Customer Analysis: Types, Benefits & Steps You Need To Take
Updated: Jan 25
Understand all you need to know about customer analysis in this mini guide covering the types, the purpose, the benefits and the steps involved in carrying out customer analysis.
Table of contents:
What is customer analysis?
Customer analysis identifies the profile of the customer via market segmentation like demographics, behaviour and attitudes along with establishing what their needs and how the brand can best meet these needs by utilising both qualitative and quantitative research methods.
Basically, customer analysis establishes the needs, wants, goals and pain points of customers and predicts what drives consumer buying behaviour, so the brand can use these insights to form strategies in how their products or services can meet these requirements and appeal to their target audience.
Purpose of customer analysis
The purpose of carrying out customer analysis is to establish in detail the ideal customer a brand would want to target to achieve the most sales from and how the business can meet their needs, which forms a key component of a business plan.
Customers are split into separate groups dependent on common traits, attitudes and behaviour and are evaluated on what motivates their purchase decisions. Therefore, businesses can develop strategies on how best their products and services can appeal to them and deliver on their expectations.
Types of customer analysis
There are 4 types of customer analysis, which are categorised as descriptive, diagnostic, predictive and prescriptive analysis, these are explained in more detail below.
1. Descriptive analysis
Descriptive analysis looks into past trends and behaviour of customers in order to help businesses formulate strategies for future business and marketing activity. Customer experience (CX) is an example of descriptive analysis in evaluating customers interactions with the brand at different stages of the customer journey.
Brand tracking surveys are another example of a business monitoring the awareness, consideration, usage and perceptions of the brand over time and comparing this with previous benchmarks (year on year, previous quarter or the first wave of the tracker).
2. Diagnostic analysis
Diagnostic analysis investigates and establishes the reasons behind customers behaviour and attitudes in order to gain an understanding of the issues, events and why they are occurring before businesses can look for solutions. Qualitative research with focus groups and in-depth interviews are one such example in exploring the reasons why at length.
3. Predictive analysis
Predictive analysis delves into both current and historical data and information in order to forecast future behaviour and events based on previous patterns and trends. This could be predicting the likely sales turnover in the next quarter or a real-life example of Netflix using advanced algorithms to predict viewer habits and preferences.
4. Prescriptive analysis
Prescriptive analysis allows you to ascertain what is the best course of action to take in a particular situation by using existing data to establish the key factors involved to influence an optimal outcome. This helps to maximise opportunity and mitigate risk. Prescriptive analysis is often used in sales, marketing, new product development and investment decisions. This could be forecasting the demand in orders following a campaign or setting the optimal price of a product.
Advantages of customer analysis
The advantage of customer analysis is it enables a brand to help gage the state of the business in a non-financial sense in establishing who their customers are, their behaviour and the level of fulfilment from customers experiences with the brand’s products or services.
Below are 5 benefits of using customer analysis:
1. Improve efficiency of marketing strategy
Marketing campaigns can be costly, so in order for the best rate of return, customer analysis will allow you examine what media channels bring in the most valuable potential customers in terms of reaching a wide audience, the objectives of the campaign such as improving brand awareness and the message of the campaigns. This will enable the marketing strategy to become more efficient without wasting valuable resources and time as well as highlighting any hidden opportunities to exploit.
2. To help retain customers
There are occasions when customer retention is overlooked by some brands, which is a costly error to make as your existing customers are a brand’s most valuable asset and is the fundamental part of any successful business. It has been proven many times that it costs far more to attract new customers than retaining your existing customer base.
Therefore, it is crucial that customer analysis is carried out to provide insights in improving customers experience and resolving any common issues or pain points. It also serves as an early warning system of customer churn, so you can act quickly before they leave your brand. This will lead to increased efficiencies and profitability.
3. To boost sales and maximise profits
By knowing your customer needs and wants, you can market your products or services to cater for them, leading to more sales and help maximise your brand’s profitability. Through customer analysis you will know which groups of customers are most valuable to your brand based on the likely size of order, frequency and the higher prices they are willing to pay.
Therefore, customer analysis will allow you to target them more effectively and service their needs resulting in increased profits. Plus, customer analysis can also find new sales opportunities outside of the existing customer base by developing new products or additional features to appeal to new customers.
4. For a more effective customer service
Customer analysis through measures like CSAT (Customer Satisfaction) or Customer Effort Score (CES) will help a brand understand from a customer’s viewpoint, how their customer services perform and see where this can be improved and be made more efficient such as streamlining the operations process to be more responsive or further training of service staff and increasing their knowledge of the product.
The benefits of a more effective streamlined customer service will lead to increased customer retention and build brand loyalty and improve advocacy.
