Understanding Customers

CHAPTER 5
Understanding Your Customers

Performance Objectives
• Use positioning and targeting to develop retail strategies.
• Identify methods used to target retail customers.
• Cite recent demographic and behavior changes in the
consumer market.
• Cite recent psychographic changes in the consumer market.
• Identify the different types of buying motives.
Performance Objectives
• Describe data warehousing and data mining.
• Cite examples of how data mining is used by retail buyers.
• Identify how buyers can use the information maintained in
data warehouses.
• Describe database marketing and identify its goals.
• Recognize methods buyers can use to learn more about their
customers.
Developing a Consumer
Orientation
• Marketing concept:
 The belief that all business activities should be geared
toward satisfying the wants and needs of consumers
• Retail strategy:
 Overall framework or plan of action that guides
a retailer
 The owner or management team outlines the philosophy,
objectives, target customer, tactics,
and control activities
Positioning a Retail Store
• Image:
 How the retailer is
perceived by consumers
• Positioning:
 Identifying a group of
consumers and developing
retail activities to meet
their needs
 Pricing, assortments,
promotions
Positioning a Retail Store
Targeting Consumers
• A market is a group of people with the ability, desire, and willingness

to buy
4 Forms of
Market
Segmentation?
Demographic Data
• Information about customers such as:
 Age
 Sex
 Family size
 Income
 Education
 Occupation
 Race
Geographic Data
• Information on where
consumers live, such as:
 ZIP codes
 Neighborhoods
 Cities
 Counties
 States
 Regions
Behavioristic Data
• Information about customers’ buying activities, such as:
 The time that most customers make purchases
 The average amount of their purchases
Psychographic Data
• Information about
customers’ personality
characteristics such as:
 Lifestyle
 Interests
 Opinions
Target Marketing
• Target market – the specific group or groups of
consumers on which your store will focus
• Types of target marketing:
 Undifferentiated – attempts to please all consumers
 Concentrated – focusing on one segment of the market
 Multisegment – retailers that focus on more than one

consumer segment. Often different advertising strategies and
product assortments are needed to reach both groups
Target Marketing
• Niche Market: Providing a product or service to a
narrowly defined group of customers.
IDENTIFYING CHANGES IN
CONSUMER MARKETS
• Retailers must respond to events such as:

– Changes in the tastes and attitudes of customers
– Declines in the size of their target market
– Changes in spending patterns of customers
Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Clodfelter, Chapter 5 14
Copyright © Bloomsbury Publishing Inc. 2013
CONSUMER MARKETS
• Tastes and attitudes of consumers change, such as
shopping online or “going green”

CONSUMER MARKETS
• Buyers will want to closely examine growth rates for specific
age groups

CONSUMER MARKETS
• Demographic trends
• Consumer behavior
trends
• Lifestyle trends

Demographic and Consumer Behavior
Trends
• Marital status and

birthrates
• Households
• Age groups and
spending patterns

Marital Status and Birthrates
• Single-person households are showing the

greatest increase in numbers, and that trend
is projected to continue
• The birthrate has remained relatively stable
in the United States since 1994, and population
growth will continue to slow

Households
• There is a growing percentage of working women
– Department and specialty stores will need to offer
more career clothing
– Grocery stores will need to offer more convenience
foods
• The percentage of male homemakers continues
to increase, but women will continue to make
the majority of purchasing decisions

Age Groups and
Spending Patterns
As more responsibility is
placed on younger
children because of latch-
key lifestyles, they are
learning savvy shopping
skills, along with gaining
confidence in their role as
shoppers

Gen Z -The Next Generation
• First truly mobile-first
generation
• By 2020, Gen Z will account
for 40% of consumers.
• Gen Zers use an average of 5
screens: smartphone, TV,
laptop, desktop, iPod/iPad
(Millennials only use 3)
• Gen Zers influence $600
billion dollars of family
spending
Age Groups and Spending Patterns
• Baby boomers vary markedly in their attitudes and
values, and thus cannot be looked at as a single
market segment
• Baby boomers tend to spend lavishly on their
children
• Products appealing to older customers will
probably need to focus on comfort, security,
convenience, sociability, and old-fashioned values

Ethnic Origin
• Non-Hispanic whites are projected to become

a minority (47%) by 2050
• Hispanics will compose 29% of the U.S.
population by 2050, compared with 14% in
2005

Lifestyle Trends
• Psychographic trends are related to consumers’
lifestyles, attitudes, and opinions

