Collecting customer information

People with the profile of your current customers are apt to become customers as well. That’s why target marketing starts with customer knowledge. Small businesses fall into two groups: those with customer databases and those that serve customers whose names and addresses they never capture. A medical clinic or auto repair shop falls into the first group. A sandwich shop or convenience store likely falls into the second group, although even those who don’t automatically collect customer names and information can use loyalty programs or contests to collect valuable customer data.

The more you know about current customers, the better prepared you are to target and reach more people just like them. Start by doing some research.

Geographics: Locating your market areas

Not all businesses are geographically constrained. Most Internet businesses aren’t; most restaurants are. If geography matters to your business, though, it’s an essential ingredient in arriving at your customer profile.

To target your market geographically, you need to ask, “Where am I most likely to find potential customers, and where am I most apt to inspire enough sales to offset my marketing investment?” To help you answer these questions, here’s some advice:

• Start with the addresses of your existing customers. Wherever you have a concentration of customers, you likely have a concentration of potential customers. Unless you already have sky-high market share, those are the areas where you should direct your advertising efforts.
• Search for trends. Google Trends (www.google.com/trends/explore) identifies search trends within a geographic area.
• Follow your inquiries. Inquiries are customers waiting to happen. They are consumers whose interest you’ve aroused and whose radar screens you’ve managed to transit. Your first objective should be to convert inquiry interest into buying action. Further, by finding out where inquiries are coming from, you may discover new geographic areas to target with future marketing efforts.
• Locate new customer prospects in your local market area. Identify people who match the profile of your current customers but who don’t yet buy from you. By discovering where these prospects live, you also discover areas for potential market expansion.
  • Contact media outlets that serve your business sector. Ask for information regarding geographic areas with a concentration of people who fit your customer profile. Advertising representatives are often willing to share information as a way to convince you of their ability to carry your marketing message to the right prospects.
  • Contact your industry association. Inquire about industry market analyses that detail geographic areas with concentrated interest in your offerings. If you can export your offering beyond your regional marketplace, you may discover national or international market opportunities that you otherwise wouldn’t have considered.

  • Visit your library reference desk. Study the SRDS Lifestyle Market Analyst, a rich source of market-by-market demographic and lifestyle information, and the CACI Sourcebook of ZIP Code Demographics, which details the population profiles of 150 U.S. zip codes and county areas. Through these resources, you can find and target areas that have a concentration of residents with lifestyle interests that match up with your target customer profile. Other good resources, often available at your public library, include the Merchant Nexus Database, D&B’s Million Dollar Database, Info USA, and Reference USA.

Each time you discover a geographic area with easy access to your business and with a concentration of residents who fit your buyer profile, add the region to your list of prospective geographic target markets.

Demographics: Collecting customer data

After you determine where your customers are, the next step is to define who they are so that you can target your marketing decisions directly toward people who fit your customer profile.

Trying to market to everyone is a budget-breaking proposition. Instead, narrow your customer definition by using demographic facts to zero in on exactly whom you serve by following these steps:

1. Use your own general impressions to define your customers in broad terms based on how you describe their age, education level, ethnicity, income, marital status, profession, sex, and household size.

   Answer these questions about your customers:

   • Are they mostly male or female?
   • Are they mostly children, teens, young adults, early retirees, or senior citizens?
   • Are they students, college grads, or PhDs?
   • What do they do — are they homemakers, teachers, young professionals, or doctors?
   • Are they mostly single, couples with no children at home, heads of families, grandparents, or recent empty nesters?
   • How would you describe their ethnicity and the languages they speak?
   • Based on your observations, how would you define their income levels?
   • When are they most in need of your service? A season, a month, a day, or a time of the week?

2. Break your market into subgroups, perhaps categorized by the kinds of products the customers usually purchase or the time of year they typically do business with you.