5. To help personalise customer experiences
A more personalised customer experience can be produced with the support of insights from customer analysis by examining and establishing which brand touchpoints are ideal for personalised marketing in the customer journey such as a post sales experience. Although care needs to be taken in how this is implemented in order to drive engagement and further sales.
Customer analysis example
One such real life example of customer analysis is Netflix where they apply advanced algorithms to examine the viewing behaviour of their subscribers to come up with recommendations of movies or programmes to watch based on genre and topic that viewers are likely to watch and this can also be for different viewers under one subscription. The analysis of viewer behaviour also lets Netflix know what films or series to produce, remove from their catalogue or buy the rights to.
Another example is Amazon who use similar behavioural segmentation to show their members of similar products to buy or to complement with as a bundle based on their previous purchases and searches.
The Kellogg’s brand utilises a combination of demographic. behavioural and psychographic segmentation to produce different breakfast brand products to appeal to separate target audiences such as Special K for the health-conscious group or Pop-Tarts for kids.
The 5 steps to customer analysis
In order to carry out customer analysis you will need to follow these 5 steps below.
Step 1: Use existing secondary research sources of information available within the business including digital analytics
Firstly, conduct secondary research by gathering existing data and information that is already available in your business. This can be customer feedback via complaints, queries and issues raised but also sales data with the types of products purchased, frequency, size of order as well as location and other information in your customer database. This is also when a CRM (Customer Relationship Management) system comes in handy as a good source of information.
There is also digital analytics of your website to give you an outlook of how visitors to your site behave using by platforms like Google analytics or Ahrefs to monitor this. You can track social media mentions of your brand and even respond if necessary if using social media listening tools to do this and plays a vital role of your brand’s online presence.
Also, you can get viewpoints from internal stakeholders of your business as they may have had some kind of customer interaction even indirectly to highlight things that may have not come up in the feedback but is a valuable aspect in the customer experience not to be overlooked.
Step 2: Carry out primary research of customers’ needs, attitudes and behaviour based on what you have already found
Once you have carried out secondary research mentioned above, there are two types of primary research (qualitative and quantitative research) you can do to expand on what you know already and look into specific aspects raised.
Note you need to set research objectives on what you are looking to achieve from the research to maximise resources used and the insights you drawn from the research.
Using qualitative methods like focus groups or in-depth interviews will allow you to explore in detail what customers and potential customers think of your brand, what they like and dislike about the products and services your brand provides as well as what they look for in a brand, evaluating new concepts and other related topics. These methods are done with a small group of people.
Quantitative research will allow you to measure things like awareness, consideration, brand perceptions, attitudes, behaviour, level of satisfaction, reasons why and likelihood to recommend from a large pool of your target audience. Main method used are surveys particularly online surveys to screen and gather the data, so this can be analysed to profile customers, find out the underlying factors and see what drives purchase in order to make predictions through statistical analysis. This can be done on a regular basis by monitoring consumer insights over time at different intervals like monthly or quarterly.
Step 3: Identify and split customers with common traits and behaviour into key groups using segmentation
Once you have gathered all the data and information, you can carry out segmentation to divide customers into separate groups based on common traits and behaviour, so that you can establish what are the most valuable buyer personas to target. By carrying out segmentation you not only know who your customers are but are able to understand them better and what motivates them.
This is where advanced statistical analysis is carried out depending on the level you want to go to.
The main examples of the types of segmentation that is carried out whether that is individually or combined are the following:
Demographic – gender, age, income, household composition, education, socio economic group etc.
Geographic – towns, cities, regions, countries.
Behavioural - usage, purchase patterns, volume, purchase factors, media and device use.
Psychographic – attitudinal and needs based, beliefs and interests.
Business for B2B – number of employees, sales turnover, sector.
Step 4: Identify how your business meets the needs of your most valuable customers from the buyer personas created
After you have ascertained the key buyer personas, you need to determine how best your brand can meet the needs of these personas and make their purchase experience as easy as possible. Therefore, utilising the insights gained, you can tailor your brand’s marketing around these buyer personas and use their preferred channels for advertising along with the price points and product features that appeal the most. It’s ensuring these customers have the best experience throughout the customer journey.
Step 5: Using the insights gained from customer analysis and put what you have learned into practice
You have all the insights and understand the different buyer personas, now it’s time to put into practice what you have learnt from this exercise but first look at what you want achieve before applying marketing efforts or modifying any part of the customer journey. Is it that you want to raise brand awareness, highlight new product features, increase frequency of purchase from the existing customer base or appeal to new customers.
Once you know what you want to do, you can develop strategies accordingly and target the most valuable buyer personas for your business to thrive. This should be an ongoing process as markets change with time, so your business can adapt successfully.
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