Content

Chapter 10: Introduction to customer insight in:

Joachim H. Becker, Sven Pastoors, Ulrich Scholz, Rob van Dun

Towards Sustainable Innovation, page 195 - 214

A five step approach to sustainable change

1. Edition 2017, ISBN print: 978-3-8288-3903-8, ISBN online: 978-3-8288-6655-3, https://doi.org/10.5771/9783828866553-195

Tectum, Baden-Baden
Bibliographic information
191 chapter 10: IntroductIon to custoMer InsIght Ulrich Scholz Summary Customer Insight will allow business professionals to develop successful products as well as effective marketing strategies, by gaining deeper insights into the perceptions, needs, motivations and preferences of their target customers. Companies that implement these strategies can expect to attract and retain more customers, grow their market share, increase the productivity of their marketing efforts, and increase their profitability. Customer insight is assigned to primary research. Primary research, as all qualitative research methods, is often connected to very high expenses. But the data is current and exactly reflects the question. In contrast, secondary research is easily accessible and thus relatively inexpensive. However, the data is often not up-to-date and the individual companies do not necessarily receive a firm answer to their questions. Secondary research is used to build on the background knowledge of the customer groups in the framework of customer insight. 192 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation The research of customer insight is based on a phase concept, which must be continuously designed within a company. At the end of the phase concept is the concrete implementation of the customer insight through marketing activities. However, these phases must be continuously evaluated and adjusted every once in a while, as the customer’s attitude changes over time. The process of customer insight consists of 5 phases: 1. Clarity of target 2. Creating a multi-dimensional customer scenario 3. The actual customer insight process 4. Adjusting customer frequency 5. Implementation of the customer insight Customer Insights need to be the language that breaks down functional silos and allows companies to make good decisions in sustainable innovation and to create customer value. So Customer Insight must be at the forefront of all employees` minds as they make decisions that will have an impact on the sustainability of the organization. 10.1 customer insight The identification and definition of the customers’ needs and wishes is one important step within the innovation process. This is normally done in the context of a company’s marketing. In doing so, the focus of marketing lies on the consumers. However, marketing is often aligned with improvement of processes rather than the needs of the customer. But actual marketing strategies must not concentrate on processes. The understanding of the customer should be the focus of 193 Chapter 10: Introduction to customer insight the consideration. Generally, a differentiation is made between customer, consumer and shopper insights (Riekhof, 2010, p. 9): • The customer can be regarded both as a B2C- (Business to Consumer) and B2B- (Business to Business) customer. • The term ‚consumer’ refers to the end-customer. • In contrast, the ‚shopper’ is the customer at the POS (point of sale).23 Thus, the term customer insight can be defined as follows: “Customer insight is the collection, analysis and interpretation of customer information, making it possible for the companies to: • Recognise trends • Know what the customer wants • Know what the customer believes • Recognise what the own company can contribute towards solving the customer’s problem.” (Bruhn, 2004, p. 24) “Customer insight” is therefore a way of thinking, which should be rooted throughout the entire company. In addition to knowledge about preferences, the research field “customer insight” is also occupied with data mining and customer relationship management. This way, attractive product bundles can be determined, promising new customer groups identified, and existing customers bound. In the data mining area, customer data is empirically associated through the use of methods and algorithms, with the aim of improving sales pitches. Customer relationship management is therefore characterised as a management philosophy, which stipulates complete alignment of the company with existing and potential customer relations (Raab, 2009, p. 11). 23 In the following chapter, both the consumer and the shopper will be classified under the term ‚customer’. 194 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation 10.2 Incorporation of customer Insight in the Market research process Market research is an important tool for the systematic collection, processing, analysis and interpretation of market and customer data. “Know already today, what will be asked for tomorrow and taken for granted the day after.” (Stefan Hitz, Managing Director of JEKO AG) “Increasing numbers of providers are rushing onto the markets with increasingly similar products. The competition becomes stronger; the price pressure rises. Companies that want to confront this intensive competition must constantly look for new, innovative and market-appropriate problem-solving methods. For a long time, it has no longer been enough to simply offer high-quality products or services. Additional value is becoming increasingly important. Today, no market participant can allow himself not to satisfy the expectations of his customers. But what do these expectations look like? What does the customer really want? With the aid of market research, the companies try to answer these questions, draw consequences from them, and introduce appropriate measures. Therefore, effective market research can increase customer satisfaction and improve the competitive position of the company.” Source: Beyer 2003. Meffert et al. (2012) define market research as follows: “Market research is systematically-driven research (retrieval, preparation, interpretation) of the sales and