marketresearch

How to avoid unprofitable customers

Not all customers are profitable to a business. There are those who only ever buy products at a discount. There are customers who return products repeatedly. And those who utilize customer service disproportionately. (It turns out the customer isn’t always right!) Even though it goes against our instincts, there are customers that companies should not want – they should either be “fired” or, better yet, never become customers in the first place.

Some examples:

  • Years ago, Best Buy classified its customers as “angels” or “devils.” According to The Wall Street Journal, “The devils are its worst customers. They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts.” They changed their policies to make them less vulnerable to exploitation, adding a 15% restocking fee and selling restocked goods over the Internet instead of in-store.
  • Hubspot had two main customer segments: people who run small businesses (1-10 employees) whom they called “Ollie Owner,” and marketers at companies with 10-1000 employees (“Mary Marketer”). At a certain point, the company realized that the Mary Marketers were much more loyal and profitable then Ollie Owners. They didn’t “fire” their Ollie Owner customers, but rather, focused their marketing and service efforts on pleasing Mary Marketers.

How can your company avoid unprofitable customers?

  • Analyze existing data to identify and focus on customer groups that are likely to be profitable. Consider behavioral segmentation, looking at purchase recency, frequency and value, as well as customer lifetime value.
  • Approach discounting with care, looking for ways to incentivize good customers rather than encouraging unprofitable ones. One option: make discounts part of a loyalty program.
  • Develop personas for both profitable and unprofitable customers. Those “negative” personas can help guide marketing and product offerings, making sure you appeal to the good customers and not the unprofitable ones.
  • Pamper your high-value customers. Provide an amazing customer experience to your most profitable customers. Consider having explicit customer tiers like airlines do with frequent flyer status – those who are most profitable can unlock extra bonuses and services.
  • For some companies, it may make sense to screen customers and/or have minimum purchase levels.

Let’s discuss how to find your most profitable customers. Email me at info at bureauwest.com.

Sources: “Case study: how audience-driven products built a unicorn,” GTMonday, 3/4/24; “Best Buy hopes to exorcize devil patrons,” Ars Technica, 11/8/04

Posted on by Jay Zaltzman

Beyond research: empathy

I was recently talking to my friend and colleague Rob Volpe, CEO of Ignite 360 and author of the book Tell Me More About That: Solving the Empathy Crisis One Conversation at a Time. We were discussing a recent presentation he gave about how empathy influences buyer behavior. Spoiler alert: empathy has always been required to conduct market research well and to create effective marketing. But with the pressures we all face, clients can sometimes forget that, and it can be worth reiterating the benefits of utilizing empathy in our work:

  • Empathy allows marketers to deeply understand the needs, desires, and pain points of their target audience. This understanding helps in creating products, services, and marketing messages that truly resonate with customers.
  • Empathetic marketing builds trust because it shows customers that brands genuinely care about their concerns and well-being. This trust leads to stronger customer relationships and loyalty over time.
  • Empathy enables brands to create emotional connections with customers. They are more likely to choose a brand that makes them feel understood and valued.
  • Empathy can influence purchase decisions by addressing emotional triggers and motivations effectively. Brands that connect on an emotional level through empathy are more likely to influence customers to choose their products or services.

How can we infuse empathy in our market research and our marketing?

Start with overall mindset. When conducting research, we should go beyond seeing answers to questions such as “how do you choose which product to buy?” and strive to understand customers’ overall lives. This means:

  • Taking the time to build rapport with participants.
  • Asking open-ended questions that invite detailed responses.
  • Reflecting back answers to show participants we understand.

Most of us would call the above “conducting research the right way!” But when time and cost pressures come to bear, it can be worth reminding our clients of the benefit of conducting truly empathetic research.

Let’s discuss how to infuse empathy into your research. Email me at info at bureauwest.com.

Sources: Tell Me More About That: Solving the Empathy Crisis One Conversation at a Time, Rob Volpe, 2022; Rob Volpe

Posted on by Jay Zaltzman

Using ethnography to get at the truth

One of the biggest challenges in market research is making sure people are telling us the truth. Beyond intentional lying, people frequently don’t realize they’re not telling the truth. For example, people think they always make decisions based on logic only (and they don’t). And they over-estimate how “virtuous” they will be, whether it comes to eating or saving or variety of other activities.

