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Who Is Your Customer?

Originally published September 2, 2010

It has long been known that knowing your customer is a good thing and that selling to an existing customer is easier and less expensive than selling to a new customer. It is also common knowledge that customers who “belong” to someone else have a sense of loyalty and that attracting those individuals to become your customers is difficult and expensive to do. These facts have been established and are at the heart of marketing for most organizations.

Notwithstanding the value of gaining and protecting one’s customer base, how many organizations really know who is the consumer of their products or services?

Let’s consider some cases. Do General Motors and Coca Cola know who their consumers are? Does Mars know actually who eats M&M’s? Does R. J. Reynolds Tobacco Company really know who smokes Camels? The answer is that many large corporations don’t know the consumers of their products at all. Instead, they know a bunch of dealers or distributors.
Consider a large manufacturer of candy or cars. Who is the customer to these corporations? When I walk into a 7-11 store, does the candy company know me? Of course they don’t. And if I buy a GM car, (especially a used one), does GM know who I am? Again, the answer is no.

In reality, when large corporations talk about customers, they really are talking about distributorships. To the candy company, the car company, the ice cream company, the cigarette manufacturer – the customer is a set of distributors, not the actual consumers themselves.

So if you think that large corporations know their customers – meaning the actual consumers of their product – the answer is that most organizations don’t have a clue. There are many reasons for these middlemen getting between the companies and the consumers. The primary reason is that there are a lot of consumers. The sheer bulk of data is intimidating. And when I buy a pack of chewing gum, an ice cream cone or a cigarette, I don’t have the slightest inclination to give the seller any information about me. So not only are there a lot of consumers, but also gathering actual information about these consumers is an awkward or unreasonable thing to do. Because of this missed connection, a golden opportunity has gone to waste because, as it turns out, there really is a lot of value in knowing your customer. In fact, we are just now starting to understand how much value there really is in knowing your customer.

Now consider some organizations that really do know their customers. Let’s choose Amazon.com. Amazon knows their customer base. And if someone is unknown to Amazon and enters the Amazon sphere, Amazon tries really hard to get to know that person. At the heart of Amazon knowing their customers is a big database or data warehouse with all sorts of information tucked inside. There is information about previous purchases, about previous interest in a product, and one can only imagine how much other information is there. With the marvels of modern technology, Amazon is able to find, organize, store and analyze individual customer information.

Why is knowing the consumer so important? What can Amazon – a company that actually knows their consumers – do that other corporations that do not know their consumers cannot do? In order to answer that question, let’s look at the basic act of advertising. How do corporations that do not know their consumers get the word out about a new product, a new packaging of an older product, or other information that they would like to share with the world. These corporations take out ads — on television during the Super Bowl, in newspapers, and so forth. These are always expensive undertakings, and their worth is questionable. Consider an ad for Coca Cola. Coke puts the ad on six channels for prime time advertising. The ad is flashed. Problem one – only 10% of the population is watching one of the channels where the Coke appears. Problem two – some of the people who see the ad are on diets. Problem three – some of the people who see the ads are diabetic. Problem four – some of the people who see the ad speak only a foreign language, such as Spanish, Mandarin, or Swahili. In short, even though the ad gets to be on national television, it actually reaches only a few people that Coke is trying to reach. And it has cost a whole lot of money.

Now consider how Amazon can do ads. Since Amazon actually knows the email address of its consumers, doing an email blast is VERY inexpensive compared to doing a national broadcast over the airwaves. Furthermore, Amazon can qualify to whom the blasts are sent. If Amazon has a new cookbook that it wants to promote, then Amazon can prequalify those customers who are likely to have a predisposition to buy a book about cooking. Only rarely does Amazon need to do an email blast to their entire mailing list. So the cost of advertising drops dramatically when a corporation knows their own consumers. And ironically, as the costs of advertising drop, the effectiveness ratio goes up.

And furthermore, as long as Amazon is careful about spamming, they can use the mailing list repeatedly. There is the one-time cost of creating the mailing list; but once created, the mailing list can be used many times over a long period of time.

From this simple example it is seen that there is GREAT worth in knowing your consumers. Being able to have direct conversations with your consumers has ENORMOUS value. And the list of advantages hardly ends with more effective and less expensive advertising. The list goes on and on. For example, being able to get immediate and direct feedback from your consumer is of enormous value. Being able to send directed promotions to exactly the audience of people who are likely to be receptive to a promotion is extremely valuable. Knowing your customer base means that there is the opportunity for cross selling. And the list goes on.


  • Bill InmonBill Inmon

    Bill is universally recognized as the father of the data warehouse. He has more than 36 years of database technology management experience and data warehouse design expertise. He has published more than 40 books and 1,000 articles on data warehousing and data management, and his books have been translated into nine languages. He is known globally for his data warehouse development seminars and has been a keynote speaker for many major computing associations.

    Editor's Note: More articles, resources and events are available in Bill's BeyeNETWORK Expert Channel. Be sure to visit today!

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Posted September 6, 2010 by

This is good example of how online marketing is such a different beast than 'traditional' marketing.  Companies marketing online have the means to know as much about a visitor/customer as possible (look at Facebook or Google) but many of them don't do.  Many of them still do not understand the value of ad hoc analytics and reporting in the online marketing space and these are the ones who un-targeted 'blast emails'.  I don't think Amazon is one of them, though :-)

Good read.

Elad

SiSense

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Posted September 2, 2010 by Neil Raden nraden@hiredbrains.com

Bill,

I think it's a stretch these days to refer to Spanish as a "foreign language," and besides "– some of the people who see the ad speak only a foreign language, such as Spanish, Mandarin, or Swahili." Why are they watching a presumably English language station if they don't understand English?

You mention the value of creating an e-mail list, then speak about knowing your consumers, but provide no insight about how Mars, R.J. Reynols or GM would go about it and keeping it up to date. Sure, an email blast is cheap, but knowing what to blast to whom is not and keeping the information fresh, presumably through 3rd party sources, loyalty programs, etc. is a significant ongoing expense.

I don't see much value in this article and it could have been written 10 years ago.

-NR

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