Ray Wei

Professor Murphy

MKT 234 Consumer Behavior

2 May 2022

Building Consumer Relationships

Understanding the Consumer

Tools and Techniques

One of the best ways of understanding your company’s consumer base is by

implementing market segmentation strategies. Using market segmentation well can help you

send the right message every time, and efficiently target specific groups of consumers

(Qualtrics). Market segmentation is the practice of “dividing your target market into

approachable groups” (Qualtrics). Companies need to create subcategories of markets based on

demographics, needs, priorities, and other psychographic or behavioral ethos to successfully

implement this segmentation technique. Once you have understood your market segments, you

can greatly leverage your knowledge of product, sales, and marketing strategies. That way

products can be created to better cater to different segments.

There are multiple benefits when market segmentation is implemented well, including

revenue growth, stronger marketing messages, and increasing brand loyalty. With the survey

Bain and Company did with company executives about their experiences, “81% said it was a

critical tool for growing profits” (Markey, du Toit, Allen, 2008). However, in the same report,

“fewer than 25% believed their companies used it effectively” (Markey, du Toit, Allen, 2008).

Market segmentation is hard to get right, but when it is successfully implemented, the strategy
can yield tremendous results. In a study done over five years, “businesses that successfully tailor

product and service offerings to desirable customer segments post annual profit growth of about

15%. By contrast, companies that fail to connect the right value propositions to the right

customer segments realize annual profit growth of only 5%” (Markey, du Toit, Allen, 2008)

One of the key benefits of market segmentation is stronger marketing messages. With

segmentation, marketing messages do not need to be generic and vague that are aimed at a broad

audience. You can speak directly to a specific group of people and relate to them. Additionally,

using digital marketing, market segmentation can be more targeted by helping you understand

and define your audience so that marketing efforts can be directed to specific age groups,

locations, and interests. Also, when products and services are catered towards the right

customers, especially communicated with clear and direct messaging, it is a very special feeling

that would increase brand loyalty. The reason being is that customers would feel understood and

uniquely served that they are more likely to stick with a brand (Qualtrics). And ultimately, the

efforts of market segmentation can direct brands to stay on message and keep on track with

marketing strategies that are the most effective which will drive further growth in returning

customers.

There are different types of segmentation that companies can take advantage of and target

the specific markets that are grouped individuals within identified segments. First is

demographic segmentation, it sorts a market by age, education, income, race, gender, or

nationality. Sorting by demographics is one of the simplest ways of segmentation, and there are

often distinct differences in the products and services people buy in different demographics.

There are also clear spending gaps in different demographics that can be targeted separately in

marketing segmentation. The second is geographic segmentation, it targets customer groups

based on geographical boundaries. People from different areas have “needs, preferences, and

interests that differ according to their geographies” (Qualtrics). Knowing what to sell from the

climate and geographic regions consumers live in can be much more effective; for example, tire

companies like Michelin do not need to advertise winter tires in the south so they can divert their

effort to regions that frequently snow.

Beyond demographic and geographic segmentation, there are less explicit ways of

segmentation such as behavioral and psychographic segmentation. Behavioral segmentation is

dividing markets by consumer purchasing and lifestyle behaviors, as well as decision-making

patterns. By segmenting markets based on purchase behaviors, companies can develop a more

targeted approach and focus on advertising products that each individual is most likely to buy.

Psychographic segmentation is similar in which that it looks at consumer behavior according to

lifestyle and personality.

Strategies Used to Gather Qualitative Insights

To begin with market segmentation, there are several steps to take to achieve the desired

result. To start the process, it is best to define the market the company is targeting. And question

if there is a need for the products and services, and whether it is too large or small. Then by

knowing where the brand sits in the marketplace, we can segment the market based on the

criteria above. A company is perfectly fine to use multiple segments or a combination of

segmentation to better target consumers. From that, companies need to fully understand their

markets such as by conducting research surveys, focus groups, and polls. A combination of

quantitative and qualitative questions can be asked to gather initial information about the target
segments, questions can be multiple choice or open-ended. After the assessment, companies can

use the data from the initial research to make a final determination on which marketing segments

are relevant to the brand. And from that, companies need to test the findings on the target market

in real-world circumstances and track to see how effective the strategy is. If there is any

mismatch compared to the projection, companies need to reevaluate their marketing segments

and research methods.

