Databases Reference
In-Depth Information
customers pay for the products or services or use of these products. Other times
they may just use (i.e., consume) the product without payment, such as businesses
that work on a
freemium
model. Regardless, a better understanding of the needs and
usage patterns of customers can assist in many marketing aspects, including spon-
sored search. Isolating who are the customers means proper market segmentation and
demographics. Who are the potential consumers? What are their motivations? How
much money are they willing to spend on your product or service?
Most businesses find that customer impact follows a power law distribution such
as the 80-20 rule. In other words, a relatively small set of customers (e.g., 20 percent)
provides most of the business revenue (e.g., 80 percent).
However, a customer is not necessarily someone who is currently purchasing or
about to purchase a product. Instead, one can classify customers into three groupings
from the larger group of consumers:
•
Existing
customers
- those individuals who have purchased or used a business'
products or services, usually within some designated time period set by the com-
pany. Existing customers are by far the most important of the customer groups
because these people have a current relationship with the business. Additionally,
existing customers often represent the best opportunity market for future sales,
assuming they are satisfied with their present relationship with the business.
Getting these existing customers to purchase more of a product or cross-selling
other products to them is generally cheaper and faster than finding new customers.
Existing customers are also usually easier to reach with promotional appeals.
•
Former
customers
-those people who have formerly purchased or used the busi-
ness's product but no longer do so because they are now using a competitor's
product. The value of this customer group generally depends on the previous
business-customer relationship.
•
Potential
customers
- those who have yet to purchase but who may eventually
become existing customers. Therefore, potential customers must have a need for
a product, possess the resources to purchase the product, and have the desire or
means to buy the product. Potential customers are important for a business because
they can replace existing customers that become former customers. Attracting new
customers allows the business to grow by increasing the existing customer base.
Sponsored-search efforts, notably in terms of continual testing and analytics, can
have a major effect on correct and effective demographic targeting.
Competition.
Competition includes the other companies that are competing with
your business to gain the same customers. The competition can be the businesses
with products or services that are similar to yours, or can be represented by compa-
nies that offer substitute products or services.
Usually, the goal of marketing is to establish some differential in one or more of
the business areas to gain some competitive advantage [
81
].
One well-known framework for analyzing the competitive landscape is the five
forces [
82
], which posits that there are five important forces that determine competi-
tive power in any business situation. These are:
