The most important thing we do as marketers is to segment our markets. Segmentation allows us to define target audiences and customize our products, services, and advertising. However, segmentation should be based on traditional demographics like age, income, or psychographics and how customers prefer to buy.
By considering customers' purchasing behavior – when they purchase, which distribution channels they use, which payment method they use, what they are doing when they buy, and how much time they take to make purchase decisions – marketers can ensure improved product and service designs. They can better target their advertising messages and establish more robust and profitable connections with their clients.
This blog post will explore how understanding customer purchasing behaviors can enhance segmentation efforts, create new paths to the market, and lead to a more successful business!
How Do You Like Your Coke?
Emory University Marketing Professor Sandy Jap, the co-author of A Field Guide to Channel Strategy (Coughlan & Jap, 2016), reminds us that the best marketers "think about market opportunities and harness value in a broader way than only with a product or a price..." As an example, in an online lecture, Professor Jap cites the many ways we might consume the soft drink Coca-Cola: with a Big Mac (as a fountain drink), with a 7.5-ounce mini bottle served with Bacardi and lime (at an elegant bar), in twelve-ounce bottles during a late-night drive home (at a gas station), in 32-ounce bottles as a mixer at a party (purchased at a grocery store chain.) Each way of consuming a Coke represents a different use case, cost per ounce, and a distinct distribution channel for Coke. Indeed, one of Professor Jap's central messages is that consumers are often willing to pay premium prices to receive the good or service the way they want to consume it when they want to drink it.
Pandemic Impact
The need for differentiation goes beyond product extensions in the consumer packaged goods industry. The Pandemic has poured gasoline on a user experience fire ignited by the Internet a decade ago. The Pandemic stay-at-home rules forced users to experiment with new product and service delivery mechanisms. This need, in turn, has driven business leaders to quickly adapt and focus on consumer buying preferences and behavioral segmentations. New segments pop up almost monthly as consumers explore, then expect, alternative buying and delivery channels for goods and services.
Not Just A Product, Not Just A Service -- Something In Between
We now have the hybridization of products and services as online access becomes integrated into the purchase process. Here is a list of service trends that have emerged recently:
Ordering Online With Home Delivery. Amazon's excellence in logistics has forever changed how we buy. Home delivery is convenient. Online ordering of goods we used to drive to the store to buy has experienced rapid growth since the Pandemic. We have learned that it is nice not to leave our homes and still receive items we order online. We have come to expect two-day delivery of just about anything. Today, retail companies offer home delivery via UPS, FedEx, and the Postal Service. It has not stopped there. Door Dash or Uber Eats will bring food orders to your home or place of work in minutes (PSC Highlights, 2023). Fast food providers have begun to differentiate themselves with home food delivery around food delivery occasions like watching the Super Bowl or NBA basketball (DoorDash, 2022). Instacart will deliver an electronic game to a user's home, so they don't have to stop gaming with friends! (Bop It Electronic Games Products Delivery or Pickup Near Me | Instacart, n.d.) Carvana will allow users to compare, select, finance, and receive delivery of a used car -- all online (Betterton, 2022).
Buy Online Pickup In-Store (BOPIS) is another service permutation. This offering allows customers to order products or services online and then pick up the product at the store (Polson, 2022). Demand for these services already existed, but it has burgeoned as the Pandemic has driven trial. Online ordering is convenient for customers as they can shop from home or work but still have the immediacy of same-day availability. Examples abound. Best Buy has leveraged the combination of its brick-and-mortar network and its online presence to offer customers this option. Amazon has already started leveraging its Whole Foods locations by adding lockers where customers can pick up orders by entering a delivery code emailed with the delivery confirmation information. Home Depot has been experimenting with a similar service to allow customers to pick up smaller products in lockers outside their stores. Need lumber or other building supplies? Users can order them online, and both Lowes and Home Depot will cart them up and bring them to their car or truck.
Custom Manufacturing with In-Store Pickup (MOPUS) or Home Delivery. (Polson, 2022) Computer manufacturers like Dell and Apple and furniture manufacturers like Ethan Allen have long provided users with the ability to select custom features for products and have them manufactured to order. A small number of auto manufacturers are beginning to do the same thing. Tesla offers this purchase structure with its products. To compete, Volvo has started offering this service with its electric vehicles, such as the C40 Recharge SUV, which is ordered online and picked up at a dealership. As Industry 4.0 brings forth intelligent, autonomous, and flexible manufacturing capabilities, we should see increasing innovation in this area (What Is Industry 4.0? | Definition, Technologies, Benefits | SAP Insights, n.d.).