resourcing markets of a company” (Meffert et al., 2012, p. 96). This definition of the term is the basis of further observations. In literature, the entire market research process is generally divided into four main phases. During the first phase the aim of the analysis is recognised and defined; within the second phase the research plan is created and the data collected. In the third phase the collected data 195 Chapter 10: Introduction to customer insight is analysed and interpreted, and phase four the results are presented and communicated (cf. Raab et al., 2009, p. 14). Differentiation is made on the one hand between primary and secondary research, and on the other hand between qualitative and quantitative methods in the framework of market research. Primary and secondary research methods differ in the extent to which information is already available in the research area. If none is available and data must initially be collected, then this is referred to as primary research. If already available data will be analysed, then this is known as secondary research. Secondary market research therefore covers the sourcing, collation and evaluation of the available material (desk research). Qualitative methods of market research include market research methods of which the results are content and nonnumerical. The results of quantitative market research in contrast are expressed numerically. Figure 10.1: overview of research methods Qualitative Methods Quantitative Methods • Interviews with experts • Customer focus groups • In-depth interviews • Psychological tests • Standardised surveying forms • Personal questionnaires • Telephone interviews • Online questionnaires • Desk research Concluding, the type of data collection is decisive. The market researcher has to evaluate which method of data collection is most appropriate for the specific case. A differentiation is made between primary and secondary data collection. 196 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation The collection of primary data entails the information that is collected directly at the point of generation, and the following procedures are distinguished: • Surveys • Observations • Experiments • Interviews Surveys The survey is the most widespread and important data collection method. Companies use surveys to find out about the product knowledge of a target group, their views, preferences or satisfaction. This way the observable and non-observable behaviour is recorded. A survey can take place: o in written form; o personally or o via telephone. These three survey types are of equal value. The use of surveying methods depends on the framework conditions that exist for the individual market research. A written questionnaire is preferred if the influence of the interviewer on the answers to the questions is to be eliminated. The personal questionnaire is used particularly for roadside interviews, and the telephone survey when interview data must be collected as quickly as possible, and the analysis should take place immediately if possible (e.g. the opinion poll). Increasingly often, surveys are also performed over the Internet, as here the actuality of the data can be well assured. However, the researcher should take care when using this survey method that no clumps develop, especially on social networks (only test persons with a similar profile, or of similar age are questioned), as a very heterogeneous sample would yield non-generalizable results 197 Chapter 10: Introduction to customer insight The following diagram describes the advantages and disadvantages of the individual survey methods: Figure 10.2: Advantages and disadvantages of the individual survey methods In writing Personal By telephone A dv an ta ge s No interviewer-bias Relatively costeffective Large spatial area can be covered The interviewees are not under time pressure High success rate Retrieval of additional information (e.g. emotional reactions) Survey tactical instruments (questioning form, question order) are used to the full Can be used at short notice Lower costs than a verbal survey D is ad va nt ag es Possibly lower rate of return Address data necessary Identity of the interviewee cannot be checked No control over the sequence and time of the survey High costs Interviewer-bias No optical aids when answering Interviewerbias Telephone number necessary Can be annoying for the interviewee Source: Own representation based on: Raab et al., 2009, p. 39ff Observations Through observation, valuable information about the behaviour of the interested party or customer is collected (e.g.: How does the customer walk through the shop? How does he or she react to loudspeaker announcements or consultation discussions? How does 198 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation he or she behave at the checkout?). Generally, the observation is performed by trained personnel or technical appliances such as counters or video cameras. Here it is advantageous that, in contrast to the survey, the observation is not dependent on the willingness to provide information of the observed person. Observation does however have its limits: • Only the actual behaviour is determined • Only behaviour at that particular time-point is recorded • Observation effect: Changes in the behaviour of the person being observed (depending on the extent to which they know they are being observed) Experiments An experiment is a survey and/or observation within a controlled test setup with predetermined framework conditions. A laboratory experiment is one with artificial framework conditions; a field experiment has natural conditions. The best-known forms of field experiments are the market test and the panel survey. During the market test, all the marketing opportunities of the new products or services are tested in a limited market using all the possible marketing actions. In the scope of a panel survey, persons (individuals) and households (household survey) are surveyed at regular intervals on the same subject (e.g. their consumer behaviour). A panel always delivers immediate and continuous data. Panel surveys are used predominantly to determine the permanent buying habits of consumers. 