Will the Real Customer Please Stand Up?


In the days before social networks existed, people in chat rooms would often ask each other "a/s/l?" to find out who they were talking to. Today, social networks ask users to provide information on everything from hobbies to favorite sports teams to memorable quotes so other members can see who they're connecting with.

A similar evolution is taking place in marketing. For years companies targeted potential customers based on such demographic basics as age, gender, and zip code. That information is still immensely valuable, but is no longer enough. To keep pace with the growing emphasis consumers place on the relevance of companies' communication with them at every touchpoint, savvy companies increasingly are looking deeper into customers' personas-and then using micro-segmentation, behavioral or transactional targeting, and online data gathering to develop a more comprehensive understanding of who their customers are and how to better serve them.

"The purpose of marketing is to harvest cash flows by changing customer behavior," says Don Peppers, cofounder of Peppers & Rogers Group. "To do that you have to motivate them to do something, and understanding how to [do so] involves knowing what your customers' needs are, in a deeply human sense."

But most customers need something as unique as they are. So, how do you determine those needs and then offer a product or service in the most relevant manner? That requires knowing more than just traditional demographic data about your customers, Peppers says.

Take for example the following person: someone who enjoys golf, tennis, and bowling; plays Guitar Hero and World of Warcraft; has seen a baseball game in eight different cities and been to six different amusement parks in the past three years; visits a casino about once a month; watches Hardball, The Daily Show, and The Colbert Report every night; commutes to work 90 minutes each way from his/her parents' house in a 2007 Saturn Ion; subscribes to Newsweek, BusinessWeek, and Sports Illustrated; and reads books about politics, sports, and philosophy for fun.

Any guess what our mystery customer's gender and age are, where that person resides, or what he/she does for a living? Anyone who knows me can tell you the answers: male, 22, Connecticut, and Assistant Editor at 1to1 Media. If those four facts were the only things marketers knew about me, what are the chances I'd receive relevant information about their product? Throw in just a handful of the 20 other details I provided and those chances increase dramatically.

"Essentially what people are doing is not moving away from demographics, but combining it with behavioral data and better information," says Specific Media CEO Tim Vanderhook. "We've come a long way seeing who customers are and having a more holistic view. We didn't have today's accuracy before, which led to a large chunk of waste by trying to appeal to a general audience."

Just how far marketers have come depends which company you're talking about, but the mainstream is moving toward using nontraditional data and data-gathering methods. "Many people have had issues in the past with where to house data, storing it in silos or not having enough capacity," says Regina Gray, vice president of scoring and analytics for Experian's Decision Sciences Group. "[Today] many companies have attitudinal and behavioral data on their customers, but don't know how to make it actionable. They all want to make sure assets are pulled together so customers know they understand the multichannel relationship."

How companies implement changes to take advantage of the wealth of information available about customers varies according to industry, needs, and goals. Using micro-segmentation, behavioral targeting, and online data gathering, interactions based on customer insight have come a long way. Here are three ways of using, finding, and acting on customer information that wouldn't have been possible 20 years ago.

Online communities provide targeted insight

Where besides cyberspace can you assemble a huge group of consumers willing to interact and share information in ways they never would in person? Companies are now realizing that if they attract customers online and give them something of value, they'll respond to ads, offer feedback, promote a brand, and provide information about themselves in return.

"People are more honest and they have their guard down online," says Jeff Hilimire, CEO of SpunLogic. "The feedback is more real, people don't hide who they are like in traditional researching, and they're more likely to promote products to their friends because it's as easy as a few clicks."

Pet food maker Del Monte and Sepracor, the creator of sleep aid Lunesta, are two examples of companies using online audiences in very different ways to meet the same goal of learning more about who uses their products.

Del Monte wanted to understand the relationship between what they call "pet parents" and their dogs, so the company created an online community called Pets are People Too for research purposes. "We wanted to go deeper from an emotional standpoint with our customers," says Gala Amoroso, senior consumer insight manager. "We needed a bigger picture of the relationship between pets and owners other than just what they do at feeding time." Customers in the "pet parents" group consider more than price and availability in choosing what to feed their dogs, and Del Monte sought to learn those motivators.

Del Monte worked with MarketTools to select the appropriate consumers to survey from a customer panel of 8,000 people the two companies had jointly created for past research. Using MarketTools' Insight Networks, 400 of those panel members were invited into an exclusive community based on how they described their relationship with their dogs. About half visit the site at least once a week, where they can enter contests, upload photos, talk about dog shows, share their buying habits, and comment on new product ideas. The site is intentionally lacking any Del Monte product branding so customers remain objective in their assessments. At least two marketing plan changes came from insight the community provided.

"We were told by the people on the site that our Snausages Breakfast Bites packaging should point out the health benefits of the product," Amoroso says. "We also used the frustrations people had with traveling with their pets to shape our pup-friendly campaign." Del Monte learned that people want to do everything from attending a ballgame to staying at a resort with their dogs, which led to, among other things, "Pup-Night" at Pittsburgh's PNC Park as part of the company's "quest to make the world more dog-friendly."

Del Monte made the decision not to promote its products on the site, but that wasn't the case for the makers of Lunesta. Increased sales of the sleep aid were among the goals of creating an informational site to find and gain insight on potential customers. Using a poll created by Prospectiv, Lunesta asked visitors to a landing site how they slept the night before. Depending on the answer, they were asked additional questions or asked if they wanted information about Lunesta.

"Sometimes targeting customers doesn't always get you who you want," says Prospectiv CEO Jere Doyle. "You can learn a lot from letting them drive the segmentation."

