“Many companies pursue growth opportunities without adequately defining who their ideal customers are,” according to Frank V. Cespedes, James P. Dougherty, and Ben S. Skinner III. “[1] That lack of clarity can hamper profitable growth.” Cespedes (@fvcespedes), a Senior Lecturer in Business Administration at Harvard Business School, Dougherty, a cofounder of Madaket Health, and Skinner, head of LCS Partners, go on to report that historically very few new companies have mastered the art of identifying and catering to their ideal customers. They write:

“In the first decade of the 21st century, fewer than half of all U.S. startups were able to survive beyond three years. But it’s even harder to grow a company beyond certain levels of sales. Of the nearly 44,000 companies founded in 2000 and listed in the Capital IQ database — which includes public and privately held companies — fewer than 6% achieved more than $10 million in revenues by 2010, and fewer than 2% grew to more than $50 million.”

As the opening salvo of their article states, one of the most significant reasons that companies fail to grow is a company’s inability to define its core customers. “Without clarity around that,” they write, “the sales process becomes a function of individual salespeople’s ‘heroic’ efforts in the field, not a scalable platform for profitable growth.” No matter how large or how small a company is, or whether it is a start-up or an established business, identifying the customers most likely to buy the company’s offered goods and/or services is critical for success. Cespedes, Dougherty, and Skinner elaborate:

“Every company, large or small, does things that make it easier for some customers to do business with it, and harder for others. Selecting the right customers is critical, especially if resources are constrained and the brand is little known. A customer ultimately represents a stream of orders for the seller. That order stream, in turn, has a domino effect on the company’s business. Different customers come with different transaction costs for the seller — for example, in a manufacturing business, stock vs. custom items, or in a service business, customers that do or don’t require proposals. These customer requirements affect ‘upstream’ capacity utilization at the selling company in two ways, influencing both the kind of capacity utilized (the product mix) and how capacity is utilized (for example, production lines needed in manufacturing or the types of people and skills needed in a service business). The orders also affect ‘downstream’ after-sale economics and organizational requirements. Together, these factors help to determine the cumulative net cash flow associated with the customer exchange, the price the seller needs to charge to earn a profit and the margins available for other business needs. Surprisingly few companies — especially entrepreneurial ones — clarify their core customer selection criteria.”

Sarah Fielding bluntly asks, “If you don’t know who you are talking to, then how can you hope to include messages in your marketing that attracts their attention and resonates with them?”[2] Fielding agrees with Cespedes, Dougherty, and Skinner that one of the most important things a company will ever do is profile its customers so that it knows how best to market to them. She explains:

“It’s very likely that your business will offer various products and services, each targeting a slightly different audience. … How you communicate to the different audiences and where you promote your services to them will vary considerably. A one size fits all marketing approach isn’t going to be half as effective as more targeted campaigns. And when it comes to targeted marketing, the devil is in the detail — and you get that detail from your customer profiles. What your customer profiles look like will depend very much upon the type of business you are running. … If you’re a business to business outfit, then you need to know what sort of department they will work in and what sort of business title they will have. You need to know whether they’re predominantly male or female (or a mix), roughly how old they are likely to be, what budgets they might have, what challenges they are likely to be facing that your product or service could address, and what reasons they might have for not purchasing from you. If you’re going to be targeting consumer customers, then you need to think about their age, their sex, their salaries and spending habits, the sorts of products and brands that would appeal to them, how they like to shop or be approached, what they might read and where they might go. I know of a well-known food brand that goes as far as giving names to their customer profiles.”

David Moth (@DavidMoth), Social Media Manager at Econsultancy, believes some of the most important data you can analyze concerning potential customers is past behavior. He believes that past behavior is one of the best indicators of future behavior and that information can be effectively used to target potential customers.[3] “In a nutshell,” he writes, “behavioural marketing is the practice of serving targeted ads or content based on a user’s past actions and behaviours.” He elaborates on why he believes behavioral marketing is more effective. He writes:

“The reason being that if ads are more relevant to the user, there’s a higher chance they will react in a positive manner (i.e., buy something). Though this all sounds very simple, it’s only made possible by a lot of technical wizardry. User profiles are constructed based on a broad range of data, including:

• Website analytics
• Cookies
• Browsing history
• Search history
• Social data
• Purchase history
• Login details
• IP addresses
• App data

All of which needs to be collected, analysed, and turned into actionable insights. … Ultimately it enables marketers to move far beyond ‘batch and blast’ messaging, and is also an improvement on using segments or personas. By using behavioural marketing brands can personalise messages to individual customers.”

Cognitive computing systems, like the Enterra Enterprise Cognitive System™ (ECS), can help integrate the kinds of data that behavioral marketing requires. Cognitive computing systems are more likely to discover the actionable insights to which Moth refers because they are better at providing context for much of the unstructured data upon which targeted marketing relies. Andrew Moravick (@Amoravick), a content marketing manager for the Aberdeen Group, explains that data can be confusing and trying to analyze it can be overwhelming if you don’t use the right tools.[4] He explains:

“When it comes to using data for marketing, think of data points like stars in the sky — at a glance, there’s a beautiful abundance beyond counting. With a more refined eye, you might see patterns or shapes that seem to be saying something. With scientific analysis, you can even find clear cut answers to critical questions. If you don’t know how to look at it, though, it may all seem overwhelming and potentially frightening. … To make the use of data for targeted marketing as simple as possible, don’t think of data as complicated 1s, 0s, algorithms, equations, or systems: look at your data as answers to questions. Before you worry about who are the right people to target, start with what enables your customers to buy. For those who are capable of buying, you’ll have already cut out a major hiccup in typical sales cycles as you know from the beginning that they’re sales-ready. For those who aren’t ready, you can avoid alienating them with offers of things they can’t have, and even create lead nurturing paths to potentially guide them or help them grow into being ready for your offerings later on.”

Because cognitive computing systems generally use natural language to communicate with users, they can help relieve some of the anxiety that users may have when embarking on a journey to discover their ideal customers. I agree with Moravick that users shouldn’t have to worry about the 1’s and 0’s and should only be concerned with asking the right questions and receiving actionable insights. Cognitive computing systems are more likely to provide the types of insights marketers are looking for because they can deal with many more variables than other kinds of systems.

Footnotes
[1] Frank V. Cespedes, James P. Dougherty, and Ben S. Skinner III, “How to Identify the Best Customers for Your Business,” MIT Sloan Management Review, 18 December 2012.
[2] Sarah Fielding, “The importance of customer profiling – how well do you understand your customers?” LinkedIn, 22 June 2015.
[3] David Moth, “What is behavioural marketing and why do you need it?” Econsultancy, 20 May 2015.
[4] Andrew Moravick, “Using Data for Targeted Marketing: Discerning Drivers from Distractions,” Business to Community (B2C). 22 June 2015.