The Beauty of Customer Movement or Spatial Targeting: a New Era of Customer Segmentation
Let me ask you something.
If you own a coffee shop and target families with middle income, aged 25-35, and a single guy, around 45-50, walks into your store – would you not sell him coffee?
Now, to give you a better understanding of the situation above, let’s have a look at the core value of having a customer outside your target group walk into your store – the main takeaway isn’t that a random guy is suddenly interested in your store, it’s not a matter of how he found you, it’s not even about what made him come to your store (maybe friends referred your store, or maybe he works nearby).
The most important thing to think about and take note of, is that he came to your store, and how frequently does that happen.
To put it simply – customer movement is what matters.
Let’s take a different angle.
People, I mean people in general, not a specific group of them, have some kind of a routine in their daily lives. Our modern world is simply programmed like that – people go to work in the mornings, they have their one hour lunch breaks at noon, they go to the cinema from time to time, they enjoy coffee with friends or wine on weekends – I could make an endless list, but you get the idea.
Now imagine that you could know your customers’ routine – what they do, more or less, every day, or every other day, or every other week – you could literally create offers they simply cannot refuse.
Why is customer movement important for business? I can show you.
The problem with demographics
Customer demographics have been an essential part of business analytics and decision making processes for a long time now, but it has its limitations and weaknesses. Demographics are a good starting point for a business, but the longer your business exists and operates (and gathers customer and sales data), the more they start to lose their value.
Let’s start with the weaknesses.
Suppose you started a natural cosmetics shop and via market research, you found out that your ideal customer is a classy woman, 30-45, with middle to high income and lives in urban areas. With the information at hand, you utilize all your resources trying to get those women to visit your store and become a customer. However, as time goes by and you look at your sales numbers, you see that you’re doing well below the average for your industry sector.
The thing is that demographic targeting treats all customer groups equally, no matter how active they are in a given category. This means that all your marketing activities are equally spread between women who haven’t even become customers yet, women who shop at your store twice a month and women who shop every other day.
Throw in the fact that it costs 5 times more to acquire a new customer than to focus on an existing one, and you’ll get the picture.
See the problem?
You’re wasting a ton of money on customer acquisition, while at the same time, missing on even more money by neglecting your active customers.
Here is another thing about demographics, and this one is far worse.
What about the people who shop at your store rather frequently, but aren’t a part of your demographic group? For example, did you know that people who shop the most at toy shops, are actually people who have no kids themselves? These are friends, different family members (great parents, aunts, uncles, etc.), colleagues and they actually drive more sales than the main target group.
Could you possibly dare to ignore this?
Demographics create targeting limitations, which severely hurt your bottom line. Even if the number of those “rogue” customers is smaller than the main target group for your particular industry, you’re still going to be missing on a ton of cash, just because they happen to be of a different demographic.
Sounds pretty disturbing, if you ask me.
The complexity of psychographics
Psychographic segmentation involves dividing your target group into different segments, all based on different personality types including values, interests, attitude, behavior, lifestyle and more. This type of targeting offers more in-depth analysis of your customers, but is overly complex and difficult to pull off effectively to say the least.
The thing is that each person has different values, interests and behavior towards pretty much everything in life (even twins aren’t identical psychologically), and while some of those views may blend nicely for a given group of people, other views might contradict each other vividly, creating a lot problems for businesses trying to spread their message to their audiences.
This flaw in psychographic targeting basically forces businesses to keep narrowing down their target groups just enough to create a perfect balance and find the sweet spot, where people with different views and values share the same interest and passion about their products, which ultimately leads to more lost opportunities.
Let’s take an example.
Suppose you have a coffee shop and a certain group of people (say, two young girls and two young men) walk into your store every weekend to drink coffee in the evening. What are the shared psychographic values that these four people have in common? Is it the interior design of your coffee shop that reminds them of their childhood? Is it the emotional connection with your brand? Is it both? Are there third and fourth possible reasons? You don’t know.
You know the beautiful thing though? You don’t really care!
You shouldn’t care because all that matters is that they come to visit your coffee shop, roughly at the same time and day, after watching a movie in the cinema nearby, and they love to discuss the movie afterwards at your shop.
That’s what matters. Being near your coffee shop after seeing a movie so they can chat.
Having this information, which is essentially their movement, there is a zillion things you can do to make their stay at your coffee shop most enjoyable and turn them into loyal customers. Offering discount coupons for an upcoming movie on their next purchase, creating personalized offers for movie lovers and offering a discount if the customers bring their used tickets are just a few examples.
Notice how you created a brand new customer segment that you had absolutely no idea about before (you could research whether there are more people like these guys and work on attracting them to your store), out of nowhere, just by having this tiny bit of customer movement information up your sleeve and correctly utilizing your business amplifiers (which, in this case, is the cinema nearby). Imagine what you could do if you knew even more about their movement!
The shift to spatial targeting
Modern technology allows business owners to keep track of virtually anything related to their customers, but ironically, most of them neglect the importance of location (or, to be more on point, spatial) analytics and customer movement. More than 80% of data has a location element to it, and not taking advantage of this information costs your business hundreds of thousands of dollars annually, and you don’t even know about it.
Spatial segmentation allows to bypass the limitations, barriers, complexities and weaknesses of demographic, psychographic and behavioral segmentation.
Knowing where your customers are opens up tons of possibilities and allows for deeper, wider and more personalized targeting than ever before. With spatial targeting, you don’t need to analyze your customers on deep psychological levels, drill into their lifestyles, interests and values, nor segment them by age, sex, income, etc. All you need to do, is answer the “where” question – and the answer is hidden inside your business data.
Just like every person is unique, every business’s sales data is unique as well. The hidden, repeating patterns inside your data can help you understand your customers much better than any other analytic mechanism and give much more information – for example, if a customer spends a lot of time in museums, you can safely conclude that the person is an art lover, probably works in an area related to art, is rather sophisticated and values beauty.
Another important aspect of spatial data is that it has a direct correlation to your sales. In other words, knowing and understanding why people visit this or that place can help you find the correlations of certain business assets that influence their movement (and your sales), and use that to your advantage.
Business assets that influence customer movement are elements unique to every business, and can vary greatly from case to case – for example, if you operate a coffee shop, these assets can be the paintings on your walls (design), constant availability of the parking lot (convenience), or simply the amount of light you have in your shop (atmosphere).
These correlations exist for every business out there, and are hidden in the repeating data patterns of their business data, which can be unveiled in seconds with the help of modern technology.
Conclusion - Shopping habits shift, and you need to adapt
Modern businesses need to realize not only the importance of adapting to shopping habits, but also the rate at how fast these changes happen. As time goes by, these shifts happen more often and relying on demographic and psychographic targeting is quickly becoming “not good enough”. To stay ahead of the competition and more importantly, reap the full benefits of your business (be it a coffee shop, or a huge online retail business), you need to keep up with your customers, and spatial targeting and analytics allows you to do just that.
So, what’s your excuse?
Mike is the Co-Founder and CEO at Fract. With over 20 years of retail and business location analytics experience behind his belt, Mike counsels business owners and helps them get the most out of their business and sales data. He is also a passionate art lover and enjoys a glass (or two) of good wine with friends and family on the weekends.