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Wednesday, June 26, 2013

Understanding Consumer Behaviour

Understanding Consumer Behaviour is one of the areas of marketing I am excessively passionate. I truly believe that a success of an organization is directly proportional to how well informed they are of their customers' buying behaviour.  By understanding behaviour, companies will have a better understanding of their offerings and can build a better product that organically induces longevity in customer loyalty. 

The Power of Observation

There is power in observing people. Through observation, you'll be able to come up with hypothesis why people do things. This is the first step of understanding behaviour. 

One of my favorite things to do everyday is to go to a highly populated commercial area, sit down and just spend time watching people. One good example is my daily lunch routine. I go to this mall's food court where you can buy cheaper alternatives for lunch versus going to the more popular fast food chains. While eating my lunch, I always watch people eat. I observe people who eats alone and people who came in groups to eat. I notice that although the food court is full during lunch time (every seat is taken), I also notice that there's not a lot of people going to the individual stalls and buying food.

I further observe and I realize two things:

  1. Four out of ten individuals who eat alone brings in their home-prepared meals. Out of the four, half of them will buy drinks in the stalls and the other half will get the free water. 
  2. One out of four people in a group will either buy their own rice and shares a viand with a friend or orders an upsize of the meal to be split among the group members. 
From this observation, I made my first hypothesis: 

This food court attracts lower income or budget restricted demographics. 

But is this assumption the same for everyone who eats at the food court?

Second realization I had from observing is that the people who came in as groups, are mostly people dress up for corporate work. From this observation, I can add another hypothesis:

This food court is a venue for employee down-time and not everyone earns at the lower-end of the salary bracket. 
As you can see, I can go further and further with my observation and coming up with my hypothesis for each observation. This is the easy part because at this stage, your observation will produce assumptions.

While marketing professionals will say - assumption is not good for business, in the field of research and experimentation, assumptions will provide you with the basic structure for what you want to find out. Just like in any physics problem - we always assume that the situation is ideal. We remove all the external factors to ideally compute for an output with higher probability of achievement. That's why you always read this statement in physics problem involving kinetics - "assume a frictionless surface, compute for the velocity at which the bus will stop at X point."

What is crucial is the critical thinking after making the assumptions and hypothesis. The thought process of identifying which part of the behaviour you would like to understand further and what questions should be asked in order to derive a much richer insight.

Turning Consumer Behaviour to Consumer Insights

Consumer behaviour is not valuable if you do not convert it to business insights. It is pointless to discuss behavioural observation if you don't know how to break it down to quantifiable measurements By breaking it down to that level, it gives new meaning as to why people do things and what drives them to do it.

So the question really is - how do you break it down?

From your assumptions, you formulate an overall hypothesis that highly relates to your current business situation. Whether it's finding out how to expand a current market, or penetrate a different demographic, or how to increase order size per customer or as far as how to take loyal customers to advocate your brand. There's so many things you can ask and find out but what is important here is that you ask the right questions.

When I say right questions, you do not simply ask "what will drive them". You have to go to the "so what" analysis to derive a much richer reasoning. From there, you test your assumptions.

How to Conduct a "So What" Analysis

  • From each hypothesis, read it allowed and ask yourself "so what"
  • For each answer, ask again "so what"
  • Do this five times at a minimum until you find yourself that you can no longer find any reason (if you end at three "so what" then that should be fine). 
  • The last point will be your key element to develop your main insight. 
  • The last point is more often than not, the element you need to test and validate your learnings.
After getting your first insight, make sure to break it down to quantifiable metrics. If you are confuse on how to do this, you can ask yourself "what can I tweak about this insight that I can test and measure?". I'll give you an example:

Breakdown this Insight: Customers visits our store twice a week and purchase only once. 

Metrics that can be tweaked: 
  1. # of visits
  2. # of purchases 
From these two elements, you can further improve a behaviour because you know that you can influence these metrics. You can do that by further asking yourself the 5 W's and 1 H for each of this metric. 

As soon as you have those questions, it is now time for you to create a test methodology to validate your initial insight. Get results and understand if one element affects another. This is what we call validated learning

The Value of Qualitative Metrics

Although numbers are essential and as I've mentioned, always break it down to quantitative results, qualitative metrics are also as important. More than the numbers, qualitative measurements paints a picture as to why these customers visits and spends at your store at a certain frequency. These qualitative metrics that I am referring to are actually the reactions and emotions of people encapsulated in words (mostly adjectives) to describe their overall sentiment.

This metric is essential in crafting the overall look and feel of your campaign as you deliver the key message to the end-consumer. 

Building a Sustainable Business Around Consumers

I believe that today is more difficult to market a product because the power of buying shifts to the consumers. This is driven by the numerous number of direct competitors and alternative sources that can replace your products or services. It becomes more dangerous if you develop a product that the consumers don't want or doesn't exist in their heads. You might end up wasting a lot of capital just to create something that no one wants.

My point here is that in order to be competitive and stay competitive, always start with your desired consumer. Understand what drives them and hinders them from buying your product. And from that, develop an insight that will be the foundation of your overall strategy.

Again, remember this basic framework- observe -> create assumptions -> develop hypothesis-> ask relevant questions-> develop an insight-> test-> validate-> test again-> apply then communicate to your target market.