 We have a variety of ways to get around that problem. One favorite: asking people what other people think or say or do – not them. Another is ethnographic research: observing people’s behavior in real life, whether at home or at work or while shopping. This type of research helps us learn more about customers and prospects: we get to see what they really do, including the things that contradict what they say they do. And we can more fully understand the context of how our product or service fits into their lives.

There are many examples of how ethnographic research has helped companies:

  • IKEA combines home visits with qualitative interviews and quantitative surveys to develop their Life at Home report which helps inform product development and communication strategy.
  • Google researchers observed how people navigate unfamiliar areas to inform the intuitive design of Google Maps.
  • The dripless cap was invented after researchers saw people had a roll of paper towels next to their detergent containers and learned it was there to clean up the drips that always happened.

While ethnography can clearly help with product development, note the IKEA example above: their in-home research also provides a deeper understanding of their customers and their needs, which can help develop more effective marketing strategy.

One problem with ethnography: the “observer effect.” People may change their behavior because they know they’re being observed. That’s why I advocate combining qualitative interviewing with ethnographic research. As a researcher, rather than remaining silent and telling people to do what they normally do, I have a conversation with them so they can be more comfortable and not feel judged.

For example, when I was conducting in-home and in-store research about how parents buy food for their children, I noticed one mom who talked about buying healthy food… but I saw a lot of junk food in the pantry!Mom must have known we could see that, so rather than ignoring it, I gently probed “you know, many of the people we talk to mention the desire to eat healthy, but they still have a lot of snacks like these. Tell me about that.” My comment about the other people we talked to enabled mom to not feel judged and then we could talk about the trade-offs between healthy and unhealthy snacks, which was very valuable to our client as they developed messaging and packaging for their products.

Let’s discuss how to find out what truly motivates your customers. Email me at info at bureauwest.com.

Sources: “Companies That Use Ethnographic Research: Success Stories,” Insight7; “IKEA Life at Home,” IKEA; Bureau West research

Posted on by Jay Zaltzman

Getting inside customers’ brains

I was just listening to a podcast from Hidden Brain about how habituation impacts our enjoyment and engagement with things in our lives. Habituation is the brain’s tendency to tune out or discount the familiar and favor the new. For example, research has found that travelers experience the most joy during the first two days at a vacation spot. They might still enjoy themselves on the following days, just not as much as they did when the experience was brand new.

It occurred to me that companies can utilize an understanding of habituation to market more effectively and to also improve the customer experience, to get customers to keep coming back and even recommend the company to their friends.

Make marketing more effective by combatting habituation:

  • Vary marketing messages. Tell stories. Use humor. Tug at heartstrings. Find fresh angles to present your core value proposition. This will increase interest from prospects and may also provide existing customers with new reasons to love your brand.
  • Use a mix of content formats. Different formats keep your audience on their toes, eager for the next surprise. Consider a quirky video one week and an intriguing infographic next. That kind of variety can reignite interest and keep your brand top of mind.

Overcome habituation for better customer experience:

  • Feedback and innovation. Keep learning about your customers. What delighted them yesterday might not work tomorrow. By staying ahead of the curve, you’ll ensure your marketing and customer experience remain fresh, engaging, and effective.
  • Consider personalization. Personalized emails, tailored recommendations, and bespoke offers make your customers feel seen and valued. This individual attention reduces the risk of habituation because each interaction feels unique and relevant.
  • Surprise your customers. Incorporating unexpected rewards or gestures can significantly enhance the customer experience. Surprise discounts or little freebies with a purchase are moments that stick with customers, breaking the routine and creating positive associations with your brand.

Let’s discuss how to keep your brand fresh in customers’ minds. Email me at info at bureauwest.com.

Sources: “Making the World Sparkle Again,” Hidden Brain, 6/24/24; “Stop Habituation with Learning Code 4,” LinkedIn, 6/21/24; “The big idea: this simple behavioural trick can help you get more out of life,” The Guardian, 2/19/24

Posted on by Jay Zaltzman