Comparing generations

When you were born, believe it or not, is often a major driver of customer behavioral attitudes. Market researchers have identified five demographic generations that define people, as follows:

• The Silent Generation — born 1928–1945
• Baby Boomers — born 1946–1964
• Generation X — born 1965–1980
• Millennials — born 1981–1996
• Generation Z — born 1997–2012

People born into these generations were exposed to different events that shaped their worldview, including attitudes toward technology, politics, social norms, and economic life, among other categories. They bring these views to their evaluation of what you offer in the marketplace today:

• The Silent Generation (increasingly silent as the clock ticks away) experienced the Great Depression as children or teenagers. Cataclysmic events had a profound influence on this group’s attitudes toward economic security and social stability.
• The storied “Boomers” — more than 75 million of them — were raised in relative affluence compared to their parents, enjoyed educational opportunities unheard of before, and reflected a joyful optimism about the future. Can-do, by golly!
• The Gen Xers, however, about 65 million strong, came of age in a very different time as the American Dream began to unravel through tragic events like Vietnam, civil rights battles, and a growing political divide. Skepticism began to replace optimism. Try telling an Xer that they could go to the moon and their government could solve problems.
• Next are the 72 million Millennials — far more liberal in their social attitudes than prior generations, quick to embrace diversity and pluralism in the workplace and society in general, but also burdened with school debt, deteriorating job prospects, and downward mobility for the first time ever in America. They’re confused and questioning.
• Generation Z members — 67 million in number — were raised in a technological revolution and accepted it wholeheartedly. They were coddled by fawning parents and grandparents pushing them to succeed. They also saw the decline of the old dinosaur firms and the rise of the young disrupters — and have an entrepreneurial spirit that’s challenging everything. And while they celebrate economic wealth and accomplishment, they’ve also retained the social liberalism of the Millennials; they want their suppliers to be intentional in their values. But they’re overwhelmed, trying to do everything at once, and now beginning to question their work-life balance decisions.

These are not perfect definitions. The generational time frames can overlap at the edges. Both Millennials and Gen Z folks, for example, love the experience of doing something as much as having a given physical product. And obviously, not everyone in such large groups behaves in the same way. But understanding how these groups respond in general to your market offerings — and how different groups respond differently — can ensure that you don’t get caught in the time warp that drove Cadillac into a ditch (as we see earlier in this chapter). As you consider your current customer profile, where does it fit into the generational categories? And how will the next one, whatever name it’s given, respond? It’s never too late to start planning for change. In fact, it’s the only thing we know will happen.

Defining your good customers

A fresh look at customers should start with the ones you enjoy seeing — those who regularly purchase goods or services from you. But sometimes, knowing what a customer is not can be just as important as knowing what a customer is. You can find out about your business and best customers by observing the other kinds of customers shopping your industry — the difficult customers, the former customers, and the nonexistent customers.

Good customers are the ones who bring a smile to your face, the ones you like serving, the ones who appreciate you, the ones who fatten your wallet and keep you in business. You want these customers to keep coming back time and again. But how do you keep them all satisfied? Job One is to first know just who these customers are, gain an understanding of their characteristics, and figure out how to continuously fulfill their needs better than the competition.

Your business can measure and describe its customers in several ways:

• Track each customer’s unit and revenue volume over relevant time frames.
• Figure out who your customers are, including demographic and psychographic data that you have available or can access.
• Learn what and who influences your customers.

If you want more details on how to separate your customers into appropriate groups (market segments), check out Chapter 6.

Handling your not-so-best customers

“Can there be such a thing as a ‘bad’ customer? Isn’t that a contradiction?” you ask. Not at all. Bad customers — like the neighbor from hell — simply cause you more trouble than they’re worth and don’t fit into your company’s values and strategies. Let them pollute some other neighborhood, not yours. Bad customers do the following:

• Ask you to serve them in ways that aren’t practical or economic for your company.
• Distract you, causing you to veer away from your strategy and dilute your business plan.
• Purchase in such small quantities that the cost of doing business with them far outweighs any revenue that they generate.
• Require so much service and attention that you can’t focus your efforts on more valuable (and profitable) customers.
• Remain dissatisfied with what you do, despite all your best efforts.

You need to consider two things here: (a) how to identify the less-than-ideal customers, and (b) how to de-market them without giving yourself a black eye that could be embarrassing or worse. Start by closely examining your current book of business.

