2.1 - Marketing to Customers
Why and How Marketers Collect Customer Data
Marketing covers all the activities a business uses to figure out customers' problems, needs, and wants, and then promote, sell, and deliver products to meet them. Customer data helps marketers decide which customers to serve, which products to make, and how to market them effectively and profitably.
Marketers typically look at two kinds of data. Demographic characteristics are measurable traits describing a population, like age, sex, race, ethnicity, income, and location. Psychographic characteristics are more about cognitive and behavioral factors, like interests, activities, values, and lifestyles.
For example, a sneaker company might learn that one group of its customers is 14 to 18 years old, mostly female, and lives in suburbs with household incomes around $80,000. Those are demographics: facts you can count or measure. It might also learn that this group plays club sports, follows athletes on social media, cares about sustainability, and wants shoes that look good off the field too. Those are psychographics: what people like, do, and value. Demographics tell a business who its customers are, and psychographics help explain why they buy.
Businesses gather this data through digital tools like subscriber lists, online accounts, click-tracking software, tracking apps, and social media monitoring, as well as more traditional methods like surveys and interviews. Sometimes businesses simply buy customer data from other companies.
Each tool captures something a little different. Subscriber lists (email or text sign-ups) give a business contact information and show which customers want to hear from it. Online accounts store purchase history, addresses, and saved preferences. Click-tracking software records which pages, links, and ads people click and how long they stay. Tracking apps can record location and how people use an app. Social media monitoring shows what people are saying about a brand, its rivals, and trends in general. Surveys and interviews fill in what the digital tools can't, like why a customer chose one product over another.
Market Segmentation, Target Customers, and Customer Profiles
Market segmentation groups potential customers into segments based on shared demographic or psychographic traits. This helps businesses understand what different groups actually need and want, and how their products might fit those needs.
From there, businesses identify target customers, meaning the buyers most likely to actually purchase a specific product because of their particular wants, needs, or preferences.
A customer profile is a fictional description of a sample target customer, built from demographic and psychographic data along with their wants, needs, and preferences. It essentially personifies the target customer, making it easier for a business to picture who they're designing for.
Identifying target customers and building profiles helps a business design products and marketing (branding, pricing, advertising) that appeal specifically to that group. This focused approach tends to be both more effective and less costly than trying to appeal to everyone at once.
Here's how it fits together. Say a business makes an insulated water bottle. It could segment the market by age (kids, teens, adults), by activity (athletes, commuters, hikers), or by income. After looking at the data, it picks high school and college athletes as its target customers, since they drink a lot of water, practice outside, and want gear that holds up. Its customer profile might read: "Maya, 17, plays varsity soccer in suburban Texas, practices outdoors five days a week, has about $40 a week from a part-time job, values eco-friendly products, and follows pro athletes on Instagram. She wants a bottle that keeps water cold through a two-hour practice and fits in her gym bag." With Maya in mind, the business can design a 32-ounce bottle that keeps water cold all day, price it at $30 so it fits her budget, and advertise on Instagram with college athletes instead of paying for TV ads that mostly reach people who will never buy it.
Building Customer Relationships
Businesses use a variety of tactics to strengthen customer relationships, including personalized service, rewards programs for repeat buyers, and ways to gather feedback like satisfaction surveys or reviews. Social media and the internet have made all of this easier and cheaper to do at scale.
Each tactic gives customers a reason to stay. Personalized service means treating customers as individuals, like a coffee shop that remembers a regular's order or a website that recommends products based on past purchases. Rewards programs give frequent buyers points, discounts, or free items (like a free drink after every 10 purchases), so it pays to keep coming back. Feedback opportunities, like satisfaction surveys, review requests, and comment forms, show customers that the business is listening and tell the business what to fix. The internet makes all of this cheaper: an app can track rewards automatically, an email can greet a customer by name and suggest products they'd like, and a business can answer complaints directly on social media.
Strong relationships can lower customer acquisition cost, since happy customers are more likely to refer new ones. Customer acquisition cost is calculated as the total marketing, advertising, and sales spending used to acquire customers, divided by the total number of customers acquired.
For example, say a business spends $6,000 on online ads, $2,500 on promotions, and $1,500 on sales staff in one month, for a total of $10,000, and gains 400 new customers. Its customer acquisition cost is $10,000 ÷ 400 = $25 per customer. Now say its happy customers refer 100 more people that month at no extra cost. The same $10,000 now brings in 500 customers, so the cost drops to $10,000 ÷ 500 = $20 per customer. Every dollar saved on winning a customer can go toward profit.
Strong relationships can also raise the lifetime value of a customer, since loyal, satisfied customers tend to make repeat purchases. Lifetime value of a customer is essentially the total amount of money a customer is estimated to spend on a business's products over the entire span of their relationship with that business. The more loyalty and repeat purchases, the higher this value climbs.
A simple way to estimate lifetime value is to multiply how much a customer spends per purchase by how many purchases they make per year and by how many years they stay. For example, a customer who spends $5 per visit at a coffee shop, visits twice a week for 50 weeks a year, and stays for 3 years has a lifetime value of about $5 × 2 × 50 × 3 = $1,500. If a rewards program keeps that customer coming back for 5 years instead, their lifetime value rises to $5 × 2 × 50 × 5 = $2,500. Businesses compare lifetime value with customer acquisition cost: a customer who costs $25 to win and spends $1,500 over time is worth going after, as long as those sales also cover the cost of making the products.
To develop a plan for building customer relationships, a business picks tactics that fit its target customers and decides how it will measure whether they work. For the water bottle company above, a plan might include a discount code for every friend a customer refers, a follow-up email after each order asking for a review, and quick replies to questions on Instagram, where its athletes already spend time. It would then track repeat purchases, referrals, and review ratings to see whether the plan is paying off.
Risks of Collecting and Using Customer Data
Collecting and storing customer data, things like online searches, purchase history, credit card numbers, social media activity, and location, comes with real privacy risks, especially when customers don't know their data is being collected or aren't told how it will be used.
There are security risks too. If customer data isn't properly protected, it can expose both individual consumers and the business itself to data breaches, fraud, and identity theft.
A data breach happens when hackers or other unauthorized people get into a business's stored data. Stolen data can then be used for fraud, like making purchases with someone else's credit card number, or for identity theft, where a criminal uses someone's personal information (name, birth date, Social Security number) to open accounts, take out loans, or file tax returns in that person's name. For example, in 2013 hackers stole credit and debit card information for about 40 million Target customers during the holiday shopping season. Target paid millions of dollars in settlements, and its profits and reputation took a hit.
For businesses, this means constantly weighing the benefits of using customer data against the risks, which include losing customers, violating the business's own core values, and damaging its reputation. Balancing data use with privacy and security is essential for keeping customer trust and staying viable long term.
Businesses can lower these risks by collecting only the data they actually need, telling customers clearly what they collect and how they use it (usually in a privacy policy), asking permission before collecting or sharing data, and protecting stored data with tools like encryption and strong passwords. For example, a fitness app could earn extra money by selling users' location data to advertisers. But if users found out, many might delete the app, and if the business promises to respect privacy, selling the data would go against its own core values.