   A restaurant that analyzes its weekday lunchtime clientele and patrons of its dinner business may discover that the two time frames draw customers with dramatically different demographic profiles. For example, perhaps the lunchtime clientele is comprised mostly of businesspeople from the nearby area, whereas the dinner traffic is largely tourist families. This finding may lead to the development of two different and highly targeted promotions: a 5 minutes or it’s free lunch offer aimed at the nearby business community and promoted through the chamber of commerce newsletter and other low-cost, local business publications; and a Kids under 7 eat free offer aimed at tourists and promoted through hotel desk clerks and local visitor publications.

3. Verify your answers by asking your customers.

   Incorporate questions during inquiry and sales contacts by following the advice in the “Do-it-yourself fact-finding” section, earlier in this chapter.

As you collect demographic information about your customers, realize that people who fit the same factual description may vary widely in their purchasing patterns. That’s why it’s essential that you also understand customer lifestyles and buying behaviors, covered in the next section on psychographics.

Psychographics: Customer buying behaviors

Knowing where and who your customers are allows you to select the right communication vehicles to carry your marketing messages. As you decide what to say and how to present your message, you also want to find out as much as you can about the attitudes, beliefs, purchasing patterns, and behaviors of your customers. This information helps you create marketing messages that interest your prospects and motivate them to buy from you.

Viewing your sales by market segment

The best marketers aim promotions precisely at target audiences they believe have the interest and ability to purchase the featured product. Take these steps as you match segments of your market with the categories of your product line they’re most likely to want to purchase:

1. Break down your sales by product categories to gain a clear picture of the types of products you sell, the sales volume each category produces, and the type of customer each attracts.
2. Use your findings to determine which product categories offer the best potential growth opportunities and also to clarify which segments of your clientele are most likely to respond to marketing messages.
3. Weight your marketing expenditures and develop your marketing messages and media plans to achieve your targeted sales goals through promotions that appeal to clearly defined customer segments.

A furniture manufacturer may divide its products into office, dining, and children’s lines — each meeting the demands of a different market segment and even employing a different distribution and retailing strategy. The manufacturer would follow three separate marketing-communications strategies, placing primary emphasis (and budget allocation) on promoting the line most apt to deliver top sales volume over the upcoming period.

An accounting firm may sort its clientele both by type of service purchased and by client profile. It may target individual clients for tax-return business during the year’s first quarter, target high-net-worth clients for estate- and tax-planning right after the April 15 tax-filing deadline, and target business clients for strategic planning services in early fall, when those customers are thinking about their business plans for the upcoming year.

After you’re clear about which segments of your customer base are most apt to purchase which products, you’ll have the information you need to develop and communicate compelling promotions and offers. You may also discover clues to new-customer development. For example, studying sales patterns may lead to the finding that certain products or services provide a good point of customer entry to your business, arming you with valuable knowledge you can use in new-customer promotions.

Table 2-1 shows how a motel might categorize its market so that it can discover the travel tendencies of customers in each geographic market area and respond with appropriate promotional offers.

With detailed market knowledge, you can make market-sensitive decisions that lead to promotions tailored specifically to consumer patterns and demands. The following examples show how the motel featured in Table 2-1 can use its findings to make marketing decisions:

• Local market guests primarily stay for a single night and mostly during the holiday season, making them good targets for local year-end promotions. Additionally, 10 percent of local guests stay for six nights or longer, likely while undergoing household renovations or lifestyle changes. This long-stay business tends to occur during nonsummer periods when motel occupancy is low, so the motel may want to consider special offers to attract more of this low-season business.
• Half of statewide guests spend two nights per stay, although nearly a third spend three to six nights, which proves that the motel is capable of drawing statewide guests for longer stays. This information may lead to an add-a-day promotion.
• National and international guests account for approximately one-quarter of the motel’s business. Because these guests are a far-flung group, the cost of trying to reach them in their home market areas via advertising would be prohibitive. Instead, the motel managers might research how these guests found out about the motel. If they booked following advice from travel agents, tour group operators, or websites, the managers could cultivate those sources for more bookings. Or, if the guests made their decisions while driving through town, the motel may benefit from well-placed billboard ads and greater participation in travel apps and review sites that influence traveler behavior.

Conduct a similar analysis for your own business:

• How do your products break down into product lines? (See the later section, “Getting to Know Your Product: Seeing It through Your Customer’s Eyes” for more information about this important topic.)
• What kind of customer is the most prevalent buyer for each line?

Then put your knowledge to work. If one of your product lines attracts customers who are highly discerning and prestige-oriented, think twice about a strategy that relies on coupons, for example.

Matching customers with distribution channels

Distribution is the means by which you get your product to the customer. A good distribution system blends knowledge about your customer (see the first half of this chapter) with knowledge of how that person ended up with your product (that’s what distribution is about). It’s often a surprisingly roundabout route.

To demonstrate, take a look at how visitors might arrive at a local museum. Suppose that 50,000 visitors walk through the turnstiles every year. Suppose that 10,000 of those visitors are school groups, 5,000 are tour groups, 5,000 prepurchased tickets through local motels and hotels, 5,000 prepurchased tickets through the websites of the museum and the regional visitor bureau, 5,000 have tickets distributed by partner businesses as part of special promotional programs, and 20,000 are either museum members or independent visitors.

Based on these numbers, the museum is distributing its tickets through the following channels:

• Educators (possibly influenced by curriculum directors)
• Tour companies (possibly influenced by state or local travel bureaus)
• Lodging establishment front desks (probably influenced by hotel and motel marketing departments)
• The Internet (possibly influenced by state or local travel bureaus)
• Partner businesses (influenced by museum networking)
• The museum entrance gate (influenced by museum marketing efforts)

By allocating guest counts and revenues to each of the channels, the museum would arrive at the distribution analysis shown in Table 2-2. By studying the findings, the museum can determine which channels are most profitable and which are most likely to respond positively to increased marketing efforts.

You can create your own channel analysis, providing your business with information about how customers reach your business and the levels of sales activity that each channel generates. Put your findings to work by taking these steps:

1. Track sales changes by distribution channel.

   If one distribution channel starts declining radically, give that channel more marketing attention or enhance another channel to replace the revenue loss.

2. Compare percentage of sales to percentage of revenue from each channel.

   Channels that deliver lower-than-average income per unit should involve a lower-than-average marketing investment or deliver some alternative benefit to your business. For example, in the case of the museum in Table 2-2, the tickets distributed through partnering businesses deliver lower-than-average revenue and likely require a substantial marketing investment. Yet they have an alternative benefit — they introduce new people to the museum and therefore cultivate membership sales, donations, and word-of-mouth support.

3. Communicate with the decision makers in each distribution channel.

   When you know your channels, you know whom to contact with special promotional offers. For example, if school groups arrive at a museum because the museum is on an approved list at the state’s education office, that office is the decision point, and it’s where the museum would want to direct marketing efforts. If school groups arrive because art or history teachers make the choice, the museum would want to get information to those art or history teachers.

As part of your channel analysis, consider whether your business can reach and serve prospective customers through new distribution channels, whether that means introducing online sales, off-premise purchase locations, new promotional partnerships, or other means of reaching those who fit your target customer profile but who don’t currently buy from your business.

Catering to screen-connected customers

In addition to everything you find out about your customers — who they are, where they live, how they buy, and what they want — realize that one common denominator applies to all: They’re all influenced by the Internet.

Even if your customers are among the rare few who aren’t online, you can bet that their purchase decisions are affected by input from those who are.

Research shows that 89 percent of consumers find online channels trustworthy sources for product and service reviews, and an even greater percentage use online media before purchasing products, even in their local market area. Go to Book 2, Chapter 2 for information on preparing your business to connect with your customers online. It’s where they are, so it’s where your business needs to meet and interact with them.

When service is your product

If your business is among the great number of companies that sell services rather than three-dimensional or packaged goods, from here on when you see the word product, think service. In your case, service is your product.

Today, nearly 80 percent of all Americans work in service companies. Services — preparing tax returns, writing wills, creating websites, styling hair, or designing house plans, to name a few — aren’t things that you can hold in your hands. In fact, the difference between services and tangible products is that customers can see and touch the tangible product before making the purchase, whereas when they buy a service, they commit to the purchase before seeing the outcome of their decisions, relying heavily on their perception of the reputation of your business.