199 Chapter 10: Introduction to customer insight 10.3 taking advantage of the customer knowledge An important component of the customer insight process is the activation of the knowledge of the customer gained in the framework of the “customer insight”: “As the company’s new products must meet its customers’ requirements, binding the customer already at the start of the innovation process is both logical and shows commitment. They are the most important source for the identification of possible problem areas.” (Vahs/Brem, 2013, p. 265). Important prerequisites for the activation of customer knowledge are among others a clearly formulated activation strategy, appropriate market demarcation and the definition of the customer segments. “Customer Insight” – Asking the Correct Questions During the activation process qualitative methods are used predominantly. Qualitative methods allow the company an important deeper insight into the wishes and needs of the customer. Because the company receives not only an answer to the question, what would the customer like, but also to the important question “How?”. Furthermore, qualitative methods are considerably better when building a long-term relationship with the customer. Customer insight is assigned to primary research. Primary research, as all qualitative methods, is often connected to very high costs. But the data is current and exactly reflects the question. In contrast, secondary research is relatively inexpensive. However, the data is often not up-to-date and the individual companies do not necessarily receive a firm answer to their questions. Secondary research is used to build on the background knowledge of the customer groups in the framework of customer insight. The first step of the activation process is the definition of the research question. Here the aim is to initially identify and formulate 200 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation the core problem or main challenge. In doing so, a research question is raised, which can be answered with the aid of marketing research. The second step is to develop the research design for the basic question. In doing so, the company can fall back on the findings from the “customer insight” process. The following framework conditions are generally clarified during the formulation of the research design: • Demarcation of the market to be tested: This is achieved using, for example, time factors, geographic factors or market elements, such as demand groups or supplier groups. • Definition of the object to be tested: In the framework of customer insight, this is generally the customer and his needs. At the same time, it is important to define the target group(s) as precisely as possible. • Definition of the test variables that should be tested for the object. • Selection of the research approach: The basic research approaches are cross-sectional studies and longitudinal studies. How strongly the experimental elements should be used is also of interest. • Determination of the test location: Field research and the laboratory are available as the test location extremes. • Selecting the collection procedure: Various methods from the two groups of survey and observation techniques can be used as collection procedures. When selecting the test object, the wide range of random sampling procedures is suitable: e.g. spot tests or panel tests. If possible, a company should therefore choose a combination of primary and secondary research as both quantitative and qualitative methods for customer insight. Therefore, companies should use the instruments of secondary research during the first data collection stage, and then round off their results with the aid of primary research. Only then can the correct conclusions be drawn. Further- 201 Chapter 10: Introduction to customer insight more, the collaboration and commitment of the entire company is required in order for customer insight to be successful: Interdisciplinary teams, supported by management and above all a shift in the company structure, ultimately decide the success. The customer knowledge can only be used for the own targets, and a long-term relationship can only be built with the customer if all the members of the company are involved. Customer insight is a key asset for successful companies. Customer insight indicates which motives move the customer to buy a certain product. Using the customer insight approach, the company gains knowledge on the customers´ buying behaviour that leads them to make purchase decisions. Thus, customer insight is used in communication with the customer in order to address the needs of the customer. Gains in customer orientation and efficiency are possible, if the benefit of a product and the anticipated willingness of the customer to pay can already be taken into consideration during the development of the product. Therefore, in-depth knowledge of customer insight is of major importance in order to find out whether a new product or service idea, a business model innovation or even a new business area actually corresponds to a customer need and marketplace potential. The development of customer insight includes the identification, description and understanding of customer needs and customer requirements. Therefore, understanding “customer insight” plays an important role in the understanding of motives and attitudes, and their influence on the use and purchase of products. If the “applicable” insights are communicated, the willingness of the customer to identify with the product increases and thus, his interest in buying the product. The customer insight approach can be integrated into communication concepts that are planned, for example as the basis of copy strategy. With the copy-strategy the appropriate needs of the target group are defined in the advertising content. During the development and monitoring of such concepts the companies work with a series of 202 