Using a 3-D View of Customers to
Drive Profitable Growth
By Ron Langford and Matt Hammerstein
To find profitable growth opportunities in an increasingly competitive marketplace, many companies are trying to deepen their under standing of existing and potential customers.
They have the right idea, but most go about it the wrong way. Either they rely too much on attitudinal information or – if they also look at customer behavior and economics – make little attempt to combine the three types of information. The result is an incomplete and often misleading view of how to manage growth investments.
This article introduces a more comprehensive approach to generating insights about customers that can improve any organization’s ability to drive profitable, customer-focused growth. The approach, known as "3-D customer insight," provides fact-based answers to the following critical questions:
- What customers and customer segments should we focus on (and not focus on)?
- What new products should we introduce, and to which customers and customer segments should they be introduced?
- How can we best extend our offer into adjacent markets
- How can we most profitably differentiate our offer from the competition?
- Where and how can we get the biggest bang from our growth investments (e.g., marketing spend)?
- What is the best pricing strategy?
Actions Speak Louder Than Words
Customers are notoriously hard to figure out. They say one thing, then do another; they are unclear about which product attributes they value; and different customers often respond differently to the same offer and the same marketing messages.
For example, in a recent survey for a global energy client, we polled around 3,000 customers in one regional market on what they valued most about their preferred gas (petrol) station. Respondents indicated that cleanliness was a high priority. But when we analyzed actual switching behaviors (i.e., purchasing patterns characterized by a change from one brand or product to another), it was clear that customers were indifferent between stations that exceeded a minimum level of cleanliness (and all did). In this way, the survey showed how stated preferences can conflict with attributes that actually influence behavior.
Similarly, customers often find it hard to make trade-offs between multiple product attributes when presented with a list. They are notoriously capricious when asked to rate competing offers. In one academic study, only half of those who gave a particular answer to a question gave the same answer as near as 15 minutes later.1 Other researchers have noted, "It seems that attitudes are seldom deeply held, customers give an attitudinal response only because they were asked to, not because they necessarily hold a strong opinion."2
Despite these human foibles, companies have not been deterred from spending a great deal of time and money listening to customers. They track changes in their satisfaction religiously, develop detailed segmentation schemes based on customers’ attitudes and perceptions, and design into their products the attributes customers say are important to them.
But knowing what customers think or say is not the same as knowing how they will react to changes in product attributes or marketing messages. Knowing the "minds" of customers is only useful if it deepens one’s understanding of their behavior and how to change it.
And knowing the attitudes of existing
customers reveals little about the attitudes of potential customers.
A further shortcoming of attitudinal data is the difficulty of deriving useful information about customers’ existing or potential economic value. This is a serious weakness: Unless a company knows how much economic profit (profit above the cost of capital) it is earning, or is likely to earn, from particular customers or segments, it cannot determine how much to invest to attract and retain them. Our own experience corroborates the conventional wisdom that for many businesses, 20% of customers account for over 100% of economic profits. But who are these high-value customers, why are they so profitable and how can knowing their minds and behaviors help a company lure and keep them?
A More Powerful Approach
The answer is an approach we call "3-D customer insight" (see Figure 1).1
It’s three-dimensional in that it requires a careful integration of insights about customers’ attitudes, behaviors and economics. To get the most out of this technique and surface the best insights about where and how to grow profitably, companies need to:
- Develop a much deeper and greater appreciation for customer behavior
- Use this to gain a better understanding of customer economics
- Link customer attitudes to behaviors in order to better understand how they can entice the most attractive customers to change their behavior
Insights increase exponentially when information on customer attitudes, behaviors and economics is integrated in this way.