Your product is what Google says it is

Chances are great that before people contact you or your business directly they check you out online. Close to a hundred million names are searched on Google every day. Before buying products, visiting businesses, or meeting others, people look online to see which businesses dominate the first screens of their search results. You should too.

Customers also look online to see whether their search results turn up credible and trust-building information about your business, including links to positive and descriptive sites and, increasingly, Google +1 recommendations from people they know and regard highly.

See for yourself: Conduct searches for your business name, product name, product category, personal name, and keywords customers may use when seeking information about you and your business. Does your business appear prominently — with links to positive information — in search results for keywords customers are likely to be using? If so, pat yourself on the back and keep up the good work on your online identity. For search tips, check out the sidebar, “Tips for ego-surfers: Find out how you look online.”

Calculating the value formula

During the split second it takes for customers to rate your product’s value, they weigh a range of attributes:

• What does it cost?
• What is the quality?
• What features are included?
• Is it convenient?
• Is it reliable?
• Can they trust your expertise?
• How is the product supported?
• What guarantee, promise, or ongoing relationship can they count on?

These considerations start a mental juggling act, during which customers determine your offering’s value. If they decide that what you deliver is average, they’ll expect a low price to tip the deal in your favor. On the other hand, if they rank aspects of your offering well above those of competing options, they’ll likely be willing to pay a premium for the perceived value.

Customers match high prices with high demands. Remember the sign you used to see in print shops and auto repair garages? “Good, fast, and cheap — choose any two”? How times have changed. Today’s customers expect the companies they buy from to offer price, quality, and speed. But here’s the good news: They expect you to be competitive in all three areas but exemplary in only one. Here are some well-known examples:

• Costco = Price
• Nordstrom = Service
• 7-Eleven = Convenience
• FedEx = Reliability
• Apple = Quality

Riding the price/value teeter-totter

Price emphasizes the dollars spent. Price is what you get out of the deal. Value is what you deliver to customers. Value is what they care most about and what your communications should emphasize.

Evaluating your pricing

Give your prices an annual checkup. Here are factors to consider and questions to ask:

• Your price level: Compared to competitors’ offerings, how does your offering rank in terms of value and price? How easily can the customer find a substitute — or choose not to buy at all? (See Book 1, Chapter 3.)
• Your pricing structure: Do you include or charge extra for enhanced features or benefits? What promotions, discounts, rebates, or incentives do you offer? Do you offer quantity discounts? Does your pricing motivate desired customer behavior, for example by offering a discount on volume purchases, contract renewals, or other incentives that are factored into your pricing to reduce hesitation and inspire future purchases?
• Pricing timetable: How often do you change your pricing? How often do your competitors change their pricing? Do you anticipate competitive actions or market shifts that will affect your pricing? Do you expect your costs to affect your prices in the near future? Do you need to consider any looming market changes or buyer taste changes?

Raising prices

Customers either resist or barely register price hikes. Their reaction largely depends on how you announce the change. One of the worst approaches is to simply raise prices with a take-it-or-leave-it announcement. Far better is to include new pricing as part of a menu of pricing options, following these tips:

• Accompany price hikes with lower-priced alternatives. Examples include bulk-purchase prices, slow-hour or slow-season rates, and bundled product packages that provide a discount in return for the larger transaction.

• Announce a new range of products instead of simply high- and low-priced options. Research shows that, though customers often opt for the lower of two price levels, when three price levels are provided, they choose the mid-range or upper level rather than the least expensive.

• Give customers choices by unbundling all-inclusive products. By presenting product components and service agreements as self-standing offerings customers can self-tailor a lower-priced offering.
• Give advance notice of price increases. In service businesses, don’t make customers discover increases on their invoices. Allow them time to accommodate new pricing in their budgets. In retail businesses, give customers the opportunity to stock up before price hikes take effect.
• Believe in your pricing. Especially when you raise prices, be certain that your pricing is a fair reflection of your product’s cost and value. Then instill that belief throughout your business.

