The good thing about social sciences is how people’s thoughts develop into useful tools that have high application value in real life. In marketing and other business disciplines, we are always improving the way we understand things and turning that into concrete concepts that excite and enhance the practice of business.
The often-chaotic development of concepts in marketing can be very confusing. Both customer profiling and segmentation aim at categorising customers according to similarities in order to improve targeting strategies and tactics. The best way to distinguish these two concepts is to consider customer profiling as internal and a specific way of categorising customers who are already purchasing from us based on the customer data at our disposal.
Segmentation is a broad way of categorising customers who may or may not be buying from us. Thus profiling is mostly about categorising customers by their consumption behaviour as opposed to their characteristics. While in segmentation we have the standard criteria such as age, gender, lifestyle and geography, in profiling we have to develop our criteria specific to our businesses and based on our customer data.
While customer segmentation is for purposes of strategizing, customer profiling is for tactical ones. Customer profiling broader goal is to sell more and more. Segmentation and profiling are not each other’s alternatives; both need to be implemented in pursuit of marketing objectives.
Demonstrating the Importance of Profiling
The aim of segmentation and profiling is targeting. However, profiling is about narrower targeting by increasing understanding of the existing customer. For instance, assume your target market is baby products such as clothes and toys. We can ask the question whether your customers in this case are the babies or the moms. Nevertheless, that is beside the point. For purpose of profiling, your focus is on the person doing the purchasing and how that is done.
If profiling is based on time of purchase (for instance weekday versus weekend buyers), you want a deeper understanding of the customers so that you can enhance their shopping experience. The aim here is not to decide on whether to target the weekend or weekday buyers, but to address the issues of each of the customer profiles.
By analysing data, you may discover further that most of the weekday buyers are stay at home moms while most of the weekend ones are working moms. One may argue that this is something that is given and need not be gleaned from data. However, the best way to develop customer profile is by using data as opposed to speculation and intuition.
In our example above, you may conclude that working mothers do not shop at the weekend because of preference, but due to time constraints. To improve their shopping experience you may need to extend your weekend opening hours or introduce online shopping as a way of easing the time constraint challenges.
Is customer profiling predatory or discriminatory?
In Kenya, the term profiling has recently acquired very negative connotations. Many people associate it with negative issues such as discrimination. While profiled customers may be targeted in a way that may result in preferential treatment, it is not necessarily unethical. For instance, in software development, one may profile customers as early adopters or laggards.
Early adopters will be given access to early or trial versions of new software and their feedback used in fine-tuning the final product. If the trial software is released to the laggards, the consequences would be disastrous. The early adopter will be excited to identify and report bugs to the developers for improvement, while the laggards will be annoyed with the bugs and are likely to engage in negative publicity, which may end up killing the new software.
Customer profiling is also about utilising the marketing resources optimally in what can be seen as positive discrimination. In applying the Pareto Principle to marketing, we can say that 80% of your business comes from 20% of your clients. If that were the case, would it not make more sense to spend 80% of the marketing effort on the 20%, rather than concentrating on the 80% who only bring you 20% of the business?
Customer profiling and customer loyalty pyramids
A customer loyalty pyramid categorises your customers by levels or intensity of their loyalty from the sparingly loyal to the fiercely loyal. Your may have categories such as suspect, prospect, customer, client or patron (that is from low to higher levels of loyalty).
Customer profiling can be used to develop a customer loyalty pyramid. Using data of how frequently customers visit an entertainment establishment for instance, those who visit every day or every week would rank higher than those who visit on a whimsical basis.
This loyalty pyramid can then be used in conveying benefits and privileges that would further cement the relationship and enhance loyalty. The patrons who visit frequently can have benefits such as having a special parking area reserved for them, being allowed to spend on credit and even an occasional call to know how they are doing.
This would contradict a situation where you patronise a place regularly yet there are no benefits for your loyalty. The business would reduce the risks of losing loyal customers by treating them specially. If a loyal customer has a complaint, the firm would be very careful how they deal with it. To paraphrase the words of George Orwell, all customers are equal but some are more equal than others. This is a reality that some only learn the hard way.
I recently heard of someone explaining how his bank denied them a loan despite him religiously banking substantial amounts with it. He then went to another bank, which on the strength of his bank statement gave him a loan despite being a new customer. When he returned to his usual bank with the intention of closing the account, the managers were almost on their knees begging him not to leave.
If the bank had properly profiled its customers, such a mistake would not have happened. The bank could have a profile of its clients based on predetermined criteria.
Let us assume the bank has profiled its clients as platinum, gold, silver, bronze and iron, in order of importance. The bank was having a high turnover of quality clients because of rigidly applying loan assessment criteria even in situations where it may be necessary to have a further look on each case based on need for long-term relationship with the client.
Even when it comes to customer care, it would mean for instance that if a junior staff encounters a situation with a customer ranked as silver and above, he would need to escalate the issue to a manager instead of insisting on the standard procedure of handling the challenge. The manager presumably with more experience will be in a better position to resolve the issue in the most amicable manner by making decisions that a junior staff may not be authorised to make.
The most important thing about customer profiling is its ability to predict the nature and character of ideal customers. This will be helpful in targeting new high quality customers. The more you understand your current customer, the better you will understand potential ones. Among the cardinal commandments of marketing is that “thou shall understand your customer” but many like focusing on “thou shall understand your competitors.” If you understand your customers and treat them well, you need not fear the competition.
Thanks to Customer Relationship Management software, your customers need not be your strangers. Developing a deepened understanding of your customers improves how you relate with them, which is key to higher customer retention. This means not only conducting customer surveys but also capturing key data about your customers and analysing it for decision-making.