Divide the total head count of customers into fifths, and then for each of these five groups, calculate the average revenue per customer (and nothing magic about five; use a divisor that provides the best snapshot for your business). Now take a look at the results for the tail-end group (and be sure to consider the time that a customer has worked with you, as some start out small to evaluate what you’re supplying before stepping up the orders). Is the number for the bottom fifth considerably lower than for the other groups? Maybe your marketing and sales team is devoting a disproportionate amount of time chasing tiny returns — is it worth it? If there’s little, if any, prospect for customers in this group to up their sales, let go and redeploy resources to better prospects.

How you communicate the news to those you’ve cut off is critical, however. No one likes rejection. Be sure you manage the de-marketing plan with care and consideration, perhaps directing them to an alternative supplier.

To handle bad customers, follow these steps:

1.   First figure out who they are.

2a. Try to convert them into good customers if you can.

2b. If they can’t be prodded into increasing their purchase volume, then relegate them to a lower status by, for example, limiting their transactions with you to online-only or self-service.

2c. But if your best efforts still fail, wash your hands of them and move on.

A word of caution on the not-so-nice customer: You may think that some of your customers don’t reflect the demographic or image that you’ve worked so hard to create, so you take measures to exclude them from your markets. You delete advertising in certain media, use not-so-subtle hints that they aren’t welcome, or shut out or never enter certain geographic areas. This might seem prudent in the short term. But once again don’t make the mistake of thinking life doesn’t change. Perhaps today’s troublemaker is tomorrow’s big spender — people do reform; teenagers do finally mature! Moreover, in the world of instant communication via Instagram and other social media platforms, any bad move on your part can immediately go viral, probably accompanied by video, that forever besmirches your hard-won image and reputation. And it’s always out there in the wide world of the Internet. Lesson: Be careful what you wish for when you dismiss your “bad” customers.

Scoping out the other guy’s customers

You may think that when customers take their business elsewhere, it points to a failure on your part. On the contrary, these people present an opportunity. The fact that you haven’t been able to serve this group gives you a challenge: Finding out what your market really thinks is important. Your competitors’ customers tell you what you lack as a company. This information is extremely useful, especially when you work on the big picture in the early stages of business planning, defining who you are and who you want to serve.

Getting to know your competitors’ customers is often difficult but not impossible. Follow these tips down the road of discovery:

• Spend some time where customers gather. Use trade shows, user groups, and industry conferences to make informal contacts and begin a dialogue with your non-customers. And don’t forget that customer comment pages of vendor websites often are chock-full of valuable insights straight from the horse’s mouth — both positive and negative.
• Ask pointed questions of people who choose competing products, perhaps through a focus group (a structured get-together of a curated group of consumers, led by an external facilitator who isn’t perceived as biased or judgmental).
• Did they investigate what was available on the market? Are they even aware of you? If so, what are their impressions? What turns them off?

Listen to what these consumers have to say, even if it’s painful. Don’t get defensive if you hear negative things about your firm or its goods and services. Information about your customers is valuable, if not priceless.

It’s like having a customer service representative or department in your own firm. By encouraging customers to comment, you learn things that otherwise you might find out only after sales slide and a paid consultant investigates and reports on free information available in real-time if only you had created an accessible channel. (And don’t call it the “Complaint Department.” No one wants to work there, and most customers are put off by the term. And think about it: A customer complaint is in fact a plea for help — it’s free consulting. Are you listening?)

Understanding customer needs

Why do people buy things in the first place? Psychologist types tell us that needs fulfillment is really at the heart of all consumer behavior (see Figure 7-1). Everybody has needs and wants. When a customer discovers a need, it creates the motivation that drives human activity:

• Survival, at the most basic level, results in the universal need for food, shelter, and clothing. In the modern world, these basic needs support grocery stores, carpenters, and the garment industry.
• The urge for safety, security, and stability generates the need for seat belts in cars, funds in a financial institution account, and all kinds of insurance products and even home alarm systems.
• The desire for belonging and acceptance creates the need for designer-label duds, members-only clubs, and beauty-enhancing aids.
• The urge to be recognized and held in esteem establishes the need for expensive private universities, ever bigger homes, and award plaques and trophies (the latter of various kinds).
• The desire for self-achievement results in the need for adventure vacations, quiz shows, and web-based educational courses.

