Consider this: I’m a 51-year-old, married, white male with a master’s degree. I have two kids who are in their late teens/early 20’s, I enjoy an above average household income and live in the 99201 ZIP code in downtown Spokane.
Knowing that information, what kind of car do I drive?
If you find yourself shrugging your shoulders, you’re in good company. A lot of businesses go to great lengths (and expense) to gather the above data. But when it comes to marketing a particular product or service, is that type of demographic information actually useful?
Let’s try this again. What if you know that my wife and I enjoy snowshoeing and my kids both enjoy downhill skiing? We also like to go on a few camping trips during the summer months, but when puttering around for work and errands, we like to have a fuel-efficient vehicle for getting around town.
Knowing that information, what kind of car do I drive?
Even without any demographic information, you’re probably able to come up with a much narrower range of likely car choices. I need something that will get around well in the snow (probably landing me in the all-wheel drive camp). I need something that will easily handle some camping gear (probably taking me out of the sedan camp). I need something that can easily seat four (probably taking me out of the small pickup truck camp) and something that gets decent mileage (probably taking me out of the large pickup truck camp). Anyone imagining a Toyota Rav4 Hybrid at this point? If so, you’d be spot on.
Understanding your customers is important. Many businesses still use traditional demographic segmentation approaches to try to understand their customers (which means grouping folks by age, gender, income, and so on), and this can be useful. But by exclusively focusing on demographic information, it often misses the deeper reasons why people buy things. A potentially more effective way to understand your customer is by looking at their needs or the problems they want to solve. Here’s a lineup of reasons why I think that focusing on customer needs – rather than demographics – can be more effective.
Better Customer Understanding
Segmenting by need helps businesses understand their customers on a deeper level. Demographics can give you a good picture of [ital]who[end ital] your customers are, while needs-based segmentation explains [ital]why[end ital] they buy things. For example, two people from vastly different age and/or income groups might both want a vehicle that safely gets them to and from 49 Degrees North, or Mount Spokane, or Schweitzer. By focusing on these shared needs, businesses can create products that meet their customers’ desires.
Improved Product Development
When businesses know what their customers need, they can create better products. This leads to happier customers who are more likely to stay loyal. For example, if a company knows its customers want vehicles that score well in the miles-per-gallon ratings, it can develop options that appeal to these values. This ensures that time, money, and effort are spent on making products that your target audience actually wants.
More Effective Marketing
Marketing becomes much more powerful and easier when it speaks directly to what customers need. For example, an auto company targeting customers who like to go camping can emphasize the roof racks and towing capacity of its products. This kind of targeted messaging is more likely to grab attention and lead to sales because customers feel like the company understands them.
Increased Customer Loyalty
Needs-based segmentation builds a stronger connection between the customer and the brand because it shows that the company actually thinks about solving their problems. This connection often leads to long-term loyalty and repeat business.
Competitive Advantage
In a world of nearly endless options, standing out can be tough. Needs-based segmentation gives businesses an edge by allowing them to offer personalized solutions. Companies that excel at identifying and meeting specific customer needs can create unique products and services that are hard for competitors to match. This is especially important in markets where demographic segmentation doesn’t provide enough differentiation. When you look around and see all age ranges and broad swaths of incomes represented on the ski slopes or campgrounds, that’s a flashing warning light that segmenting by demographic filters is going to be a losing proposition.
While demographic segmentation has its time and place, especially [ital]after[end ital] you’ve determined the need or problem that your business is solving, focusing on customers’ needs or problems can offer many more insights than what can be determined by surface-level demographic data points.
So … if demographic data isn’t entirely helpful, the question is this: how do you figure out what your customers’ needs are? Stay tuned and we’ll dive into that next month!