There are other times when companies need to revisit and review their market segments

to remain effective and useful in understanding the consumer. One of the most relevant examples

is when there are rapid changes in the marketplace, such as during the COVID-19 pandemic.

During this time, many businesses with physical locations have to rethink how to sell to

customers. New services like special senior hours, online ordering, and curbside pickups began

to emerge as businesses adapt to the market segmentation. So, it is important to change as the

customers’ buying behaviors change and understand what they are expected from the brand.

Other times when companies need to rethink their market segments include on a regular annual

or periodic basis. Many external factors can change consumer behaviors or characteristics of the

same market segments can change due to the change in taste. And brands need to get ahead of

the competition and the market by having a structural review in a timely manner.

Profiling the Post COVID Consumer

How Consumers are Likely to Change

During the COVID-19 pandemic, there have been dramatic changes in consumer

behaviors, it has “upended lives and livelihoods across the globe, forcing consumers and
businesses to adopt new digital behaviors” (McKinsey). Throughout this time, consumers are

more willing than ever to change shopping habits, and businesses have pivoted to digital ways of

doing business transactions. The progress of eCommerce has seen enormous growth in the

course of history, which compressed decades' worth of past and future digital adoption into mere

days or weeks. The progress in technology provides consumers to buy “whatever they want,

whenever they want, within minutes” (McKinsey). To continue to meet those expectations,

companies will require more analytical processes to consume the massive amounts of consumer

data and serve their personalized needs.

In the shifting consumer landscape, there are four major consumer changes in the post-

pandemic world. In the near future, consumer spending is going to start raising. With Americans'

strong spending power, many desire to “splurge and indulge themselves in a fit of post-pandemic

revenge spending” (McKinsey). Higher-income people will be more than willing to start

spending on travel and entertainment experiences, and any other expenditures that were

previously cut back due to the COVID-19 pandemic. In the past year, high inflation has not only

been driven by the high fuel cost but also been driven by the high demand for travel and

transportation. The graph below illustrates how much each category has risen and the impact

they have on the overall inflation. Categories that are involved with travel, transportation, and

entertainment have significantly increased in price, especially in relation to other categories. This

shows the clear transition into a post-pandemic world where consumers are changing spending

habits that reflect the opposite of that during the pandemic.

 Another change that we are going to see is the further acceleration in eCommerce. Since

the beginning of 2020, credit and debit card usage has increased by 20 percent in online

spending. This surge in buying through eCommerce during the pandemic will continue into the

future as we become more intertwined with digital. The vast majority of consumers who have

tried online shopping will continue to do so, cementing it as an indispensable habit. Ecommerce

has introduced the world of convenience, even many traditional in-person shopping experiences

have many digital integrations to it due to the pandemic. Also, as we are coming out of the

pandemic, there will be a rebalancing period of where consumers are going to spend their

money. When consumers are forced to work from home, it boosted the home economy because

consumers primarily invested in amenities such as home theaters and gyms. In the future, a
period of returning to the past will happen as consumers are “eager to spend time and money

outside the home on dining, entertainment, and travel” (McKinsey).

And lastly, brand loyalty will be significantly reduced for post-pandemic consumers. Due

to the supply chain bottlenecks and material shortages, consumers have been forced to switch to

different products which has disrupted brand loyalty. During the pandemic, because of the

limitations of supplies and the options to choose from, “75 percent of consumers tried new

shopping behaviors, with many of them citing convenience and value” (McKinsey). Younger

generations like Gen Z and the millennials are more susceptible to changing brands, 39 percent

of them reported having deserted trusted brands for new ones. This phenomenon may also be

reflected this way because younger consumers are still searching for brands that represent their

personal values, and that still have not changed despite the COVID-19 pandemic.

Newer Buying Experiences, Values, and Expectations Changing

With consumers' attitudes and purchasing habits rapidly changing in recent times, many

of the new experiences are going to remain post-pandemic. According to Accenture, consumers

have been used to managing isolation by using increasing digital ways to connect, learn and play.

