Jan Davis, Adviser, Market Vue Partners
When we think about our fellow citizens as customers at Wal-Mart or at Louis Vuitton, we automatically group them by age, income, maybe gender. We remember those horrible pictures of badly-dressed consumers at Wal-Mart and imagine the opposite picture in Louis Vuitton. In essence, we are segmenting customers by demographics.
But do demographics really tell the story?
Not in today’s world. Billionaires wear blue jeans, and fashion forward consumers shop at affordable stores like H&M. The first lady shops at J Crew and with designers. You truly can’t tell a book by its cover. Or predict consumer behavior based on demographics.
Long before the days of the Internet, direct marketers used RFM tables to segment their customers based on Recency, Frequency, and Monetary Value – how recently a customer had purchased, how often they purchased and their order size. They recognized that behavior trumps demographics in predicting future behavior.
Today, there is an ocean of behavioral data available to segment your customers. In addition to RFM, you can observe shopping behavior on your website and on social media. You can join a co-operative database and access invaluable information on your customers’ buying habits with other merchants. Using new technology, you can even measure behaviors in physical stores.
Demographic profiles of your customers may be useful in visualizing them for creative or merchandise selection. But using demographics for targeting will lead to failure.