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation complementary methods for qualitative market research. Intensive work with customer insight also gives the company input for communication and promotion of the product (and therefore, for the used marketing mix). Communication based on the customer insight can be tailored to the implicit and explicit requirements of the target group. Figure 10.3: Using “outside in” and “inside out” observation of customer insights Source: Own presentation (© Christian Streichan 2014) based on Lenz 2014. As presented in Figure 10.3, companies may use two approaches in order to gain customer insight. On the one hand, they can include the customer in the product development at a very early stage – e.g. as lead-user or through the use of customer focus groups24. In this 24 Customer focus groups: Discussion groups with selected customers. The discussion groups are arranged using previously determined criteria and are stimulated to discussion on a particular topic using information input. (Gabler Wirtschaftslexikon) 203 Chapter 10: Introduction to customer insight case, they ask selected customers about their desired product requirements. The information gained already flows into the product development at an early stage. On the other hand, ‚inside out’ observation is also possible. Here, work is performed with the creation of scenarios and features that are important to customers are identified in a development process. The combination of ‚outside in’ and ‚inside out’ is particularly promising as the needs and requirements of the customer are already taken into consideration at a very early stage. As the starting point for the observation, three questions can be asked in the area of market research: 1. What information has already been collected by other market researchers? 2. What information has the customer already provided? 3. What behaviour by the customer has been observed? These three questions include quantitative and qualitative market research: • The question “What information has already been collected by other market researchers?” covers the reviewing of secondary sources. This includes both already published research studies and also quantitative data collection. • The question “What information has the customer given?” involves qualitative market research and with it personal contact with the customer through interviews, or through work with customer focus groups. • The third question involves observation of the customer in his environment. If the information gained from these three areas is pooled, a company has gained enough “insight” into the customer to be able to estimate his needs and requirements. In practice, however, this procedure is rarely so concentrated and used by companies to draw clear 204 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation conclusions for product development (Riekhof, 2010, p. 17). In doing this, the knowledge of the customer can be very conclusive for companies. 10.4 The phase concept of customer insight The research of customer insight is based on a phase concept, which should be continuously designed within a company. At the end of the phase concept is the concrete implementation of the customer insight through marketing activities. However, these phases should be continuously questioned and adjusted as time goes on, as the attitude of the customer changes over time. The process of customer insight consists of 5 phases: 1. Clarity of target Who or what should be identified with which target? 2. Creating a multi-dimensional customer scenario Gathering hypotheses, knowledge, speculations about the customers and their wishes 3. The actual customer insight process Putting hypotheses on the test bench 4. Adjusting customer frequency Developing good ideas for new products, improvement of existing products and future projects together with the customer 5. Implementation of the customer insight Concrete and optimised handling of the customer and target markets (Wenzlau et al., 2003, p. 106ff) Phase 1: Clarity of target In the first phase, it is not merely about defining the customer insight target, but rather to design it as operational, scheduled, clear- 205 Chapter 10: Introduction to customer insight ly and realistically. Furthermore, it must be defined how the definite target should be achieved. This obsession with details in the insight process highly irritates companies at first. In a world that is becoming increasingly complex, companies have learned to work with a permanent reduction in complexity in order to remain able to operate. In other words: Companies have become arranged so that they remain simple, in order to get along. Accuracy and precision are often neglected. Without clarity of the target, a customer insight process often remains at the stage of a conventions needs analysis. A needs analysis analyses the customer requirements from the company’s point of view only – and this exactly is the challenge: the company recognises the customer from his specific point of view, with his specific experiences and with respect to his concrete range of offers. This restricted recognition and the lacking consequence of following the customer targets and wishes always leads to the same result, that the companies firmly believe that they know what is good for the customer, being surprised that the customer does not act and buy as expected. The customer insight approach takes the decisive steps further, so that the company can anticipates the customers’ thoughts. They move within the customer perception and in doing so, leave – consciously – their own one. Working with customer insight means actively expanding into the customers´ perception. Phase 2: Multi-dimensional customer scenario In this phase, the company hypothesizes what really touches and moves the customers, and what they desire. Hypotheses in this sense are images, ideas and assumptions, which are formed about the needs and requirements of the customer. For this, information about all the areas of life of the customer group is compiled and initial hypotheses are constructed. 