Consider an example of understanding customer needs: Ever notice those ads where a shapely young female is paraded out in a red bikini to show off the latest round of drills, hammers, and saws? Let’s be honest here, the idea of commoditizing a woman’s body in order to sell products is more than tacky. So those who wallow in this gutter are simply despicable oinkers? Perhaps. But why would otherwise upstanding firms indulge in such sexist behavior? Primarily because it works.

At the end of the day we humans are the top dogs in the animal kingdom, and like all creatures large and small, we have a powerful innate drive to procreate the species and outsmart the daily sources of destruction — survival of the fittest as Dr. Darwin said. The DIY tool-buying segment tends to be overwhelmingly male, and many are in their prime child-rearing years. They’re the target for brands like DeWalt and Craftsman found in Home Depot and Sears. But to get their attention amidst the barrage of shrieking advertising messages that bombard us almost everywhere we turn, something more alluring than a picture of a screwdriver is needed. Enter the hot model in the bikini. Psychology 101 — you figure out what primal instincts are aroused.

But why red? Because we humanoids respond visually to red and yellow more than other colors; they have the longest wavelengths on the visible spectrum. And if you can’t attract and engage the buyer in the first place, you won’t be able to sell them your product, be it computer games or garage tools.

We aren’t endorsing this approach to selling things. It’s like adding too much sugar to foods aimed at kids. But we’re showing you how a deeper understanding of human behavior can be useful in knowing how your market segment responds and what variables you can manipulate to pull the targeted buyers your way, rather than watch them hustle off somewhere else. So think about it. Maybe we aren’t simply random wanderers in an unpredictable world; perhaps there is a reason for everything. What really floats peoples’ boats? Sometimes you need to do a deeper dive beneath the waters to find out.

Determining customer motives

Motives are needs that have been awakened and activated (refer to Figure 7-1). They send people scurrying into the marketplace to search for products or services that can fulfill a particular need, although they aren’t always what they seem to be:

• Greeting-card companies, for example, don’t charge exorbitant prices just to sell cute little jingles (either online or in print). The prices are justified because they actually sell small insurance policies against their customers’ fear of feeling guilty. And perhaps that fear of guilt (over a missed birthday or anniversary) is really what propels buyers into the greeting-card market.
• Most people have a need to be accepted and liked by others, and they enjoy having a certain amount of status in the eyes of others. This powerful motivation creates great market opportunities for beauty shops, aerobics studios, luxury goods, and breath-mint companies.

Although motives obviously apply to individual consumers, they work equally well in the context of business or corporate behavior. When a business sends out a post to employees or brings in a facilitator to explain to the troops why diversity in the workplace is good and gender or other forms of discrimination are bad, what’s the motivation? We hope it’s because organizational leadership believes that this message is important and should be heard and understood by everyone at the firm. But there might be another motivation. If for some reason an employee believes they were the victim of such reprehensible behavior by a supervisor or colleague, the firm can claim that it did what was legally necessary to inform staff that this behavior was definitely unacceptable at the firm and contrary to policy. If there was, in fact, a breach of the law, then it was the fault of the involved individuals, so sue them; the firm itself should not be held liable. What was the real motivation for the firm’s nondiscrimination policies and training? You be the judge.

Realizing perceptions are reality

Customer perceptions represent the market’s worldview and include not only what your customers think of your products and services, but also how they see your company and view your competitors.

As customers turn to the marketplace, they confront a mind-boggling array of choices. Many variables influence your customers as they evaluate their alternatives: advertising, endorsements, reviews, and salesmanship, not to mention their own gut reactions. It’s been estimated that a typical urban or suburban American is exposed to between 4,000 and 10,000 advertising messages per day. Shopper paradise, or Dante’s inferno? You need to know how customers respond to all these stimuli if you ultimately want to earn and keep their business.

Have you ever wondered, for example, why men’s yellow sweaters are difficult to find or why women’s clothes in black are everywhere? Well, it’s not because your eyesight is failing: Market research consistently shows that a majority of men believe that the color yellow suggests weakness, and most women think black makes them look thin. Unfortunately, body shaming thrives in America.

Marketing types have long known a critical truth about people: Customers act on their perceptions of reality, not the reality itself. People buy goods and services based on what they perceive to be true, not necessarily on what you know to be the facts. To be successful in the marketplace, you have to develop a clear insight into customers’ perceptions, understanding how buyers react to products and services in your market before you complete your business plans — and be sure that you’re not inadvertently sending out contrary signals.

