It’s essential to know your customers, especially in an era where the battle to win their favour has never been fiercer.
To stay in business over the long term, you not only need to win new customers, but also ensure that your customers ultimately become loyal brand advocates.
Customers talk about their experiences every day, to everyone, everywhere. A statement can be made in seconds and received by thousands. It’s essential to drive positive sentiment on an operational level and to drive measurable customer-centricity at a strategic level.
It doesn’t matter how big the company is, the industry it operates in, or the products and services it offers – failing to understand your customer base and how it changes over time will lead to acceleration or extinction. Customers have all the power because they are:
- given endless choices,
- spoiled by convenience,
- leveraging price wars and
- protected by consumer legislation
Customer needs, wants, and expectations change and are driven by several factors. The most important one being their experience with competitors, because this is a direct threat in terms of switching and revenue loss. Many companies fail to realise that customers also compare their experiences in other industries, for other purposes, with other products and services. For example:
- with similar channels (e.g. real-time web chat vs inbound call centre vs finding info on a website)
- with similar processes (e.g. account opening at a bank vs account opening at telecom)
- with similar employees (e.g. front line service staff vs call centre staff)
- with intermediaries (e.g. independent sales representatives vs installers)
A good starting point to understand this is to segment your customers into homogenous groups, then design experiences around that based on unique requirements. That’s why it is important to collect as much data about your customers as possible.
What is customer segmentation?
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar. The process relies on identifying key differentiators. Information such as a customers’ demographics (age, race, religion, gender, family size, ethnicity, income, education level), geography (where they live and work), psychographic (social class, lifestyle and personality characteristics), and behavioral (spending, consumption, usage and desired benefits) tendencies are typically considered.
Why segment customers?
Traditionally, segmentation allowed marketers to better tailor their marketing efforts to various audience subsets. These are used to identify the most profitable customers, determine the next best offer, improve cross-sell, direction for product innovation, optimise cost structures, determine customer lifetime value, and more. This concept has also been applied in the field of Customer Experience in more recent years. The main aim is to:
- enhance existing experiences (e.g. reduce effort)
- design new experiences that will be memorable, create referrals, and build loyalty
An easy way to enhance and design desired experiences based on customer insights is to map the customer journey for each customer segment.
Segmentation and customer journey maps
A customer journey map tells the story of the customer’s experience: from initial contact, through to the process of engagement and into a long-term relationship, or the end of it. Designing an experience should ideally be done at a segment level as different groups think, feel, and behave differently, which means their needs and expectations are not the same. Let’s look at this example.
The IKEA experience
I recently moved to Dubai, and after the 20ft container was offloaded, we realised that space is a big problem! How are we going to fit everything in and how can we enhance the space? Buy even more furniture! The answer might seem counter intuitive, but after a lot of planning, we realised that ‘more is less’.
IKEA has such a strong brand internationally and it’s no different in the UAE. The furniture is stylish and very affordable. It offers a large range of products and even a fantastic breakfast! IKEA has no presence in Sub-Saharan Africa so being from South Africa, we were keen to experience this for the first time.
We easily found the location that had ample parking close to the entrance and very clear signage. We were greeted by a friendly employee that offered customers shopping trolleys. As we walked in, I suddenly felt totally overwhelmed. It has a huge showroom, designed to guide customers in a circular route, passing staged sets of different rooms.
Lots of people, children running, trolleys being stuck behind customers that probably don’t know what they want to buy, and ‘window shoppers’. After walking through all the rooms, we still had an empty trolley.
We walked the circular route again and then again. By that time, three hours had passed and we were drained. I asked an employee if someone can assist me with a big order, explaining that we were there to spend around 10 – 15k Dirhams. The guy was very helpful and after spending an hour with him on the website, and having all our questions answered, we had our list compiled and printed.
The order was processed; we paid for express delivery and went home to collapse from utter exhaustion. That was five hours later! At the forefront of my mind was the thought of having to self-assemble ten large pieces of furniture…however, having an engineer as a husband made me feel a little better.
Here is a summary of our journey:
- excitement, ready to experience the much talked about IKEA experience
- a feeling of being totally overwhelmed
- ready to spend a lot of money, thus expecting good service and a seamless experience
- not finding the items that you see online. It was either: not displayed in the show room or discontinued (but still on the website)
- it was very hard to find employees. Despite their bright yellow shirts, they were invisible. When you manage to find one you have to queue or follow them while they walk with other customers. Then that person can’t assist you in another room. The hunt starts all over again
- not being able to access their website on my own mobile device because they had no wi-fi
- having to use their self-service computer kiosks. Standing in queues again!
- after placing an order on a computer, a staff member has to load it and print the sheet. At every room the process starts again. No integrated process to serve a customer across sections
- dealing with very irritated customers that push their trolleys into others and ignore the arrows. Others look like they are power-walking or running through the store
- vowing to never go back
- discovering that one item was processed incorrectly and thus not delivered
- realising that we have to go back as it was an item that matches others
- feeling stuck, helpless, and discouraged
It certainly didn’t feel like IKEA fitted us into any segment. What could this segment and journey look like?
1. Recently relocated to Dubai
2. From a country where IKEA has no presence
3. Spending need of around 10k – 15k AED
4. Requiring items from multiple sections (kitchen, storage, dining room, lounge, bedroom etc.)
5. Lots of detailed questions
6. High stress levels (due to moving to a new country, having a new job, moving into a new house, and having to settle in as a family)
7. Very limited time and energy
8. Relying on wi-fi because not connected to a telecommunication provider yet
1. Pre-register on IKEA website, book a time and date with a business bulk sales consultant
2. Create a preliminary shopping basket online
3. Sales consultant to prepare for possible questions and alternatives based on basket
4. Meeting with sales consultant, discuss questions and finalise list
5. Select Delivery/Self-pick
6. Select Self-assemble/IKEA assemble
7. Pay at consultant
Yes, it might be a more expensive business model but it presents invaluable opportunities like:
- customers building personal relationships with staff
- customers providing direct feedback about their product needs, wants, and expectations
- customers being delighted and becoming brand loyal advocates
These three opportunities cover all the cornerstones of building customer capital.
What is customer capital?
It might be relatively easy to get customers through the door, but what will bring them back? Companies that have the answer to this have a competitive advantage. Understanding why customers are loyal, and what exactly they are loyal to, is key.
This is the foundation of the term ‘Customer Capital’. It is the value of the relationship that a business builds with its customers, which is reflected in their loyalty to:
1. The brand
2. The staff
3. The products/service offered
We are able to measure this and provide a loyalty profile of your customer base that will answer these questions:
Do you know how many customers will remain loyal even if they feel that: offerings weakened OR service levels dropped OR brand value decreased?
Do you know what proportion of customers is at risk of leaving?
Do you have measures in place that give you comfort that you are reaching the strategic goals?
Does spending money on customer experience related initiatives actually increase profit?
Striving to be customer-centric is no easy task and it can be a moving target that stretches across many areas and aspects of the organisation.
This case study focused on the importance of customer segmentation and how to design experiences for these segments that will directly increase customer capital.
Why only reward customers after being a client for many years, or after spending huge amounts of money? Identify them early and give them superior service based on their exact requirements. Building customer capital starts very early in the journey, long before the first financial interaction.
My family has since returned to IKEA many times. Oh, I forgot to mention the best thing about the IKEA experience…the one Dirham ice creams!