Why Understanding Your Customers is the First Step to Delivering a Better Customer Experience

There are myriad reasons why companies treat customers poorly. One of the most common, costly – and most easily resolvable – is a lack of understanding around customers themselves.

This gets at the core of two basic business questions that many companies either don’t ask or don’t share effectively across silos and groups internally.

Who is our customer?

Knowing your customer means having a clear picture (age, income, expectations, needs and beliefs, for example) articulated in your customer experience strategy, and in the minds of your employees. Not knowing means that you will consistently fail to give your customers what they want at any given point, and will fail to grasp opportunities to satisfy or delight them, much less increase profits from them.

One tool that can help create this “vivid picture of your customer” is research-based personas. Long used in software design, companies such as Best Buy use clearly defined personae to make significant changes to customer experience in areas such as store design, products, employee training and more.

What is she worth to us?

Most companies have customers that fall into one of a series of “value buckets” or segments. Typically, the top 20 percent will deliver the lion’s share of profit, just as the bottom 20 percent will consistently cost you more to serve than the profit you can make on them.

Then, falling into two or three “middle” buckets, you’ll have customers that could be worth more – some, a lot more. Not knowing this means you’ll unknowingly push your most valuable customers away, while potentially expending massive resources to keep a customer you’re actually losing money on. Segmentation strategy through the lens of CLV (Customer Lifetime Value) is one of the most common approaches to understanding customer value.

Are you spending too much to better serve your least valuable customers?

Who exactly is your customer? And what precisely is their value to you over time? Without definitive answers to these questions, everyone in your company is essentially flying blind when it comes to driving profits and delivering good customer experiences.

Failure to effectively answer them means lots of things, none of them good. The most obvious is an inability to keep the customers that you’ve worked so hard to acquire. In short, a lack of customer understanding at the individual level makes it hard for your company to effectively give your customers what they need, when they need it. This means consistently failing to give customers what they want at any given point, and failing to grasp opportunities to satisfy or delight them.

We know that not all customers are created equally. Some are simply worth more than others; that’s why it’s so important for a company to answer these questions.

Not knowing which customers are in which buckets means that you might indiscriminately dissatisfy all your customers, not just those who may have little value, but those whose value to your company is significant. Or, you’ll over-invest in delivering experience to customers you’ll never make money on.

Balancing inside-out touchpoints, channels, products and services with outside-in attitudes, perceptions, wants and needs is a critical output of customer experience management, and will help your company to deliver the right experiences to the right customers at the right times. But you need to start by understanding who your customers are. Not just in a broad sense, but also in a segmented, prioritized sense.

The number of companies that have a hard time answering this question – most of whom have the resources and the data to figure it out, continually surprises us. Maybe marketing is using segments to target promotions, or personas are being used to design web sites. Or finance tracks customer value. Or all of the above. But when it comes to a shared view of how to serve key customers across groups or divisions, there’s often no clear picture.

Even though not all customers are created equally, they all have high expectations and strong opinions. Effectively managing their expectations can only occur after a clear understanding of what those expectations are, is articulated.

There’s little argument when it comes to the importance of improving and better managing customer experience. But when it comes to actually doing so, looking at your customers through the dual lenses of “inside-out” and “outside-in” is where you need to start.

After all, if you don’t know who your customers are, you won’t know what they need. And if you don’t know they need, you can’t give it to them.