As a result of the information Lunesta gathered on its site, the company stopped using direct mail and saw the value of arming customers with more information before they visit a doctor. Doyle emphasizes that, although Lunesta did increase sales, the true success of that growth was based on providing online content that supplements the brand-that is, giving customers information they could use to help them sleep better.

Smaller segments yield bigger results

The online channel is an excellent source of customers who companies can learn enough about to speak to individually. Micro-segmentation (focusing on smaller groups of customers based on a single commonality) came out of increased storage capacity for data, more computing power to process multiple variables, and the ability to personalize marketing messages through direct mail or email. Speaking to people in much smaller groups gives them the individual attention they want and allows for a custom message which, when designed correctly, increases the chances a lead will turn into a customer.

One company that benefits from personalizing messages for a handful of customers at a time is Digital Insight. The custom content provider, recently acquired by Intuit, creates personalized marketing campaigns for credit unions and small banks that can't compete with the budgets of such behemoths as Wachovia, Bank of America, and Chase. To accomplish that, Digital Insight customizes messages for 2,000 different financial institutions whose customers have little in common.

"The ability to customize on this level is revolutionary in terms of these small banks having access to this kind of technology," says Diane Stuckey, vice president, database marketing. "The major changes in computing power mean we've shifted from mass marketing on our schedule to personalizing messages on the customers' schedules."
Using ClickTactics to create interchangeable parts in their marketing messages, Digital Insight can accommodate five age segments, 11 message themes (from environmentally conscious to patriotic), and deliver communications via the customers' preferred channel. Because of constantly updated transactional and preference data, the banks can also monitor their customers' financial state to immediately detect risk of defection. For example, if they begin paying fewer bills per month online that may indicate they've opened an account elsewhere or have experienced an income decline.

Sometimes segmenting customers down to individual traits isn't enough, especially when location is the most important difference between a company and its competition. Adding insight beyond demographics improves the chances of boosting response rates. For example, one cleaning service that used to advertise in the yellow pages and sent direct mail to customers who earned more than $100,000 per year was able to target further based on home value, length of home ownership, and the presence of children and pets instead.

"Head to head in a test against the old way of doing things, they had a 46 percent increase in response rate," says Genalytics CEO Ray Kingman. "Two hundred franchisees shifted their ad dollars away from the yellow pages and into very targeted direct marketing." The company saw a 105 percent increase in ROI as a result.

Finding customers by how they behave, not who they are

Behavioral marketing, transactional marketing, attitudinal marketing. They all revolve around observing the customer, and can be highly valuable even when the information can't be used to identify a specific person. "Companies [should] build opportunities into a program to interact with customers to enrich the understanding of their ultimate needs," Peppers says. "Whether they prefer more choices, how they want to be contacted; those are the types of things in a behavioral database that are very helpful."

One place this insight is useful is in TV advertising. Like many companies, some local Ford dealerships advertise on television trying to reach as many people in a zip code as possible with network and cable ad buys. Aside from asking everyone who comes in if they saw the ads, there was no way for the dealers to know if they were reaching the right people. As a result, many of the dealers in the Northeast are using Navic's Admira product via cable and satellite providers to target viewers and offer interactive advertising. Admira measures impressions via set-top box information, and allows viewers to opt in for information about Ford and other sponsors via their remote control.

"Back when television was appointment-based, it was effective to buy a time slot and know the demographics of who you were getting," says John Hoctor, vice president of business development and marketing. "Today with TiVo taking away viewers...that's no longer the case."
Instead of buying a 30-second spot during Monday Night Football, for example, Navic tracks who watches Monday Night Football and then targets those consumers at various times of the day, billing by impression rather than by the time the ad was shown. After a viewer has responded to one type of ad, he can be targeted by companies seeking a similar customer base. The metrics for interactive television advertising are very similar to online metrics, with clicks or leads as the goal.

Ford and other car companies that employ such a model ask customers to select what kind of car they might be interested in during commercials, then follow up on the lead with direct mail and sales calls. The immediate results also allow them to refine target groups to increase the likelihood of responses.

Tracking behaviors online and serving up relevant advertising focuses on customer needs instead of customer traits. US Appliance, an online retailer offering more than 7,000 products, needed a way to help customers sort through everything available without individual sales calls. "I didn't want to just sell everyone the same items," says founder Joe Nashif. "I wanted to show them what was popular and they might like, and then have the functionality of cross-selling without having to use more salespeople."

The company added recommendations and "most popular" features to the site using software from Baynote. Now when customers look for a product, the search automatically narrows down their selection based on what they've said they prefer and what other customers have purchased. The software doesn't recognize a trend unless at least seven people choose the same thing, so there are few obscure recommendations. As a result, conversion rates improved in the double digits and customer service receives fewer calls. "The ability to keep customers from having to search through pages and pages of products is especially helpful in our market because there are just so many choices," Nashif says. "We want to make it easy for our customers to become educated and make relevant comparisons when making decisions."

Not every source of customer insight will be right for every company. The most likely answer is that some combination of behavioral targeting, micro-segmentation, and online data gathering will yield the highest results. No matter how you collect, analyze, and act on customer information, the most important thing to remember is that building a relationship is still important. If increasing sales is the only reason you want to learn more about the people who use your products or services, the effort will fail.

"If you want to learn about customers' needs and desires to serve them better and bring them value, you'll sell more stuff, but the overall objective has to be building value," Peppers & Rogers Group's Peppers says. "That's the first and last question you have to ask with any of these activities."