Consumer purchasing cycle: Habit or conscious thought

I highly recommend any marketer charged with driving growth in consumable products or driving traffic in a specific channel, whether it is a website, app or storefront read Hooked by Nir Eyal.  Nir argues that Habit is quickly replacing classical marketing, especially in high frequency purchases.  The power of Habit works very well in technology based consumer actions, such as Facebook, Pinterest or Candy Crush, but it also works exceptionally well in regular purchases, for example, purchasing a morning cup of coffee.  Additionally, how much thought do you typically put into which market you are going to shop in this week or which station you will take your car to the next time it needs work?

Nir lays out a process for increasing the likelihood of creating Habits that reinforce your customer purchasing from you.  These are: 1.) Trigger, 2.) Action, 3.) Variable Reward and 4.) Investment.

Over the next several points, I’ll be talking about Nir’s process in more detail.

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Consumer buying behavior: Deliberate decisions or habits?

The consumer buying process, at least in Marketing academia, is a straight forward five step process: 1.) problem/need recognition, 2.) information research, 3.) evaluation of alternatives, 4.) purchase decision and, finally, 5.) post-purchase behavior but is the process really so rational?  Why would we, marketers, care?  Most of marketing is focused on targeting one or more these steps to encourage consumers through the process.  If the process doesn’t follow this process, then your marketing expenditure isn’t going to be effective.

Well if the buying process is not this well worn path, what else could it be?  Habit.  Humans are dominated by habit.  Habits are wonderfully effective tools your brain uses to efficiently move through the day and your habits can be beneficial or harmful, depending on the habit.

Try a little experiment.  Keep all of your personal receipts for one month.  Grab your check book, credit card statement, your Paypal account and anything else that you to purchase something over the last 30 days.  Put them all on a spreadsheet and then add a few columns, for example channel, store, brand, product, etc.  Which columns are most meaningful to you will depend on the segment you manage.  Mark those purchases that relate to the segments you manage.

For each purchase, fill in each  column whether that purchase was a habit, a thought through decision or a trapped decision (a monthly expenditure on a 2 year cellphone contract would be trapped).  For example, stopping into Starbucks on the way into work is likely a habit in any column you may put up.  Total up your purchases.  What percent of your purchases each month are made out of habit?  Was the habit the store you went to, the brand you picked, the exact product, etc.?

This throws a twist into marketing for many of us.  If your segment is heavily dependent on habit, whether in channel, store, brand, etc., then you customers’ buying process is no longer the classically defined process listed above and your marketing will have to change.

If Henry Ford asked customers what they wanted, they would have said a faster horse and other myths

Henry Ford supposedly said that if he listened to his customers he would have made faster horses.  There are a few things wrong with this quote.  It doesn’t appear to historically accurate.  OK, perhaps the quote is educational. . . . . well, not so much.  Let’s assume for a minute that one of the things customers said is, “I want a faster horse.”  Fair enough.  A competent market researcher would simplify that comment to, “Faster.”  What else might a pre-automobile customer have said?

“I spent too much time taking car of the horse even when I’m not traveling.”  Which could be said as, “No maintenance when not in use.”

“I don’t like getting wet when riding.” Which could also be, “Covered/enclosed compartment for traveler.”

“It takes too long to get the saddle and gear on the horse when I want to go somewhere.”  Which could be restated as, “No pre-travel time.”

The marketer now has a list of requirements:

“Faster.”; “No maintenance when not in use.”; “Covered/enclosed compartment for traveler.”; “No pre-travel time.”

Steve Jobs is said to not have listened to customers because he said, “It’s really hard to design products by focus groups because sometimes people don’t know what they want until you show it to them.”  Designing by focus groups is incredibly difficult but with a focus group Apple could have understood that before the nano that customers had limited music selection because of carrying all the tapes, it was difficult to carry a big selection and mixing music from different albums was a chore.  That would give the product developers a list of requirements to innovate toward.

Customer (Market) Segmentation

Customer segmentation, also called Market segmentation, is classifying your customers into different segments based on similarities or differences in their need.  To segment, you need to collect as much data as possible about how your customers are using your product, which features they value and where are they in relevant point in life statistics.

Relevant point in life statistics means understanding where customers of your product generally are in their life.  For example, if you are selling products to new mothers, the relevant point in life you are most interested in is that they just had a baby.  Additionally, you may consider segments as pregnant women, couples seeking adoption and new grandparents.