Presenting prices

The way you present prices can inspire your prospects — or confuse or underwhelm them. Use Table 2-4 and the following advice to show your prices in the most favorable light:

• Don’t let your price presentation get too complex. Table 2-4 presents examples for presenting prices in a straightforward, visually attractive manner that communicates clearly without misleading consumers.
• Do make the price compelling. In a world of outlet malls, online bargains, and warehouse stores, “10 percent off” isn’t considered a deal.
• Do support pricing announcements with positive benefits your product promises to deliver. Price alone is never reason enough to buy.

Enhancing the appeal of existing products

At least annually, small businesses need to assess whether their products still appeal to customers. When customers lose interest, a company needs to adjust features, services, pricing, or packaging — or make other changes to sustain or reignite buyer interest. Here are some of your options:

• Same product, new use: Start by looking for ways you can re-present the product to win new purchases by established and new customers.

  A historic example of re-presenting a product comes from Arm & Hammer baking soda. When consumers stopped baking, sales of baking soda tumbled. Arm & Hammer responded by reintroducing baking soda — this time not as a recipe ingredient but rather as a refrigerator deodorizer. Today, that repurposing has led Arm & Hammer into a role as a leading supplier of cleaning and household solutions.

• Same product, new promotional offer: Examine ways to update how you offer your product to customers, including new distribution, customer-responsive pricing, or new packages combining top-selling products with others your customers may not have tried.

  Be sure your new offer provides advantages that address customer wants and needs. Before you offer a new “deal,” be sure that you can say yes to the following question: Does this provide customers with a better, higher-value way to buy the product? For advice to follow, see the sidebar, “Innovation isn’t for the self-absorbed,” later in the chapter.

• Same product, new customer: Expand the market for existing products through low-risk, introductory trial offers or samples or through free seminars, guest lectures, or events that attract the kinds of people you target as customers and develop their interest in your offerings.

Raising a healthy product

Sales follow a predictable pattern as a product moves through the life cycle illustrated in Figure 2-2. The following descriptions explain the marketing steps and sales expectations that accompany each phase of the product’s life:

• Introductory phase: At the beginning of a product’s life cycle, you want to build awareness, interest, and market acceptance while working to change existing market purchase patterns. Use introductory offers to gain trial and drive sales to speed up your cost/investment recovery.

  Although prompting early sales through low pricing is tempting be careful, how you introduce a product determines how its image is established. If customers link the product with a low price, that first impression will stick and limit your ability to increase prices later. Better to set the price where it belongs relative to your product value and to gain sales through heavy start-up advertising and, if necessary, carefully crafted promotional offers.

• Growth phase: The product enters this phase after it’s adopted by the first 10 to 20 percent of the market, called the innovators or early adopters. The masses follow this pace-setting group, and when the masses start buying, growth takes off and competitors enter. Consider promotions and special offers to protect and build market share.
• Maturity: When the product reaches maturity, its sales are at their peak level, and sales growth starts to decline.
• Saturation phase: At this phase, the market is flooded with options. Sales come largely from replacement purchases. Use pricing offers and incentives to recruit new customers and win them from competitors.
• Declining phase: When the product reaches the point of deep sales decline, a business has only a few choices. One is to abandon the product in favor of new offerings, perhaps introducing phase-out pricing to hasten the cycle closure. Another is to let the product exist on its own with minor marketing support and, as a result, lowered sales expectations. Yet a third option is to reinvent the product’s usage, application, or distribution to gain appeal with a new market; it’s best to take this revitalizing step when a product reaches its maturity rather than after its appeal is in decline.

Developing new products

Whether it’s to seize a new market opportunity or to offset shrinking sales with replacement products, one of the most exciting aspects of business is introducing new products. It’s also one of the most treacherous because it involves betting your business resources on a new idea.

As you pursue product development, ask these questions:

• What current product can you significantly update or enhance to address changing customer wants and needs?
• What altogether new idea will satisfy currently unaddressed wants and needs of your customers and prospective customers?
• What market trend can you address with a new product?