206 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation After all the available information has been compiled, the change of perception starts with the process of hypothesizing. In doing so, companies form the hypotheses based on the customer reality. The multi-dimensional customer scenario starts with the questions “What have I read?”, “What have I heard?” and “What have I seen?”. Based on the answers to these initial questions, the existing hypotheses and the core hypotheses formed. For the final formulation of the existing hypothesis, a comparison is made by questioning, to check which statements really take the perspective of the customer, and which statements are of purely hypothetical nature. Thus, the existing hypotheses form the basis for the further process of customer insight. Phase 3: The real customer insight process The available existing hypotheses are presented to a control group, which was not involved in the hypothesizing process yet. This can be an additional employee from other areas of the company but also customer groups, which are invited to the discussion in the company. Together with this control group, the core hypotheses are constructed. These core hypotheses form the basis for a “storyboard” to be created together with the customer, in which it will be elaborated how contact to the customer should be established. Phase 4: Adjust customer frequency The management plays through the “storyboard” with the company´s employees as well as the customers. In doing so, the customer takes the role of the company employee or the employee takes the role of the customer. All the possibilities and alternatives regarding the product, its use and disposal – the entire contact process – are presented to the customer group and discussed together with the cus- 207 Chapter 10: Introduction to customer insight tomer. An attempt is made to formulate the needs and requirements from the customer’s point of view. Phase 5: Implementation of the customer insight Finally, all the findings from the questions are linked together so that an image of the customer needs and requirements is created. Furthermore, the findings from the customer insight process are tested in the customer contact. Therefore, the customer insight development team needs a clear perception of which properties must be assigned. For instance, to a future customer of an electric car, these properties can be formulated as follows: • Decisive and open to innovations • Married, home-owner, approx. 40 years old • BMW driver, second car owner • Middle management, career-minded, middle to high income, commuter • In touch with nature, sporty, success-oriented • Authoritative, clear, concise, concentrated on important matters Knowing this, a communication concept is created in order to address the now clearly defined target group in their language and emotional state. Customer insight is therefore a surprising awareness of human behaviour. Thus, it includes an insight into what moves people in connection with products and markets. This insight into consumer behaviour and the comprehensive knowledge about the hidden motives, opinions and behavioural patterns of the customer are the basic prerequisites for a successful brand and communication strategy by companies, seeking sustainable innovations to achieve marketability. Finally, all the findings from the previously mentioned areas 208 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation 1. “What have I read” 2. “What have I heard” 3. “What have I seen” are linked together, so that an image of the customer’s needs and requirements is formed and a real understanding can be built up from this. Training questions: 1. Why are customer insights so important for companies? 2. Name and explain the two approaches to gain customer insight. 3. Explain the three fundamental questions that contribute to the collection of customer information. 4. Name and explain the five phases of the customer insight process? 5. How can customer observation be executed? 6. Explain why social media can be regarded as a research instrument? Recommended literature Bruhn, M. (2004): Handbuch Markenführung, 2nd Ed., Wiesbaden. Kamenz, Uwe (2001): Marktforschung, Stuttgart. Meffert, H./Burmann, Ch./Kirchgeorg, M. (2012): Systematik von Marketingstrategien und strategischen Optionen, Wiesbaden. Raab, G./Werner, N. (2009): Customer Relationship Management, 3rd Ed. Frankfurt a.M. 209 Chapter 10: Introduction to customer insight Riekhof, H.C. (2010): Customer Insights. Wissen wie der Kunde tickt, Wiesbaden. Wenzlau, A. et. al. (2003): Kundenprofiling, Erlangen Vahs, D./Brem, A. (2013): Innovationsmanagement: Von der Idee zur erfolgreichen Vermarktung, 4th Ed., Stuttgart Internet resources Beyer, Horst-Tilo (Ed.) (2003): Online-Lehrbuch BWL. Kapitel 2: Marktforschung. Online: http://www.online-lehrbuch-bwl.de/lehrbuch/kap2/mafo/mafo.PDF, last access on 02.01.2014 Lenz, Stefan (2014), online: www.stefan-lenz.ch, last access on 02.01.2014

Chapter Preview

References

Zusammenfassung

With sustainability having gained a lot of momentum over the last years and companies implementing strategies to create corporate sustainability, there are lots of opportunities for innovation. Thus, the two concepts of sustainability and innovation should not be considered separately – they are closely interlinked with one another. The main goal of sustainable innovation is to develop new products and technologies that have a positive impact on the company’s triple-bottom-line. To meet this aim, they have to be ecologically and economically beneficial as well as socially balanced.

In order to help companies to improve their sustainable innovation process practically, this book is structured into five possible phases of a sustainable innovation process:

Awareness of a sustainability problem

Identification & Definition of the problem

Ideation & Evaluation of the solutions

Testing & Enrichment of the solutions

Implementation of the solutions & Green Marketing