Subscription Services. Companies offer subscription services, allowing customers to receive products or services regularly at previously agreed intervals, another type of service. Subscription purchases are convenient for customers as they do not have to remember to order the products or services on their own. My pest control company visits our home six times a year. Regular replacement products that are hard to remember but need to buy at regular intervals (pet food, refrigerator water filters, HVAC filters, disposable razors, and contact lenses, for example) are perfect for these automatic sales methods. See my Video about this product delivery strategy here.
Similarly, a subscription can work well for high-value-added or unique goods that need to be organized or sourced from an unusual vendor. For example, Alaskan fish processors, California Vintners, and South Dakota Bison farmers are examples of types of vendors that send monthly shipments of their products to households nationwide.
Closer to home here in Tennessee, a farm cooperative allows neighborhood groups in Knoxville to sign up for and receive routine deliveries of fresh vegetables to centralized locations throughout the summer months. A local doctor in Oak Ridge, Tennessee, has patients pay an annual fee to gain access to a broader suite of services and manage their total health. Subscription services are convenient for customers and save businesses money by reducing client acquisition costs and allowing the companies to predict how much product or service customers will need and when.
Membership Programs. Membership programs are another service designed to differentiate the offering by giving customers exclusive benefits and making buying easier. Membership programs offer discounts, early sales access, and free shipping. Amazon's Prime is one such membership program. Prime customers gain access to music and entertainment streaming and free package delivery annually. Prime members spend about two or three times as much as non-prime customers and enjoy higher customer lifetime value (Ryan, 2018). Membership programs benefit businesses and customers as businesses can increase customer loyalty and spending while customers can save money on the products or services they purchase.
Industries with Large Customer Information Requirements. Often, membership programs can front-load heavy information requirements in exchange for point-of-sale buying convenience. For example, in car rentals, membership programs like Hertz Number One Club can leverage a robust Customer Relationship Management System to store a great deal of information in advance (driver's license, credit card, car preference, etc.) Busy business customers can enter the car and drive away by showing identification at the gate, reducing business travel time.
Innovative Service Contract Structures. Customer segmentation around purchase preference extends to service industries as well. For example, competitors in the telecommunications sector differentiate their service offerings around different contract terms to entice new customers (Blumenthal, 2023). A common innovation is adaptations that help younger, less creditworthy customers obtain phone service.
Differentiation In Financial Services. For a final example, we use the online stock brokerage industry, which has seen large amounts of new product development to make it easy for new investors to purchase and manage investments (Monchau, 2021). Here are several examples:
In the insurance industry, where I have spent much of my career, companies have likewise segmented users based on purchase preferences. They are leveraging the Internet to deliver new ways to buy insurance coverage:
Affordable Research Methods
Many think, "we can't afford expensive focus groups to figure out how our customers want to buy!" Here is a list of guerilla tactics -- affordable ways -- to understand how customers want to buy without spending much money. Pay particular attention to complaints. The issues that make consumers mad in shopping and purchasing can be a gold mine of opportunities (Ryan, 2018).
CSRs and Others Involved in Customer Support. The first place to gather information on buying preferences is your organization's customer support teams. They will be able to provide anecdotal information on what is making their life and the lives of your customers difficult. Use this information for hypotheses, then go out and test with affordable online surveys.
Internal Complaint Logs. Many companies track customer complaints with either formal or informal tracking mechanisms. This data can provide invaluable insights into who is having trouble buying from you and how this is occurring. See my blog piece about complaints and complaints management.
Social Media. Social media platforms like Facebook, Twitter, and Instagram are great ways to research how customers like to buy. Researchers can use the platform's search function to look for relevant hashtags, such as #buyonline or #shoplocal, and see what users say about purchase preferences. They can also follow relevant influencers in their industry and see how they promote their products or services. For more examples of social media marketing techniques, see our article, 24 Examples of Social Media Advertising Campaigns.
Online Forums. Online forums are another great way to research how customers like to buy. There are forums for every topic, so finding one relevant to the industry is easy. Once a researcher has found a forum, they should take some time to read through the threads and see what kind of questions people are asking and what type of advice they are giving.
Google Trends. Google Trends is a free online tool that lets users set the popularity of e-specific keywords. This tool can help research how customers like to buy because researchers can see which keywords users search for more frequently. For example, if the company sells products online, marketers might want to research the keyword "online shopping" or "how to buy [product x or y]. They can then use this information to adjust their marketing strategy accordingly.
