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A guide to understanding your customer

Discover practical methods which can help you understand your customer needs and manage expectations - with this handy guide from Boom & Partners.
A guide to understanding your customer

Founder of BOOM & Partners, Kevin is a business and finance consultant, working with early stage businesses, from start up to mid-sized corporates. He is also a published author, international speaker, radio contributor and mentor at Cass Business School and the UK’s largest Entrepreneur Accelerator.

Why Is Understanding Customer Needs Important?

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When your business was founded you would have done a lot of market research into all the areas necessary in order to validate your idea and to write a full and comprehensive business plan. The research is important as it ensures that your ideas for a business are more than just good ideas, but they can have real traction and that your initial ideas and that traction can be turned into a viable business.

Typically, the areas that need to be researched would include:

  • Your product / service and what differentiates it and you as a company – what are you doing differently and what factors will ensure that your company succeeds?
  • Your potential market place and how much of the market you realistically hope to reach – is this just the UK or do you plan to export? How will you develop this and over what time period?
  • Your competition and barriers to entry – will you compete with large players and how easy will it be for you to break into the market, or indeed for others to break into your market?
  • Your management team and what previous experience they have – a previous track record always adds comfort so if you do not have all the experience necessary how will you cover the gaps?
  • Your financials – both actuals to date and future forecasts (with detailed assumptions based on research). These must be realistic and demonstrably achievable. If they are too optimistic then they will undermine the whole business plan in the eyes of others and also set you wrong targets.
  • Your manufacturing / distribution / supply chain / route to market – set this out in order to show the complete process and to help the reader put the financials and everything else into perspective.
  • Your marketing and sales strategy – explain how you will market and sell your product or service and how you plan to grow sales over time. Again, this will help add credibility to the assumptions used in your financial projections.

The whole business plan is really about your customers and the market place and ultimately all of that is woven around the most important factor of all – your customers. This is of course covered specifically in the second point above, but it is potentially the most important of all, as without customers you do not have a business.

Once your business has been established it is crucial that you keep revalidating your business plan and adapting your business model in light of any changed circumstances, and that also means a constant need to continually understand your customers.

How Do I Go About Gathering Data?

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The answer to this will depend on your company and your interaction with your customers. Initially the clearer your understanding of the demographics of your core customer base the easier it will be for you to refine and target your products or services and indeed any sales and marketing initiatives.

Ideally you want to be able to segment your customers into at least age groups and sex, but the greater detail you can understand the more useful it can be. Concerns over privacy and political correctness can make this complicated at times, but knowing that the majority of your clients are, for example, expectant mothers or young professionals will greatly influence decisions over new products as well as marketing strategies and spend.

If you can collect this information electronically at the point or time of sale then this makes both data collection and interpretation much easier. But if your business does not lend itself to that then it is possible to ask your customers to volunteer that information by way of customer surveys and the like, or even contacting or speaking with them directly.

Examples of data collection and how better to understand who your customers are, together with their shopping habits, are seen from the largest retailers and online stores such as Tesco and Amazon all the way down to local coffee shops.

  • Tesco’s was one of the first to use its Clubcard as a ‘reward’ card but through it they know not just who each of their customers are but also every product they have ever bought and from what store and when. Amazon have taken this much further so that they know every product that you have ever looked at even if you did not buy it. Both use this big data to influence targeting its customers separately but also its decision on what products to stock.
  • Local coffee shops can still collect customer ‘data’ even if it is just by seeing who comes into the coffee shop and when, and getting to know regulars and their requirements. This can influence opening times or special times for special groups.

As well as gathering information electronically or at point of sale there are of course many other tried and tested methods used by many of the biggest and most successful companies worldwide. These include focus groups in order to talk about existing or new products or services and indeed what the focus group would like to see in the future. Another option would be to phone or email your largest or most frequent customers directly in order to ask some standard questions such as what they like about your business and what they think that you could do better. Simple techniques such as emailing your client base a short, anonymous, customer satisfaction survey using something like Survey Monkey can also be extremely useful, but do keep it short if you expect many clients to respond.

Now I have the Information How Do I Best Use It?

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We’ve established the importance of understanding customers’ demographics, spending habits and preferences – to name a few key traits. Once you have this information you can use it to the benefit of your business in many ways, including:

  • Products – Knowing what your existing customers like about your products or services, and what they dislike, is crucial to refining your offering to them. In addition, exactly this same information can be used to guide you in developing new products or services and indeed how you communicate with new and existing customers. If you are also able to obtain information from focus groups and other wider research you are also then well placed to produce different products but aimed at similar but different demographic groups, i.e. younger or older customers than you have at present. This route can greatly increase your potential market but with only limited development costs.
  • Sales and Marketing – Sales are the most crucial aspect of any business and almost every business will market itself or its products in one form or another. This might have the broader focus of your business as a whole or it might be on a very specific product. Given that any business, but especially smaller ones, have a limited marketing budget it is important to ensure that any marketing spend, for whatever purpose, is as targeted and effective as it can be, and the better you know your customer base the easier that will be, and so the more effective your marketing will be.
  • Business Development – Combining the two points above, new products can be developed to target new customer segments and then these can be promoted most effectively by using the most relevant marketing channel.
  • Customer Retention – Each and every one of us likes to feel appreciated and our opinions to count, rather than just being an unimportant number lost amongst the masses. As such, both obtaining the information and using that information can only bring you closer to your customer and for them to feel more engaged with your business. This in turn leads to much higher customer retention and a better reputation in the market place which, in turn, can often lead to new customers.

Put simply, the more you know about your customers the better informed each and every one of your decisions will be, and the better placed you are to make sure that your business adequately meets the needs and wants of your existing customers and attracts new customers.

Understanding Your Customer Checklist

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Here are some suggested basic steps that you can take if you have not already done so:

✔ Prepare a good business plan and fully research your market

✔ Identify the ‘problem’ that your product(s) or service(s) solve and who they will appeal to

✔ Identify your customer as closely as possible. This can be done by using any or all of the following:

  • capture email addresses and other basic information from visits to your website or when customers buy online
  • short customer surveys using online tools such as Survey Monkey
  • arrange small focus groups
  • speak with customers directly if you operate a customer facing retail business
  • phone or email directly your biggest or most important customers

✔ Once you have this information use it to refine existing products and when you develop new ones

✔ Use the information to tightly focus your marketing message and delivery channels to ensure your sales and marketing budget is used as effectively as possible

✔ Ensure that you are constantly revalidating your business plan and business model as well as ensuring that you constantly strive to understanding your customers and their needs and wants

By using the information and acting on it in this way you obtain and continue to update important information about your customers you can help to ensure that your business grows and prospers.

Kevin R Smith

BOOM & Partners

www.boomandpartners.co.uk

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