Companies develop many new products to address fads that may or may not become lasting trends. Before capitalizing on a fad, consider these factors:

• Only a fraction of hot fads launch marketplace trends. Most come and go quickly, so have a plan to get in and get out of the market quickly if interest ebbs.
• Be sure you aren’t entering the market too late. Take a second to review Figure 2-2, the product life cycle. If other companies have already introduced offerings to address the fad, and if those products have already reached the saturation phase, then your new offering will have to come with pricing and other incentives to win business from the lineup of competitors already in the field.

Here are questions to ask during the research stage of product development:

• Is it unique? Is another business already producing it, and, if so, will your product be materially different — and better?
• Does it deliver customer value? If this is an upgrade of an existing product, how is it different in a way that matters to customers?
• Will it appeal to a growing market? What is its customer profile?
• Is it feasible? What will it cost to produce or deliver, and how much can you charge for it?
• Does it fit with your company image? Is it consistent with what people already believe about you, or does it require a leap of faith?
• Is it legal and safe? Does it conform to all laws? Does it infringe on any patents? Does it have safety concerns?
• Can you make and market it? Do you have the people and cash resources to back it? Can you get it to market? Do sales projections support the cost of development, introduction, and production?

As you study new product ideas, beware of the following:

• Features that don’t inspire your customer
• Features that don’t deliver clear customer benefit
• Product enhancements that don’t add significant product value
• “New” products that are really old products in some newfangled disguise that means nothing to customers
• Products that don’t fit within your expertise and reputation
• Products that address fads or trends that are already starting to wane

One last caution: If you’re introducing a product that’s the very first of its kind, budget sufficiently to achieve customer knowledge and a fast following. Otherwise you may lose the advantage to a competitor who arrives second but with a better offering and marketing effort. As proof, consider how AltaVista was eclipsed by Google or how MySpace was overtaken by Facebook.

Managing your product offerings

Product line management is less about what you’re selling than about what the market is buying. Keep your focus on your customers — on what they value — not just today, but tomorrow.

Make a list of products you sell and the revenue that each offering generates. Concentrate only on the end products you deliver. For example, a law office provides clerical services, but because those services are part of other products and aren’t the reason people do business with the attorneys in the first place, they shouldn’t show up on the firm’s product list.

To get you started, Table 2-5 shows products for a bookstore.

Follow these steps to prioritize and manage your product line:

• Sell more of what customers are buying. Study your list for surprises. You may find some products that are performing better than you realized. This knowledge will alert you to customer interests that you can ride to higher revenues. For example, nearly one-third of all revenues at the bookstore featured in Table 2-5 come from beverage/pastry and magazine sales (combined). This finding may support a decision to move the magazine display nearer to the cafe, giving each area a greater sense of space and bringing consumers of both offerings into nearer proximity (and therefore buying convenience).
• Promote products that you’ve hidden from your customers. You may have a product line that’s lagging simply because your customers aren’t aware of it. When the bookstore in Table 2-5 realized that only 3 percent of revenues were from sales of pens and writing supplies, the owners boosted the line by giving it a more prominent store location. The result? Sales increased. Had the line continued to lag, though, the owners were ready to replace it with one capable of drawing a greater response.
• Move fast-selling items out of prime retail positions. Give the spotlight to harder-to-sell offerings or give the slower-selling items visibility by placing them near top sellers. In the case of the bookstore in Table 2-5, moving a display of greeting cards closer to the popular pastry counter led to increased sales.
• Back your winners. Use your product analysis to track which lines are increasing or decreasing in sales and respond accordingly. If the bookstore in Table 2-5 is fighting a decline in book sales whereas sales of reading accessories and gifts are growing, the owners may decide to address the trend by adding lamps, bookends, and even reading glasses.
• Bet only on product lines that have adequate growth potential. Before committing to new product strategies, project your return on investment. For example, Table 2-5 shows that a little more than 3 percent of sales result from audiobook rentals. Doubling this business would increase annual revenues by only $18,500. Realizing this, the owners asked: What’s the likelihood of increasing this business — and at what cost? On the other hand, increasing cafe sales by 20 percent would realize $19,000 of additional revenue, which the owners determined was a safer marketing bet and a stronger strategic move.