2.1 Marketing to Customers

Marketing is everything a business does to find customers' problems, needs and wants and then to promote, sell and deliver products that meet them. It's much more than advertising.

Customer data helps a business answer three questions: which customers should we serve, what should we make, and how can we market it in a way that earns a profit?

Digital tools collect a lot of it automatically: email subscriber lists, online accounts, software that tracks what you click, tracking apps and social media monitoring. Traditional tools such as surveys and interviews still matter. Businesses also buy customer data from other businesses.

Market segmentation means sorting possible customers into groups (market segments) that share demographic and psychographic traits. It helps a business see what each group needs and how its product could help.

Target customers are the segment most likely to buy the product because of their needs, wants and preferences. A customer profile is a made-up description of one typical target customer, with a name, age, income, interests, habits and needs. For example: Dev, 16, plays club soccer, earns $120 a month refereeing youth games, cares about looking good on the field and buys gear online after watching review videos.

Focusing on target customers lets a business design the product, brand, price and ads for the people who matter most. That's usually more effective and cheaper than trying to appeal to everyone.

Businesses build relationships through personal service, rewards programs for frequent buyers and chances to give feedback, such as satisfaction surveys. Social media makes all of these easier.

Strong relationships pay off in two ways. First, happy customers refer friends, which lowers customer acquisition cost (CAC): CAC = total marketing, advertising and sales costs of gaining customers ÷ number of customers gained. Second, loyal customers buy again and again, raising their lifetime value, the estimated amount a customer will spend with the business over time. Lower CAC and higher lifetime value both tend to raise profit.

Collecting and storing data like searches, purchases, credit card numbers, social media posts and locations can violate people's privacy, especially when they don't know it's being collected or how it will be used. If the data isn't secured, a data breach (a break-in that exposes data) can lead to fraud and identity theft (someone using your personal information to pretend to be you).

So businesses have to weigh the benefits of using data against the risks to themselves: losing customers' trust, going against their own core values and damaging their reputation.