And moving forward, those habits are going to continue to persist as the virtual workforce will

be normalized (Accenture). The impact of COVID-19 not only made consumers more concerned

about health but also from an economic perspective. People have changed their attitudes in

multiple different ways; while striving to adapt to a new normal, individuals also contemplate

what this crisis means for them and the people around them, highlighting a larger sociological

concern among consumers.

 Some of the long-term trends that have been accelerated due to the pandemic are

increasing focus on health and conscious consumption. Becoming more healthy and sustainable

purchasing habits were already emerging trends before the pandemic; and as the outbreak has

pushed consumers out of their normal routines, consumers are more willing to adopt new habits

and behaviors in the long term. Brands need to incorporate more healthy options and make it a

priority to support healthy lifestyles for consumers. Having it can be a great strategic

differentiator for the foreseeable future. Not only that but having a sustainable portfolio of

products will also play an important role in attracting consumers. Consumers nowadays are more

mindful of their purchasing choices than ever, younger generations are using actions to “limit

food waste, shop more cost consciously and buy more sustainable options” (Accenture). In the

post-pandemic world, brands will need to stay on top of their corporate strategy and take note of

these changing behaviors to incorporate them as key parts of their products.

However, with the supply chain shortages during the pandemic and the persistence of it

to last for a few more years to come, prices of goods are increasing and store shelves have been

emptied many times. Shoppers are forced to only buy what they can find and afford more often
than before. These challenges make established brand names and flashy ad campaigns

increasingly obsolete in retaining consumer loyalty. High inflation and stretched supply chains

leave gaps on shelves, this invites the shoppers to try out different products as availability and

price determine what goes into the shopping carts (Kang, 2022). Throughout the years into the

COVID-19 pandemic, shoppers have become more willing to switch and try out new brands.

This can shift the balances of power inside grocery stores, where prominent food brands like

Kraft Heinz and Kellogg are at risk of losing market share to competitors and store brands that

can fill in the empty store shelves (Kang, 2022). At the same time, big brands can also use the

opportunity to test out newer and lower-cost products since consumers are more susceptible to

change and more willing to buy simply because they are available. In the near future, brands still

need to grapple with keeping up with demand and filling the stocks in stores. Companies

sometimes need to trim the number of offerings or source materials more locally to better keep

products in stock.

Decreasing brand loyalty is no doubt becoming an issue for companies with supply

challenges. Consumers used to stick to brands they know out of convenience and buy items from

the names they are familiar with, but when they are both not convent to find and expensive,

consumers are going to be inclined to switch. According to a survey conducted from May 2020

to August 2021, “about 70% of U.S. shoppers said they had purchased a new or different brand

than they had pre-pandemic” (Kang, 2022). And “more than 90% of consumers say they will buy

another brand or item if their preferred choice wasn’t available”, according to a recent survey

(Kang, 2022). Consumers have been more willing to try fewer familiar names, which has caused

brands with low availability to lose consumer spending. A strategy worth trying out to tackle this
challenge is for major brands to develop lower-priced versions of their products to keep

consumers loyal and decrease supply costs.

Suggesting a New Brand to Consumer Relationship

Better Future Strategy for Building Consumer Connections

Building consumer connections for a new brand needs to develop a growth strategy, one

that is based on trust with consumer relationships as well as having a shared mission and growth

agenda. Successful new brands also need to understand how “today’s investments will fuel

tomorrow’s growth, translating customer insights into actionable, positive business performance”

(McKinsey). Additionally, brands will need to adopt an operating model built for speed. The

model should be able to unleash nimble, empowered teams with multidisciplinary skills and use

consumer data analytics to make speedy decisions. New brands should increase their efforts to

incorporate better strategies to be more customer-centered with real-time analytics and to be able

to respond to sudden external shocks to stay on track. Using these types of decision-making can

help new brands to better serve consumer needs and develop consumer relationships.

