Before You Start Spending (More) Money on Paid Campaigns
It’s expensive to waste money on advertising to the wrong people. That’s why you need to find out who your best customers are and why they buy from you. Unfortunately, Google Analytics only shows you aggregated data. No insights into the desires and motivations of real users.
That’s why you need to go to the depths of your own database, pull out the raw numbers regarding your best customers and then ask them about their experience.
Alas, you shouldn’t focus on everyone. “The hunter who chases two rabbits catches neither one.”
To find the best ones, you need to apply segmentation.
With RFM segmentation, for example, you get to find out cool things like the fact that one single true lover of your store values as much as 356 new customers. Once you discovered your customer segment you can invest all your time, money and energy into building a relationship with them. And it will turn out to be time well invested.
After segmentation, you need to prioritize the customer groups which are valuable for you and you run surveys, to find out:
- Likes / Dislikes;
- What made them buy over and over again from you,
Then you do a deep dive into their buying patterns so that you find things that can help you strategize your next move.
So, you actually did scroll down.
Does that mean I’ve made you curious enough to keep reading for the next 6 minutes?
Understanding your buyer persona is crucial regardless of what you sell, where you do it, or even how large your business is. Even more, it is absolutely essential that you know your buyer persona before you start tossing money around (i.e. aimlessly spending it on Paid campaigns).
You might bring in a decent amount of traffic but traffic doesn’t pay your employees’ salaries – conversions and customer retention do.
Can you imagine yourself hanging a designer clothes banner in a flea market? Probably not. Because you know who’s surfing the flea markets and what kind of clothes they are looking to buy.
Figuring out your buyer persona is even more important in a world where few companies are genuinely customer-centric (and most are either focused solely on traffic or orders) – and in a world where those who are indeed customer-centric, well, win the game.
What Is A Persona
While surfing the web for an appropriate and easy to use definition, I stumbled upon this one from Interaction Design:
Personas are fictional characters, which you create based upon your research in order to represent the different user types that might use your service, product, site, or brand in a similar way. Creating personas will help you to understand your users’ needs, experiences, behaviors and goals. Creating personas can help you step out of yourself. It can help you to recognize that different people have different needs and expectations, and it can also help you to identify with the user you’re designing for.
How Do You Actually Create a Buyer Persona?
If you don’t know where you are going, your best option is to stand still as any step (or any dollar spent) you take might make it worse.
And this stuck with me because I’ve seen it happen so many times.
Playing the guessing game.
Spending money on Facebook hoping they have a crystal ball and can find my ideal customer.
Then clicking refresh in Google Analytics hoping to get more people to view my content.
At the end facing the cruel reality.
An impressive reach but a poor engagement level.
Over the course of my career, I have seen a lot of eCommerce Managers making the same mistake over and over again: paying for ads, without considering their ideal client. The more you know about your ideal buyers, the better you can target your campaigns – paid and owned alike.
As an eCommerce Manager, what is the first thing you do when you want to create a buyer persona?
#1 You run quantitative research on the customers you already have. And one of the first steps you make is to open Google Analytics.
And that’s when it hits you: numbers, charts, blue lines, red lines, more numbers, more percentages, and to top it all off, more numbers.
Once you get past the anxiety of navigating the huge amount of data in your Analytics, you can draw some good preliminary conclusions:
- where your site’s visitors are coming from,
- age groups,
- what device they use to shop,
- traffic sources,
- pages viewed,
- products viewed and so on.
But looking at numbers doesn’t mean looking at people. And we all remember how we talked about how that kind of numbers only approach broke marketing, right?
…Which brings us to…
#2 Now that you made an idea of your customer, you need to go beyond the aggregated numbers and understand the people behind the orders. This allows you to understand what your customers actually need.
- What draws them to you;
- What makes them stick with you;
- What makes them love you so much that they’d recommend you to their mothers, neighbors and even to their bosses.
And you can do this by going into your actual customer database and analyzing their purchase patterns to gain a better understanding of:
- what they buy,
- how often they buy
- and of what value.
Correlate that with the demographics you already know and you got yourself a first customer segmentation. You can now start crafting messages for each.
#3 Run surveys and address open-ended questions which are specific for each customer segment.
For a group of new customers landing on your website you may ask them something like:
- We are happy to have you here! Just out of curiosity: how did you find us?
- How was your experience with your website so far?
- Looking for something in particular? Let us know and we can help
For a loyal customer you may want to address different questions:
- Welcome back, Valentin! How is your day?
- What are you looking for today?
- How satisfied are you with the last purchase made?
- Did the package arrive on time?
- Tell me about your favorite product on our website and we will prepare a surprise for you
This is where the RFM model comes in.
How to Use the RFM Analysis to Create Buyer Personas
The RFM model is a marketing method used to segment buyers based on buying patterns.