A simple example is a service that provides roofing to home owners.  In a town with 100,000 residents, there may only be 20,000 owner occupied residences.  That is one rather large segment.  Depending on the business, this segment can also be divided by neighborhood, considering that most homes within a neighborhood are not only of similar age but the owners are generally in similar income brackets.  Another large segment could be owners of rental homes.

Market Research and the role of the Marketing Manager

The Marketing Manager focuses the business on getting the right goods and services to the right people at the right place and time with the right price through the right combination of promotional activities.

In other words, the four P’s of marketing: Product, place, price and promotion.  If the Marketing Manager has absolute knowledge, aligning the company’s P’s with the customer’s needs is a very easy task.  Unfortunately, the four P’s are filled with uncertainty.  Uncertainty is why companies fail.

This is where marketing research comes in.  Through marketing research the Marketing Manager gains insights on the customer’s unsatisfied needs, when and where the customer will need the product or service, what the customer is willing to pay and the how the customer should be contacted.

Marketing research is all about understanding the customer.  Even researching competitors is about understanding how they are relating to their customers . . . . . and perhaps how you can steal their customers away.

Marketing research simply reduces the uncertainty inherent in the Marketing Manager’s role.  While it is impossible to completely remove uncertainty even improving decisions by as little as 10% can have a significant impact on the company’s profitability.  Imagine pricing your product at $60 instead of $50 with minimal loss in unit sales because you were able to better understand what your consumer was willing to pay.

The market is constantly changing.  Customers gain and lose interest.  Competitors move into and out the market.  Technology requires adjusts the customers needs.  This means the marketing research is a necessity at all times.  The Marketing Manager must continually gather new information and test old knowledge.

How do you know if there is a market for your product or service?

So the first question is, “Does a market exist?”  There are a number of ways to understand if a market even exists and get a rough idea of how big the market potential is for you.

The easiest first step is simply to google your idea.  Check the relevancy of results.  Are there competitors already providing your product or service.  Perhaps there are websites dedicated to enthusiasts already created.  Make a list of any relevant websites and run them through a traffic estimator such as WebCompanyInfo:  http://www.webcompanyinfo.com/pagestat.com.  Run a number of different relevant websites through the estimator.  This will not only tell you the number of people who are looking for something like your product or service, it can tell you important information such as key words and geographic concentration of searches.

Next, run a key word search estimator such as AdWords.  This is another simple tool for understanding the rough volume of people searching for content related to your product or service as well as for understanding related consumer needs.  Run a variety of closely and less closely related term through the search estimator.  Pull the list of related key words from the traffic estimator and run each of those separately through the search estimator.

Another important step is to research your competitors.  Here you are looking for several things.  First, how many competitors are there.  From your first two steps you will likely have discovered a number of different either direct or indirect competitors.  (What’s an indirect competitor?  An indirect competitor is something different than the product but still gets the job done or minimizes the need for the product.  For example, at Samsonite, I used to say that cardboard boxes and garbage bags were indirect competitors for luggage.  That would usually start an argument, at least an impassioned discussion until I traveled with a number of Samsonite executives.  I made them wait a long time at the luggage carousel and I pointed out each box and bag a traveller used instead of luggage.  That was a long time ago and I don’t think garbage bags are so acceptable to TSA anymore).  Wander through each of their websites, noting where it appears they are trying to draw the consumer’s attention.  How significant is your concept relative to their entire market.  If they have a “sort by popularity” feature, use it.  Run a number of different searches and then sort each of them by popularity to see which products their customers seem to value.  Go to your competitor’s stores.  Go anywhere where their product may be sold.  Notice what adjacencies your competitors have selected to be around your product.  Finally, run each of your competitors through a tool like www.manta.com.  Manta has estimates of the business size for most registered businesses.  While their estimates can be very wide, it will give you an idea of just how big your competitors are and your prior visits to their website and stores will give you an understanding of how important your concept is to each of them.

I haven’t forgotten the consumer.  You can run your concept through focus groups or a survey.  Even something as simple as asking your current customers related questions during their shopping experience.  You may chose to not ask the customers directly if your product is sensitive or will take you a long time to develop but you will be able to ask related questions.

Of course, there is an easier way.  Instead of developing a concept and then seeing of their is a market, work with your customers to understand their unmet needs and then develop a concept to service that need.  Seeking unmet needs should be part of your customer service.  It isn’t good enough to simply satisfy their current need.  Investigate what more you can do to make your customers’ lives easier at all times.