Greater Personalization

Businesses on a growth trajectory require a deeper understanding of customers, the best

way to create moments that matter for consumers is through personalization. Consumers will

remember brands when they show care towards their buyers, and consumers often highly value

brands that offer personalized experiences. To achieve consumer relationships, brands need to
use advanced analytics to identify and fulfill consumer demands. Using forecasting models can

locate pockets of growth and act with speed to capture demand, win new customers, and

reinforce trust and loyalty (McKinsey).

In-Store Experiences Change

There have been profound and unprecedented COVID-19 effects on the in-store

experience that will last into the future. For retailers, it is critical to continue working on

operational challenges to meet consumer demands and match purchasing habits. Stores need to

“be prepared to pivot and react while also considering changes to [the] business model”

(Deloitte). Assessing store demand and experimenting with new operational processes such as

combining technology into the experience can elevate the shopping experience in physical stores.

Also, from the change in consumer behaviors during the pandemic, in-store experiences need to

adapt to customers’ values and behaviors. Consumers in the post COVID world may return to

shopping in different ways and at different speeds, stores need to develop different choices and

options for different customers. Additionally, stores will likely play a different role in the

shopping experience compared to before the pandemic. Customers are more likely to continue to

spend less time browsing and be laser-focused on shopping trips; they will also continue to

expect the stores to be a safe and risk-free environment (Deloitte).

Online Connections Change

Online experiences have no doubt been accelerated in the past few years due to the

COVID-19 pandemic, it has nudged and somewhat forced people to use more online connections
than before. Many more people who are not used to the idea of online connections or specific

parts of the online experience have tried out the services. In the future, the online connections

will only grow from now and new brands will have to put a big emphasis on their online

connections to have a noticeable presence. Having effective online connections can bring brands

and consumers closer than any other method because it breaks down the barrier of selling

through retail stores and brands can directly communicate with consumers.

Collection and Use of Consumer Analytics Change

As digital and online strategies become new brands’ primary growth plans, a large

collection and use of consumer analytics can help brands to gain a better understanding of their

customers. The more brands can learn about their target consumers, the more they can be able to

“optimize spending and improve the user experience” (Michigan State University). This use of

analytics can not only effectively reach consumers at a great value, but also brings

personalization to the end-user by having a focused message at a convenient time. By gaining

access to consumer insights, brands can see who is interested or engaging with their products in

real-time. Then brands can respond to customers’ digital behaviors by sending people tailored

content and personalized messages. When this is successfully done, a positive customer

experience will lead to more sales and referrals. Brands will also need to be extra careful around

the use of consumer data, customers are now more aware that brands are collecting their

information. The use of analytics should be used ethically, and brands should also handle

consumer information in a way that is sustainable in the long run. Consumers can ultimately

understand when a brand truly recognizes who its customers are, and what motivates them to

make certain business decisions.

Sources:

https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/emerging-

consumer-trends-in-a-post-covid-19-world

McKinsey: Emerging consumer trends in a post COVID 19 world

https://www.wsj.com/articles/why-the-american-consumer-is-switching-brands-more-than-ever-

11648555251

Wall Street Journal: Brand Loyalty Takes a Hit From Inflation, Shortages

https://www.qualtrics.com/experience-management/brand/what-is-market-segmentation/

Qualtrics: Market segmentation: Definition, types, benefits, & best practice

https://hbr.org/2008/02/find-your-sweet-spot-1.html

Harvard Business Review: Find Your Sweet Spot

https://finance.yahoo.com/news/inflation-may-have-peaked-or-maybe-not-morning-brief-

100519609.html

Yahoo Finance: Inflation may have peaked... Or maybe not

https://www.accenture.com/us-en/insights/consumer-goods-services/coronavirus-consumer-

behavior-research

Accenture: COVID-19: How consumer behavior will be changed

https://www2.deloitte.com/us/en/pages/consumer-business/articles/post-covid-retail-store-

strategies.html

Deloitte: Post-COVID strategies for retailers: Reopening stores

https://www.michiganstateuniversityonline.com/resources/business-analytics/how-business-

analytics-is-changing-the-way-companies-market-to-consumers/

Michigan State University: How Business Analytics is Changing the Way Companies Market to

Consumers