Editor’s note: Ryan Kocher is vice president, analytics, at CMI Research, Atlanta. He can be reached at rkocher@cmiresearch.com. Alisa Hamilton is director, project management, at CMI Research. She can be reached at ahamilton@cmiresearch.com. This article appeared in the September 24, 2012, edition of Quirk’s e-newsletter.
How many times have we observed that consumers say one thing but do another? This apparent disconnect is based on the fact that, when asked, we frequently cite logical or functional reasons for our purchases and never reveal (or even realize) what really motivates us. Take the recent launch of the iPhone 5. Ask people why they purchased the phone and you will likely receive responses such as, “It’s high quality” or, “It just works.” But would we ever admit that we bought it because it’s shiny and made by Apple? Would we admit (or acknowledge to ourselves) that we feel good when we have something that others do not?
For years, we have based the creation of segments on attitudes, behaviors and needs. For just as long, those segmentations have been interesting and even entertaining, with their clever segment names. But they're often very hard to implement across organizations. We need to take a cue from technology: Just as the iPhone evolves, so too should our analytic approaches. We no longer live in a simplistic world where one size fits all. By going beyond direct motivators to incorporate indirect motivators in our analytical approach, we can build more actionable segment profiles. Building segments based on the actual decision process brings us a step closer to creating one-to-one marketing messages.
These profiles include key events within the decision-making process that brand teams can influence to affect the final outcome, ultimately generating more revenue.
A brand and a value path
Using structural equation modeling (SEM), we can identify the various decision pathways that consumers take. SEM is a statistical technique for testing and estimating causal relations using a combination of statistical data and qualitative causal assumptions. Within most structural product-purchase models we often find both a brand and a value path. The brand path corresponds to the group of consumers likely to purchase based on their experience with an existing brand. Since it’s shiny and made by Apple, I was standing in a line for my new iPhone 5 a few weeks ago. But what aspects are important within that brand decision? SEM helps us understand both the functional and emotional aspects of brand/product selection within the same model.
In contrast, if we were to employ a standard key-driver approach, for instance, emotional aspects will often consume the majority of the variance associated with the dependent measure. But functional aspects play an important role in our decision-making process as well. By using SEM, we can lay out the entire path to include both.
Taking this a step further, once this decision-making process has been identified using SEM, we can score individual respondents on their likelihood of belonging to each path to determine the importance of each event within the pathway as an input into our segmentation methodology. If we know the importance of constructs within the decision-making process, this will improve the ability to create segments that are based on decisions. We identify not only the importance but the individual elements that compromise each construct.
Only half complete
Our job is only half complete once we have outlined the decision-making process. We take the importance of each element at the respondent level as inputs into our segmentation, along with other data points at our disposal. We are tasked with separating the important from the unimportant to determine which elements to include in our segmentation scheme. This method is often iterative and can be the deciding factor between actionable or descriptive segments.
A client once said that, if given a choice between building segments on what people think and what people actually do, who wouldn’t choose the behavior path? In the past, segments built on stated behaviors have created clearly-defined groups based on low, medium and high usage. This approach may prove useful in situations that do not require a complex decision process but that is rarely the case.
Good marketers highlight different aspects of their product because they understand consumers make complex decisions. Some people bought their iPhone 5 because it’s 20 percent lighter than the iPhone 4S. Others bought it because it now includes ultra-fast wireless to access information quicker. Yet others bought it because it has a four-inch retina display. A single message doesn’t appeal to everyone and clients are taking note, creating a portfolio of messages to cast a wide net.
Create customized messages
By identifying segments based on different decision pathways, marketers can create customized messages. And by knowing the key events within the decision-making process, we can also provide insight as to where those customized messages should occur. For a value-conscious consumer, perhaps the ability to consume unlimited data on Sprint’s network is attractive. Or the option to purchase the iPhone 4S at a low price of $99 gets the consumer to switch from their Android phone.
In the not so distant future, SEM and technology could create a world where we can walk into Target with our new iPhone 6 and immediately be greeted with a personalized message based on our shopping behaviors. It may give us a coupon good toward purchasing an iPhone case, it may state that Target carries a full line of iPhone accessories or it may remind us that milk and diapers are on sale. No matter the product or service, technology and targeted messaging will go hand-in-hand.