“Busy, Busy, Busy” Lifestyles
• Juggling multiple tasks is common among

Americans
• Shopping has become an activity that many hate
• Many retailers are stocking and promoting items
directed at calming and relaxing customers

Computer and Social Media Junkies
• As the mass market evaporates into smaller and

smaller niches–and more people spend time and
make purchases online–traditional forms of
advertising through TV, radio, newspapers, and
magazines have become less effective
• Increased usage of social media and mobile
technologies
“We’re Living Large” Lifestyle
• Retirement is creeping up on baby boomers,

who feel they need to reward themselves for
the daily stresses they face
• Americans are bigger too, with one-third of the
U.S. population tipping the scales as obese

UNDERSTANDING WHY
CONSUMERS BUY
-Personal indulgences – luxury handbags, high-end jewelry, and gourmet foods

were perceived to be expendable
-U.S. consumers consider the internet service to be the top item they could not live
without
-The top five items that consumers listed as untouchable are communications
related

UNDERSTANDING WHY
CONSUMERS BUY
• Buying motives can be grouped into three

categories:
– Rational
– Emotional
– Patronage

Rational Buying Motives
• Reflect basic
human needs
such as food,
clothing, and
shelter

Emotional Buying Motives
• Motives are based on a customer’s feelings
rather than logical thought
– Social acceptance
– Curiosity
– Change
– Sex appeal
– Self-esteem
– Group approval
Patronage Buying Motives
• Convenience
• Value received
• Assortment of merchandise
• Services offered
• Experienced and courteous sales associates

Big Data
• Data warehousing, data

mining, and database
marketing
• Allows buyers to identify,
analyze, and take advantage
of trends among their
consumers.
LEARNING ABOUT
YOUR CURRENT CUSTOMERS
• Data warehousing
– Acts as a comprehensive single source for sales, margin, inventory, and
other key performance measures
• Data mining
– Software searches through warehoused data to find trends and patterns
that might otherwise have gone unnoticed
• Database marketing
– Collecting info about customers, analyzing it to predict if customers will
buy a product, and using that knowledge to develop a marketing message

Benefits and Uses of Data Warehousing
• Allows retailers access to detailed customer,

inventory, and financial data on a perpetual,
real-time basis
• Some firms have seen a payoff of 10 to 70
times their initial data warehouse investments
through more effective decision making

Using Data Mining Techniques
• Data mining software produces data such as:
– Associations: Links occurrences to a single event
– Sequences: Links events over time.
– Clustering: Discover groups within the data
– Forecasting: Discover patterns such as customer
loyalty and likely future purchases
Data Mining Techniques used in Retail Industry

• Data mining can be used for

– Competitive price analysis
– Markup/markdown opportunity identification
– Promotional price analysis
– Private brand analysis
– Promotional performance analysis
– Affinity analysis

• For example, information on merchandise
classifications that are identified as commonly
purchased together can be used for better in-store
product adjacencies,
improved promotional
display effectiveness,
and more effective
advertising campaigns

Database Marketing
• Database marketing is a form of direct marketing that uses
databases of customers to generate targeted lists for direct
marketing communications.
– Names, emails, purchase history, ZIP codes, customer segmentation
Challenges Facing Database Marketing
• A retailer’s most important asset is a satisfied

customer
• Too many retailers lack a strategy for coordinating
database marketing with other traditional approaches.
• Some consumers feel that using information on their
shopping habits constitutes an invasion of privacy

Goals of Database Marketing
1. Targeting promotional offerings to specific customers
2. Gaining a better understanding of customers
3. Strengthening the store-customer relationship
4. Gaining a more detailed understanding of the best customers
5. Tailoring merchandise offers to specific customer segments
6. Reducing the cost of new customer acquisition
7. Improving customer service
8. Assisting in the merchandise selection process
9. Preventing customer defections


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CHAPTER 5

Understanding Your Customers

• A market is a group of people with the ability, desire, and willingness

 Concentrated – focusing on one segment of the market

 Multisegment – retailers that focus on more than one

• Retailers must respond to events such as:

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Marital status and

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Single-person households are showing the

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Non-Hispanic whites are projected to become

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Juggling multiple tasks is common among

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• As the mass market evaporates into smaller and

• Retirement is creeping up on baby boomers,

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

-Personal indulgences – luxury handbags, high-end jewelry, and gourmet foods

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Buying motives can be grouped into three

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Data warehousing, data

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Allows retailers access to detailed customer,

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• Data mining can be used for

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

• A retailer’s most important asset is a satisfied

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

Published by Fairchild Books, an imprint of Bloomsbury Publishing Inc.

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