Chapter 6

Differentiating Customers
by their Needs

Having a good knowledge of customers’ value is certainly important, but to use customer
relationship management tools and customer strategies to increase a customer’s value, the
business must be able to see thing from the customer’s perspective, with the realization that there
are many different types of customers whose perspective must be individually understood. The
key to building a customer’s value is understanding of how this customer wants it solved. So one
key to building profitable relationships is developing an understanding of how customers are
different in terms of their needs and how needs-based differences relate to different customer
values, both actual and potential.

DEFINITIONS
Before going too much further, let’s pause to define the important terms relevant to this
discussion.

NEEDS
Needs represent the why (and often, the how) behind a customer’s actions. The point is that
needs are not just about product usage, but about an expanded need set or the combination of
product, cross-buy product and services opportunities, delivery channels, communication style
and channels, invoicing methods, and so on.

CUSTOMERS
A customer is one who “gives his custom” to a store or business; someone who patronizes a
business is the business’s customer. However, the overwhelming majority of enterprises serve
multiple types of customers, and these different types of customers have different characteristics,
in terms of their value and their individual needs.

A brand-name clothing manufacturer, for instance, has two sets of customers: the end-user
consumers who wear the clothes and the retailers who buy the clothes from the manufacturer and
sell them to consumers.

Characterizing Customers by their needs and behaviors

Descriptive characteristics like gender, age, and income, along with transactional data such as
interactions, purchases, and payments, and usage-related measures such as service requests- all
this information can be captured and stored by the enterprise. The information store on
individual customers is usually referred to as customer profiles.

Let’s consider a customer database in a bank environment where there has been a significant
information technology (IT) investment. The department in charge of business intelligence can
describe the same customer in two different ways, providing two different profiles:
 1. Customer is married, is a Bangladeshi, has two children, lives in Banani, and belong in a
platinum customer groups.
2. Customer visited the online banking site once a week over the last six months, always
visiting the site at least once in the first three days of each month; has a tenure of more
than two years, check her statement and balance regularly, pays her credit debts
promptly and has a clear credit history.

The first profile is demographic. The second profile is behavior-based, and involves a record
derived from what the customer is actually doing or has done in the past with this bank.

Both profiles are important in their own ways. For someone preparing an advertising campaign,
creating a marketing strategy, or deciding on content for a piece of marketing communication,
the first profile is very useful, because it defines the customer at a micro level and provides clues
to editorial direction.
The second type of profile is about action and behavior, and is certainly more relevant than the
demographic profile for any executive at the bank who really wants to know what customers are
doing.

Now the business intelligence department can produce a third profile on this customer as well:

3. The customer the future of her family and her children very carefully, and this is her
primary motivation while using the bank’s products and services. She is comfortable with
technology and enjoys engaging with the bank online rather than having to visit
branches, because she is always pressed for time.

This new profile actually defines why this particular customer uses the banking services she
uses. It shows why she prefers online services and why has accumulated an investment account.
Thus it can be said that Behaviors are the customer’s footprints on a company.

CATEGORIZING CUSTOMERS BY THEIR NEEDS

Behavior change on the part of the customer is what customer-based strategies are all about. To
capture any part of a customer’s unrealized potential value requires us to induce a change in the
customer’s behavior—we want the customer to buy from an additional product line, or take the
financing package as well as the product, or interact on the less expensive Web site rather than
through the call center, and so forth. This is why understanding customer needs is so critical to
success. The customer is master of her own behavior, and that behavior will only change if our
strategy can appeal persuasively to the customer’s needs. Different customers must be
categorized into different groups, based on their needs. It would be too costly for most firms to
treat every single customer with a custom-designed set of product features or services.

One big problem is the complexity of describing and categorizing customers by their needs.
There are as many dimensions and nuances to customer needs as there are analysts to imagine
them. For consumers, there are deeply held beliefs, psychological predispositions, life stages,
moods, ambitions, and so forth. For business customers, there are business strategy differences,
financial reporting horizons, collegial or hierarchical decision-making styles, and other corporate
differences—not to mention the individual motivations of the players within the customer
organizations, including decision makers, approvers, specifiers, reviewers, and others involved in
shaping the company’s behavior.
Marketing has always relied on appealing to different customers in different ways. To address
customers as different types of customers the customer-based enterprise must think beyond
market segmentation, per se. Rather than grouping customers into segments based on the
product’s appeal, the customer-based enterprise places customers into portfolios, based primarily
on type of need.

A market segment is made up of customers with a similar attribute. A customer portfolio is

made up of similar customers. The market segmentation approach is based on appealing to the
segment’s attribute, while the customer portfolio approach is based on meeting each customer’s
broader need. For example-A market segment might be composed of women, over age 45, with
household (HH) incomes in excess of Tk.50,000. A portfolio of customers might be made up of
women who value friendships and like to entertain. Company must know that a single customer
can be found in more than one customer “segment” but in only one customer ‘portfolio”.

