Entrepreneurs must know their customers. I don’t mean literally know them in person, although that’s not a bad idea, but in general they need to understand what drives them to make a purchase. They need to especially understand what drives them to purchase from you! Understanding their purchasing habits and converting that into strategy will be how you find some competitive advantage over your competition who fails to do so. You will also be able to maneuver changing business environments based on what your customers value in your offering.
A key point to remember when attempting to understand your customers is that they do not value the same things you do. Most of the time, what you think your customer values may be completely wrong. It’s up to the entrepreneur to figure out these gaps and work to close them. You need to align your value proposition with the perceived value your customers assign your business.
If this isn’t quite making sense, I’d like to show you an example. Take, for instance, a small outdoor equipment shop. It has great customer service and a good environment. Subconsciously you, as the customer, assign a value to that business without actually looking at the price of the items. You will assume a higher price from this business when in fact they may actually offer lower prices than the larger retail chains selling the same or similar product.
Using that example, the entrepreneur needs to understand where their customer values their product. They can use value based pricing in order to capture some of the value that may be left on the table. If the customer is already placing higher price on their items, they may have better financial results by capitalizing on that perception and raising their price to match.
If this still doesn’t make sense, I recommend reading the pricing portion of Principles of Marketing Engineering by Gary Lilien which covers some of these concepts in much greater detail.
Understanding your customer will also help you control your cash flow and better understand your business. Another way to begin to understand your customer is to use surveys. Survey data can really help you begin to form solutions that are important to your customer even though they may seem useless to you. The thing to remember with survey data is that some can be skewed, especially if you are asking people about price preferences. Customers will always want the lowest price for what you provide. Remember to account for this if you are surveying pricing data.
The entrepreneur can use tools such as MEXL to analyze many sorts of data. The key is that you actually put the survey data to use and understand it fully. You’ll be able to segment your market, identify perception gaps between you and your customers, identify the key attributes of your product or service that actually matter to the customer, and a variety of other possibly helpful analysis metrics.
Overall, knowing your customer is crucial to finding your success. Remember to be humble with your ideas and realize that theirs are usually more important since they are the ones who will be paying for your product. I’m not saying to give up your vision for the customer, but to find a way to utilize what you know about them to improve your offering.
What have you done to understand your customers? Leave a comment!!