Top Five Tips To Effective Surveys

  • 1.) Have a specific objective
  • 2.) Do your homework
  • 3.) Survey your target customers
  • 4.) Run a sample test
  • 5.) Be open to the survey results

Have a specific objective

Clear and concise objectives lead to straight forward unambiguous surveys.  Evaluate all questions against the objective.  If a question does not fit the objective, it doesn’t belong in the survey.

Do your homework

Before you do a survey, understand all that is already known.  Have past surveys addressed similar objectives?  What does other data already available tell you?

Survey your target customers

Survey the segment of people you want to learn about.  If you are offering a service to renters, home owner opinions will not help you.  They may even lead you astray.  In certain situations, it may be helpful to see how your target customers’ opinions vary from the population in general.  If that is your situation, survey a larger population but be sure to be able to segment your target customers in the analysis.

Run a sample test

It is impossible to foresee exactly how people will respond to every question.  The best way to see if their responses are helpful is to run a small test or two.  First have a small group of your internal team take the survey to work out any obvious kinks.  Then run your survey through a small section of your target audience.  Perhaps 10% of your list or even just 100 people.

Be open to the survey results

It is easy to try to use the survey results to support your predetermined position.  Don’t.  Be open.  Listen to your respondents.  Analyze their responses without judgement.

5 Stages of Customer Buying Decision

1.) Realization of need – First the consumer my realize that they “need” an item or service. The realization may happen slowly over time, e.g. the realization that the customer needs a new home, or very quickly, e.g. the realization of a need for Chapstick at the cash register at CVS. The marketer must understand how their targeted consumer segments come to this realization and plan accordingly.

2.) Research – Customers then research which products or services may satisfy their need. They get their information from everything from advertisements, company websites, family and friends, sales people and product packaging. Increasingly powerful source of information is social media and peer review sites. Research may be a large part of the purchasing decision, e.g. a customer purchasing a home will do a lot of their own research and often bring in a real estate agent to find the right match. Or the research process may be as quick as seeing the Chapstick at the cash wrap and realizing they have dry lips.

3.) Evaluation – After the customer has identified a number of options that may satisfy their need, the customer will select the best option for them based on a number of criteria, i.e. price, quality, convenience, brand, reliability, etc.

4.) Purchase – The customer then purchases the product but must still decide which channel (online, retail, catalog, etc) and which specific provider.

5.) Satisfaction – Once the customer has purchased the product or service the customer may realize the purchase was satisfactory or not. This realization will help determine if the customer becomes a positive or negative influence for potential future customers as well as determine if this customer will be a repeat consumer.

Top 20 Global Marketing & Communications Mistakes

Top 20 Global Marketing & Communications Mistakes.

 

This is really just one mistake made over and over again, i.e. companies not understanding their customers.  A company must not only understand the need the customer wants to fulfill but also understand any cultural and language information that relates.

How do you know what your customers what?

Understanding what the customers want is incredibly important to running a successful business.  It allows you to invest in areas the customer values (and would be willing to pay for) while cutting investment in items/features that the customer doesn’t value (and would NOT be interested in paying for).  So how do you know what the customer wants?

While there are many ways and I encourage you to use several of them, one of the basic methods is to look at the data you already have.  If you are able to track purchases at the customer level, you have an incredible amount of power in understanding customer behavior at your fingertips.  One great way to understand different segments of your business is to create a Customer Preference to Purchase chart.  Group your customers based on their average purchase frequency and average purchase value.  Then for each group, list where the top 50% of sales are coming from (or profit if you have widely varying margins).  Group your products/services at different levels to see what differences come up.  I created one for a made-up burger joint below.  Basically, both the average customer (box in the middle) and the high value customers (box on top right) are burger and fries customers.  The high frequency but low average purchase customers (bottom right) basically just stop in for coffee in the morning.  Note that at this level I didn’t separate out my single patty from the double or triple patty.  Drilling down to that level may help important depending on what you are trying to accomplish.

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Another useful way to populate the boxes is to look at how this segment differs from the norm.  It can be as simple as comparing the percent of business a given product category does for your customer segment vs. what it does in total.  For example, dessert may be 20% of the high frequency/high purchase value but only 5% of your total business.  This means that high frequency/high purchase value customers are four times as likely to buy a dessert.