UNDERSTANDING NEEDS

Understanding different customers’ different needs is critical to any serious relationship-building

program. Some of the characteristics of customer needs should be given careful consideration:

• Customer needs can be situational in nature: Not only will two different consumers often buy
the same product to satisfy different needs, but a customer’s needs might change from event to
event, and it’s important to recognize when this occurs. An airline might think it has two
customer types—business travelers and leisure travelers—but in reality this typology refers to
events, not customers.

• Customer needs are dynamic and can change over time, as well: Certain types of people
change their minds more often than others, tending to be less predictable. A certain type of
customer is not predictable is a customer characteristic itself, which can be used to help guide an
enterprise’s treatment of that customer.

• Customer needs often correlate with customer value: A business that can correlate customer
value with customer needs is generally in a good situation, because by satisfying certain types of
needs it can do a more efficient job of winning the long-term loyalty of higher-value customers.

• The most fundamental human needs are psychological: When dealing with human beings as
customers (as opposed to companies or organizations), understanding the psychological
differences among people can provide useful guidance for treating different customers
differently.

• There is no single best way to differentiate customers by their needs: There are as many ways
to differentiate customers by their needs as there are creative ways to understand the deepest
human motivations. The value of any particular type of needs-based differentiation is to be found
solely in its usefulness for affecting the different behaviors of different customers.

• Even in B2B settings, a firm’s customers are not really another “company,” with a clearly
defined, homogeneous set of needs: Instead, it is a combination of purchasing agents, who need
low prices; end users, who need benefits and attributes; the managers of the end users, who need
those end users to be productive; and so on.
COMMUNITY KNOWLEDGE

In the competition for a customer, the successful enterprise is the one with the most knowledge
about an individual customer’s needs. The customer-strategy enterprise treat an individual
customer based on the knowledge of that customer’s transactions as well as on the transactions
of many other customers who have similarities to her. This is known as community knowledge.
Community knowledge comes from the accumulation of information about a whole community
of customer tastes and preferences.
Community knowledge can yield immense benefits to many businesses, but especially to
those businesses that have:

• Cost-efficient, interactive connections with customers as a matter of routine, such as online

services, banks and financial institutions, retail stores, and business-to-business marketers, all of
which communicate and interact with their customers directly and on a regular basis.

• Customers that are highly differentiated by their needs, including businesses that sell news
and information, movies and other entertainment, books, fashion, automobiles, computers,
groceries, hotel stays, and healthcare, among other things.

Marketing expert Fred Wiersema has said that there are three types of customer coaching:
 bringing out the product’s full benefits,
 improving the customer’s
 usage process, and breaking completely new ground with the customer.

Any one of these types of customer education can come from the knowledge an enterprise
acquires by serving other customers. An enterprise with a large number of customers can use
community knowledge to lead a customer to a product or service that the enterprise knows the
customer is likely to need, even though the customer may be totally unaware of this need.

USING NEEDS DIFFERENTIATION TO BUILD CUSTOMER VALUE

Customer needs are complex and intricate enough that the more a customer interacts with an
enterprise, the more learning an enterprise will gain about the particular preferences, desires,
wants, and whims of that customer. Provided that the enterprise has the capability required acting
on this more and more detailed customer insight, by treating the customer differently, it will be
able to create a rich and enduring Learning Relationship.
As the firm learns more about a customer, the firm compiles a gold mine of data that should,
within the bounds of privacy protection, be made available to all those at the enterprise who
interact with the customer. Accumulating information is only a first step in creating the
knowledge needed to pursue a customer-centered strategy successfully. Information is the raw
material that is transformed into knowledge through its organization, analysis, and
understanding. This knowledge must then be applied and managed in ways that best support
investment decisions and resource deployment.