- What the RFM model is and how it functions (article from our Product Manager, Anca Sandu)
- How to build an RFM Model video (article from our CEO, Valentin Radu)
- How to drive growth for your eCommerce using RFM (article & video recording from a webinar with Talia Wolf & Valentin Radu)
In this spreadsheet, you will see an example of how an eCommerce company segmented their audience using the RFM model, as well as the kind of data this generated.
We named the customer segments in this spreadsheet according to the existing love relationship between their online store and their customers.
As you can see here, there are some outstanding insights that have been hidden in this database for so long:
- 14.5% of the margin has been generated by True lovers. Behind the True Lovers label, there’s a Sally and a Mike with whom you need to set-up a user interview and ask them about their experience with your store and your products. Conducting meaningful interviews it’s an art. This is something you can use to prep yourself: http://www.designkit.org/methods#filter
- 11.2% of the customers have generated only 0.21% of your margin. These are the new ones. The ones for whom you make >90% of your marketing efforts. That’s an insight you can realize after you subtract the customer acquisition cost from the average gross margin.
- 21.19% of the margin comes from 9.57% of your customers. The ex-lovers: customers you shouldn’t have lost and on which you must be focusing on, in order to find out who they are and why they dumped you.
- Each new customer brings only $3 in terms of margin (despite their large number)
Ready to do this for your own eCommerce?
If your eCommerce is running on Magento, simply download the Growth Engine for Magento extension and you will have this done automatically for you.
If you don’t run on Magento, make sure you keep an eye on our blog updates, as we aim to release a version that also works for Shopify, BigCommerce, and Demandware in Q1 2019.
In the meantime, you can play around with the spreadsheet – just to get an idea of how RFM works and what an amazing technique it can be for your business.
Click on the link, go to File → Make a Copy, and copy this spreadsheet into your preferred Google Drive folder to use it whenever you want.
The RFM model will help you segment your customer database and analyze each of the customer segments according to the revenue and margin they bring into your business.
You’d be amazed by the huge differences in revenue and margin between different RFM groups from your own eCommerce.
So, from this analysis is clear which ones are your ideal customer profiles: True Lovers. The ones that keep on buying from your website, despite any barriers they encounter.
Now that you find who they are, export them into a CSV and dive deeper to understand who they are and what they have to tell you. If you ask them.
How to Run Qualitative Surveys for your main RFM Segments
Once your customer database has been segmented according to the RFM principles, you should start running surveys for each customer segment. This will help you gain a deeper understanding of what each customer segment is all about:
- Why do they buy?
- What stopped them from buying further?
- How satisfied are they with your products or services?
- Their demographics: you can easily extract their location from the database and find if there are some hidden gems over there. Usually, you can find these in some data anomalies, as you can see below:
|Location||Ex-Lovers customers||True Lovers customers||Difference|
As you can see, a negative difference may show that your website hasn’t properly retained the Lovers from London, giving room for further research – may be your delivery is not that good over there.
Our spreadsheet also includes the main areas of interest your surveys should touch upon (especially if you want to use these surveys to create buyer personas – but not exclusively for this purpose alone).
Nota Bene! The Net Promoter Score is a very strong indicator that will allow you to understand how different segments are willing to recommend your eCommerce to their peers. If you’re willing to understand more about NPS, check our smart marketer’s guide for net promoter score
Also, if you want to learn how to create customer satisfaction surveys using Omniconvert, you can check out this article written by one of our business analysts, Mara Gavrilescu.
Not only will you see how easy it is to create surveys using the Omniconvert platform, but you will also learn some insider tips and tricks on how to create the perfect survey questionnaire. In our example there, we segmented the customers according to their behavior on site – but you can apply and retrofit the tips on RFM-segment customer groups as well.
Instead of a Conclusion
Applying the RFM model on your customer database and running surveys to understand each of the generated segments will help you create buyer personas you can actually work with.
#1 You might learn that you need to re-think your inventory strategy (maybe you need to order fewer products of a type and more of another).
#2 Or you might learn that your customers aren’t satisfied with your service (which consequently means that you might have to hire more people for your Customer Support department).
#3 Ultimately, you will be able to use these buyer personas to make sure you boost your Retention Rate. The more you over-deliver to customers who are loyal, the more benefits your business will reap – not only will those loyal customers come back to your store again and again, but it is quite likely that they will end up recommending it to their peers.
As a round-up: I’ve seen eCommerce businesses fail dramatically. I’ve seen eCommerce businesses win. And if I had to underline one element that makes the difference between the first and the latter, that is understanding who your customers are and how to work with them.
You probably know The Tortoise and the Hare story.
Our advice: don’t be the hare spending all of your energy and resources on what is supposed to be just the first part of the race.
Be the tortoise. Know how to manage your resources and work with what you have to achieve steady, long-term goals like sustaining a relationship with your customers even after the race to placing orders is done.
That is the key ingredient to winning the eCommerce race.
Omniconvert Growth Engine extension is also available for free in Magento Marketplace.