization function in their marketing decision making process.
What is the impact of social media on marketing strategies and tactics?
The thriving social media has enabled large scale consumer interaction. The new business proverb is "Satisfied Customers Tell Three Friends, Angry Customers Tell 3,000". On the other hand social media provided companies (especially suppliers that struggled to reach their consumers directly) with another channel to communicate with consumers of their products. However the communications in social media have to be more honest and authentic then in traditional media - as if you speak one to one to a single customer when all world is listening.
Social media can serve both as a way to communicate with customers and to gauge consumer attitudes towards the companies and products expressed in forums, blogs and social websites. The difficulty is that such data are highly unstructured and requires new techniques to extract meaningful information.
Activity in the social space also added a new dimension in describing the customer. Companies now prioritize and target not only the most profitable but also the most socially influential customers.
Social media is a unique interactive media channel and it can take a while until companies will learn how to use it comfortably and effectively.