Customer knowledge management is the effective leverage of information and experience in the
acquisition, development, and retention of a profitable customer. Gathering superior customer
knowledge without codifying and leveraging it across the enterprise results in missed
opportunities.
 Scenario: Universities Differentiate Students’ Needs
.......................................................................................................................
Like more enterprises around the world, universities are building Learning Relationships with
individual students, as well as the corporate concerns that are already providing much of the
funding for tuition and research. For many schools, the primary competition now comes from a
mix of online coursework vendors and corporate centers of learning and education, rather than
from traditional universities. Motorola University, for instance, began in 1981 as an internal
quality training center and it has grown to provide services to other companies to help them
become more effective within their businesses, offering courses in meeting planning, cycletime
reduction, and other subjects. Motorola requires its employees to complete 40 or more hours a
year of job-relevant training through its university. The fastest-growing sector of higher
education is the “corporate university” that provides training for
middle and upper management. Higher education has a variety of different customers. Students,
parents, employers, government, states, and donors are just some examples. Instead of measuring
the success of a university by the number of students it enrolls, or even the cutoff point for
admission, a customer-focused university gauges its success by the projected increase or
decrease in a particular student’s expected future value. The university no longer focuses just on
acquiring more students, but on retaining existing learners and growing the business each gives
the institution.
Like for-profit businesses, academic universities want to attract and retain the MVCs and MGCs
(i.e., highly qualified, tuition-paying students), and to reap the most benefit from them, not just
over their four years of study, but over their many years as alumni as well. As more universities
consider their options for achieving those goals, attention often turns to alumni as the answer.
Institutions of higher learning have understood that prolonging relationships with alumni can
improve the accuracy of the fund-raising list, which in turn improves fund-raising response rates
and donor lifetime value. The number of schools that are implementing strategies for those
purposes is increasing. Because it is now possible to keep track of relationships with individual
students, the size of a university is becoming a less potent competitive advantage. A university of
any size has the opportunity to use information about each student to secure more of that
individual’s participation. Notwithstanding the “brand” or status value of a
handful of high-status Ivy League and top-ranked higher education institutions, securing and
keeping the participation of more students will likely depend on who has and uses the most
information about a specific student, not on who has the most students. To compete, the
customer-focused university has to integrate its entire range of business functions around
satisfying the individual needs of each individual student. The school’s organizational structure
itself will have to be altered, and it must embrace significant change, affecting virtually every
department, division, administrator, and employee. Once it has migrated to a customer-strategy
model, the university
will be able to generate unprecedented levels of participant loyalty by offering an unprecedented
level of customization and relationship building. Student-customer valuation will require
measures of success based on individual student results, not just product or program measures.
Rather than seeing whether enough students enrolled in a particular course to justify its
existence, for instance, the institution will also predict whether a particular student is valuable
enough to justify a certain level of expenditure. The customer-focused university will be able to
calculate share of student on an individual, participant-by-participant basis, with the goal of
capturing a greater share of dollars, time, and other investment in learning. The customer-
focused university builds a Learning Relationship with each student by interacting over time and
continuing to increase its level of relevance to each student
by understanding her motivation. Although participation in the university should be motivation
enough, the customer-focused university will understand whether a student is, for example,
taking a course because of interest in the material, admiration for the professor, a need to be
respected, a desire to make business contacts, as part of a degree program, career participation,
or some other reason.
Remembering what each student wants and finding ways to make the collaboration effort
valuable to the participant leads to mass-customizing the offering, the response, the dialogue
process, the level of recognition, the opportunity for active participation, and so on.

The implications of more cost-efficient electronic interaction for higher education are immense.
Many universities are pioneers in adopting a customer strategy to develop Learning
Relationships with each of their students. Western Governor’s University in Salt Lake City,
Utah, is creating independent measurements of “output”— their graduates. In addition to
traditional assessment of learning outcomes, such as those required by the Association to
Advance Collegiate Schools of Business (AACSB)—measuring the university’s quality by the
number of PhDs on the faculty or
books in the library—the school also is rating the academic performance of its students against
an objective measure of the student’s overall accomplishment.

Franklin University, an independent nonprofit institution serving 5,000 students in Columbus,

Ohio, created a new position, Student Services Associate (SSA), designed to be the “customer
manager” for its students. Each of the University’s 12 SSAs is evaluated and paid based on how
many of his or her students make it to graduation. Every SSA interaction with a student is
captured on the computer so that anyone interacting with the student can view his or her
complete profile and history. In addition, to better meet the needs of busy students, the university
became part of a Community. College Alliance and started offering courses online. For Franklin,
led by university president Paul Otte, customer-focused strategies have translated directly into
revenue increases and greater share of student. In the mid-1990s, 60 percent of students were
freshmen and sophomores; now, 60 percent are juniors and seniors, another 10 to 12 percent are
continuing on to graduate school, and surveys indicate higher levels of student satisfaction.
Students at the University of Phoenix (UP), Arizona, are often underwhelmed at its physical
facilities, but they enthusiastically participate in the school’s accredited programs in business,
nursing, and education because they can get the learning they want and need on their own terms,
according to their own schedules. Only one-sixth of America’s college enrollees fit the
stereotype of full-time students living on campus; UP’s students want “the kind of relationship
they had with their bank,” said Arthur Levine, president of Teachers College at Columbia
University, in an article about UP.b The university is one of the few institutions where students
can get a degree without ever physically meeting their professors or fellow students. This means
UP’s market is, literally, global.
To draw alumni in and keep the relationships going, academic institutions are building peer-to-
peer communities on their Web sites that foster involvement and camaraderie. Free services
include a lifelong university-branded e-mail address, searchable alumni directories, and
customizable Web pages. For some institutions, the central focus of their Web community is the
alumni database, while others take a portal approach, using diverse content as the core property.
Most universities hope that alumni will set the school’s Web portal as their default Web browser
home page.

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