Steps to Customer Understanding
You do not communicate the same way with the different groups of people in your life – family, friends, colleagues. Nor do you buy them the same type of gifts.
The same applies to your customers. Your customers have unique needs, wants, likes, and dislikes. Treating them as one uniform group will not do you any favors. In fact, research shows that 71% of customers feel frustrated when a shopping experience feels impersonal.
What is customer analysis?
Insert customer image
Customer analysis combines qualitative and quantitative research methods with the goal of better understanding of your customer base. Knowing what makes your customers tick means you will be able to cater to their specific needs. Social media is a great source of customer analysis.
Knowing your customers wants, needs, values and buying behavior patterns,will make any marketing communications and marketing plans more efficient and effective.
Customer analysis typically moves through the following stages:
- Identifying who your customers are.
- Discovering their needs and their pain points.
- Grouping customers according to similar traits and behaviors.
- Creating a profile of your ideal customer(s).
Customer analysis can seem like a daunting task. In this post, I’ll walk you through the steps that every company can start with.
Structure your existing customer database
The best place to start is with your existing customer database. If you do not currently have a customer database, consider the customers of your closest competition as a possible starting point. You are likely already sitting on a wealth of data, although it might need some structuring in order to make sense out of it.
The first step in doing this is to divide your customer database into groups with similar characteristics. This process of dividing up data is called segmentation .
By segmenting your customers, you’ll be able to differentiate between customers and focus your marketing efforts on specific groups.
Customers are typically segmented into the following categories:
- Demographic: Age (range), gender, income
- Geographic: Location-specific
- Psychographic: Values, beliefs, interests, personality
- Technographic: Based on the device/platform a customer is using, i.e. desktop vs. mobile
- Behavioral: Behavioral segmentation methods, habits, frequent actions
- Needs-based: Specific needs for a product/service
- Value-based: Value to the company, typically measured by Customer Lifetime Value (CLV). This the amount of profit your company is expected to generate from a single customer over the whole period of their relationship with you.
- Industry: For B2B, what industry the customer belongs to.
- Business size: Also for B2B, the number of employees or the revenue size.
Who are your most valuable customers?
The Pareto Principle holds true in most companies’ customer bases: 80% of business comes from 20% of customers. It makes sense to first get a crystal-clear view of these customers before moving on to the other 80%.
You can identify your most valuable customers by taking important customer metrics and looking for patterns in your database. Do customers with certain characteristics tend to have a higher average customer lifetime value, for example?
Metrics you should be using to measure retention :
- Customer Lifetime Value (CLV)
- Customer Retention Rate
- Repeat Purchase Rate
- Redemption Rate
- Repurchase Ratio
- Upselling Ratio
- Customer Loyalty Index (CLI)
- Customer engagement numbers
Your customer database also offers other valuable insights. For instance, demographic information about your customers may not affect product usage, but knowing their age and backgrounds will be important for how you communicate with them.
Talk to your customers
Data tells only part of the story. To get inside your customers’ heads and understand their needs, you need to talk to them. This involves reaching out, scheduling calls or asking them to come to the office. Interviewing is often paired with focus groups and usability studies. This is where many businesses do not take full advantage of social media, it is a valuable source of both customer and competitor analysis. With a little lateral thinking most if not all of the following can be achieved from Social Media and your existing database of customers.
Insert image of talking to customers.
One-to-one interviews. Interviewing customers in a one-to-one setting gives them the opportunity to share the emotions driving their purchases, their pain points and their deepest needs.
Asking the right questions is crucial here. This is where the 5 Whys technique comes into play: by asking ‘why’ five times, you peel away the layers of an issue and get to the root cause of a problem.
It’s important to realize that people make 95% of their purchasing decisions based on emotions. To discover the emotional drivers behind purchases, an interview should feel like a conversation where your customer feels relaxed and safe enough to trust you with their true thoughts and feelings.
Customer focus groups. A focus group gathers a selection of customers in a room to discuss specific topics under the guidance of a trained facilitator.
Due to the diversity of participants, focus groups can be useful in eliciting a wide range of opinions on your products and services. On the flipside, groupthink may inhibit free discussion or one person may dominate the group with their opinions.
Usability study. Observing how just a few customers use the product can uncover problems with a website or an app. The key here is to observe with an open mind to avoid inattentional blindness .
You can document your observations through notes, video recordings or photographs.
Collect customer voices from the field
Although interviews are valuable, they are also biased. There is a selection bias, for example, with customers with positive experiences more willing to participate than those with negative ones. Also, the answers that people give don’t always align with their actual behavior.
Because of this, it also makes sense to collect customer opinions from the field – from customer interactions, social media and review sites.
Service conversations. Your support department is in constant contact with your customers. They are the destination for product issues, pain points and improvement suggestions.
Adding a live chat app or widget to your website provides a stock of conversations. Support emails are also another resource for gleaning insights. The benefit of these support channels is that they are written, which allows those doing the customer analysis to easily tap in.
Social media – sentiment analysis. If your customer has a brand experience or they want to rave about your new product, chances are, they’ll talk about it on social media. Unrestricted by survey-like questions, people tend to leave no-holds-barred feedback on forums like Twitter, Facebook, Reddit and Quora.
Review sites. These can provide more concrete insights than social media forums. They also often make or break a customer’s decision to make a purchase. You can combine your customer and competitor analysis by looking at your competitor reviews.
Talking to customers and collecting customer voices from the field are qualitative methods. Their purpose is to get a sense of the motivations and concerns of your customers. However, these will be hypotheses at best. To test and proof these hypotheses, it makes sense to run customer surveys.
Create buyer personas
The next step after segmenting your customers is to use all the insights from the above steps to create customer personas of your target customer(s).
Customer personas are simplifications of reality. They are stereotypes of your most valuable customers, including their demographics, motivations, behavior patterns, goals and pain points.
The advantage of creating such personas is that they make it possible to think and talk about your customers. Our brains aren’t wired to think about large groups of heterogeneous people. We can, however, think in individuals.
Since different customers may buy your products for different reasons, consider creating more than one buyer persona.
Hubspot provides free, customizable templates to help you get started.
Create a customer journey map
After you’ve conducted your customer analysis, you’ll want to analyze the data collected to identify common themes and patterns.
As a customer behaves differently at each stage of the buyer’s journey, a customer journey map can help to connect the dots, and uncover pain points and factors that could make or break their experience.
A journey map is a visual representation of all the touchpoints and interactions a customer has to go through to reach his goal.
In the following example of customer journey map, we can see that there are a number of points at which the customer is at risk of churning:
- The information presented on interfaces doesn’t live up to the descriptions in the commercial.
- The customer has to exert a lot of effort to search for and view new cars.
Example customer journey map: The Nielson Group
By mapping the customer’s journey, the car company can take measures to improve messaging and the mobile app to prevent churn at the early stages.
How do you create a customer journey map? For each of your customer personas:
- List all the touchpoints
- List all possible actions
- Chart emotions for each action
- Identify pain points
- The Nielson Norman Group : offers a step-by-step guide to customer journey mapping as well as a downloadable template.
- HubSpot : You can download different types of customer journey map templates here.
Ever-expanding customer insights
Running a customer analysis is one of the most valuable things you can do for your business, but it’s not a set-it-and-forget-it tactic. There will always be more insights to be won.
What’s more, the market never sits still. New products, competitors, circumstances, targets groups, etc. will enter the scene. The companies that are able to make the most sense out of this complexity are in the best position to benefit from it.
Stay close to your customers and re-run some form of customer analysis on a regular basis.
December 22nd, 2020