Amazon Reviews. Marketers should use the platform's review system if the company sells products on Amazon. Customers who leave reviews are typically candid about their experience, so reading through them can give valuable insights into how customers like to buy. Just take the time to read through both positive and negative reviews to get a balanced understanding.
Blogs. Blogs can be a great source of information when researching how customers like to buy. Bloggers write about their personal experiences with different products and services. Search on Google or another search engine using relevant keywords to find relevant blogs. Once they find some blogs that look promising, take some time to read through them and see what insights they offer.
Podcasts. Podcasts are another great way to learn how customers like to buy. Many podcasts feature interviews with experts in various industries who share their insights on topics related to their expertise. Search on iTunes or another podcast directory using relevant keywords to find relevant podcasts.
As we have seen, understanding how and why people want to buy is as important as understanding who wants to buy. Companies that know how we want to purchase are more likely to earn our business and keep us as customers. Customer complaints, social media, online discussion forums, Google Trends, blogs, and podcasts provide affordable sources of information on consumer preferences and are accessible to companies with even the tiniest budgets.
Go forth and learn how your customers want to buy -- then segment. You will be happy you did!
References
2023 Volvo C40 Recharge Price, Reviews, Pictures & More | Kelley Blue Book. (2022, September 1). KBB. https://www.kbb.com/volvo/c40-recharge/
Best Electric Vehicles of 2023 - Top-Rated New Electric Vehicles Ranked | KBB.com. (n.d.). Kbb.com. https://www.kbb.com/electric-car/
Betterment Editors. (2022, September 1). How Betterment's Tech Helps You Manage Your Money. https://www.betterment.com/resources/how-betterment-technology-manages-money
Betterton, R. (2022, October 6). How to use Carvana to buy a car. Bankrate. https://www.bankrate.com/loans/auto-loans/guide-to-carvana/#proscons
Blumenthal, E. (2023, January 9). Switching Phone Carriers in 2023: What to Know Before You Switch Providers. CNET. https://www.cnet.com/tech/mobile/switching-cellphone-carriers/
Bop It Electronic Games Products Delivery or Pickup Near Me | Instacart. (n.d.). Instacart. https://www.instacart.com/categories/5059-toys-and-games/5060-games/5075-electronic-games?brand=bop-it
Coughlan, A. T., & Jap, S. (2016). A Field Guide to Channel Strategy: Building Routes to Market. Createspace Independent Publishing Platform.
Cox, D., & Timmermann, M. (2023, February 23). Cricket Wireless Review: 5 Things To Know Before You Sign Up. Clark Howard. https://clark.com/technology/phones-mobile-devices/cricket-wireless-review/
DoorDash. (2022, October 19). DoorDash x NBA 2022 - Secret Handshake [Video]. YouTube. https://www.youtube.com/watch?v=r6RaVv3s3qw
Herosmyth Staff, H. (2020, February 24). 9 Perfect Brand Examples of Why It Pays to Differentiate. Herosmyth. https://www.herosmyth.com/article/9-perfect-brand-examples-why-it-pays-differentiate
Monchau, C. (2021, March 26). Thanks to Fractional Shares, Trading Is Accessible to Everyone. Entrepreneur. https://www.entrepreneur.com/money-finance/thanks-to-fractional-shares-trading-is-accessible-to/367129#:~:text=Regarding%20the%20introduction%20of%20fractional,and%20Charles%20Schwab%20followed%20suit.
Polson, K. (2022, August 16). What is BOPIS Fulfillment? A Guide for Retailers. https://blog.deckcommerce.com/what-is-bopis
PSC Highlights. (2023, January 26). food delivery guy walks on the court during a college basketball game [Video]. YouTube. https://www.youtube.com/watch?v=w3xiLGFRiLM
Ryan, R. (2018, February 28). Finding Increased Profits through Better Complaints Management |. www.ronrassociates.com/blog. Retrieved March 15, 2023, from https://www.ronrassociates.com/Rons-Blog/PostId/7/finding-increased-profits-through-better-complaints-management
Ryan, R. (2018, February 8). The Amazing Healing Power of Customer Lifetime Value | RonRAssoci. Retrieved March 15, 2023, from https://www.ronrassociates.com/Rons-Blog/PostId/9/the-amazing-healing-power-of-clv
What is Industry 4.0? | Definition, technologies, benefits | SAP Insights. (n.d.). SAP. https://www.sap.com/uk/insights/what-is-industry-4-0.html#:~:text=Industry%204.0%20is%20powered%20by,machinery%2C%20robots%2C%20and%20vehicles.
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