Setting in motion the five steps to adoption

The decision-making process (DMP) that buyers go through often involves a series of well-defined steps leading up to the adoption of a product or service. (In this case, of course, adoption refers to a newly formed relationship with that product or service — not a child or a pet. But we’re all for that, too, if it’s your desire.)

By understanding the five major steps we describe in Table 7-1, you’re better able to take advantage of customers’ behaviors and build strategies that help them complete the adoption process by choosing your product or service.

Suppose that you own a software company with a brand-new business-productivity program or app. You fear, however, that customers will be reluctant to give the program a try, if they assume the software is difficult to figure out or incompatible with their computer systems. (Keep in mind that people act on their perceptions of reality rather than on the reality itself!) To move potential customers past the evaluation step of the adoption process, your CTA (“call to action” on your website) may want to consider access to a trial version of the program (“Click here for a trial!”) — along with a simple purchase option after the trial period ends. Microsoft’s Office 365 offers this, as do thousands of others like the movie streaming site Hulu or digital music app Spotify. Some software makers have gone even further by sponsoring hands-on workshops to demonstrate their hopefully cool new programs, which gives potential buyers a chance to evaluate, try out, and get comfortable with the product — all before they buy it.

Filling secondhand demand

Demand for goods and services in B2B markets is almost always derived demand. In other words, businesses purchase only the goods and services that they can use to better serve their own customers.

Steel is typically a product that most all individual consumers buy — but never shop for. Own a home or a car, have some appliances in the kitchen or tools in the garage? You have steel. But what you shopped for and then actually bought was a product containing the metal. Same goes for microprocessors: They’re everywhere around you today — your phone, PC or laptop, in the car and other electronic devices. But your purchase of a semiconductor chip was an indirect one.

What are the implications for these derived demand product firms? If a steel maker cuts price across the board, for example, should it expect a huge increase in orders? Not necessarily. Steel users increase their purchases only if they think that they can sell more of their own product or service, and sales may be affected by many factors beyond the underlying price of steel. How many of us dashed out to buy a new Chrysler Jeep the last time US Steel (USX Corporation) reduced its steel prices by 10 percent?

If you offer products or services in the B2B market, make sure you think through what your planning decisions mean to business buyers. This means considering the customers of your business customers, too:

• Will a price reduction on your part result in increased sales for your business customers — and your company?
• Will your customers (and their customers) benefit if you offer them additional product features that raise costs but don’t add much value?
• Are your business customers looking for continuity and price stability so they can do adequate advance planning at their end?

Steel, as we note, is a classic commodity product. US Steel operated the nation’s largest steel mill in Gary, Indiana, near many of its industrial customers. But these users had other choices available to them, so price was critical, and profit margins were always squeezed. The mill’s general manager decided to try a different tactic: He instituted a new customer service policy. After an order was received and a delivery date set, then that’s when the order would be sent. The order would be fulfilled on time, in full, every time. If it wasn’t? The mill would pay a penalty to the customer. This proved to be a benefit that customers were willing to pay for, since their own production schedules and operations were highly dependent on having the steel order there precisely when needed. Higher sales were booked; more steel was rolled; capacity utilization went up (the key metric in a mill’s efficiency); and profits rose dramatically. The savvy general manager was promoted to HQ in Pittsburgh to oversee all steel operations for the firm (perhaps they read an early edition of this book).

Decision-making as a formal affair

Purchase decisions in the business-to-business marketplace tend to be more formal, rational, and professional than in most consumer markets. Many people from different parts of the target company may be involved in the decision-making process (DMP). One division in the company may recommend your product or service, another may acquire it, yet another may pay for it, and all the divisions do the work for a separate customer center that actually uses the product. Taken together, these groups form the decision-making unit (DMU).

Table 7-2 describes three ways in which a business DMU may behave when it thinks about buying a product or service. Businesses often change their buying behavior over time, so knowing where your business customers are in their DMP can help you plan when and how to make the sale.

Knowing the forces to be reckoned with

As you work with business customers, you have to deal with several powerful forces that you rarely encounter in consumer markets. It’s usually a waste to create a “warm and fuzzy” ad campaign that plays on the emotions of the buyers to persuade them to bite. If you want your B2B strategies to succeed over time, you must factor these forces into your business plans.

All the following activities take time and resources, of course, but your investment can be rewarded many times over when you incorporate what you discover about customers into your planning, be it for B2C or B2B segments. There’s an old saying among business planners, and it’s still true today: Customer-driven firms win, product-driven firms don’t.