An introduction to identifying new customers to target
We’re more well connected than ever before, with the internet enabling us to forge connections across the country and even the globe. But, as has been well noted by countless scientific studies, there’s a notable discrepancy between the very modern ability to forge connections online and actually forging them.
We have the tools, but knowing how to use them is an altogether different matter. While the crowds of people are clearly visible to us, the trick lies in identifying the individuals in the noise. People who are seeking our products and services – or who perhaps don’t know they need them yet.
At the same time, the competitive attention economy has seen Customer Acquisition Cost (CAC) spike by more than 60 per cent. But don’t give up hope just yet. There are still affordable, effective ways to identify new customers.
In this guide, we’ll cover the things to consider when searching for new types of customers, a few common mistakes to avoid and quick wins you can start implementing today. The next step will be to use our dedicated action plan to direct your change and improvement.
Things to consider when searching for new customers
Make sure a new customer segment offers sustainable growth
There’s a difference between being ready to grow and being prepared for it. Getting more customers comes with its own challenges. The goal is not simply new customer acquisition, it’s retaining these new customers.
If your systems and processes aren’t ready, then customers may have a bad experience and won’t stick around. That can help frame your research – you might look for customer types you can service with your existing set up and opportunities that require investment.
Think about customer acquisition cost and lifetime value
The most important KPI to keep an eye on when searching for new customers is customer acquisition cost (CAC).
CAC is calculated by dividing all the costs spent on acquiring customers (your marketing expenses) by the number of customers acquired in the period the money was spent. The aim is to keep CAC as low as possible since a high CAC eats into profits.
It’s not just about whether a new customer segment is a great fit for your business, it’s also about making sure you can market to them at an acceptable cost.
Lifetime value (LTV) compliments your CAC assessment. If customers continue to purchase from you over a long period of time, which is where LVT comes in, there’s a better justification for that initial investment in marketing.
You might be able to identify groups of customers that are more likely to stay loyal to your brand rather than using you once because of a special offer.
Get feedback from existing customers
The purpose of this guide is to help you identify new customers, but better understanding why existing clients value your offering can help you do just that. Talking to them or doing surveys to find out what aspects of your service they love can point to a new customer segment to target – if your marketing led with that USP, who would you target?
Also, it’s worth looking for any demographics you’re selling to that you didn’t expect to be part of your customer base. They may warrant further investigation.
“After [the work is done], our internal project coordinators send out a customer questionnaire. It gives our clients a chance to assess how we did. “This focuses not only on the installation itself but also allows them to honestly answer how our sales team did, how easy were we to find online etc.”
Danny Scholfield, sales director at Expert Security
The cold hard facts
At the British Library’s Business & IP Centre you can get access to more than £5m worth of market reports from leading publishers such as Mintel, Frost & Sullivan, Passport and more, which includes information on customer types and marketing. Access the online database here (start by looking at the “Business” subjects).
Common mistakes when seeking new customers
Not knowing what you're looking for
There’s endless possibilities for who your product or service could be relevant to, so it’s important to start with some qualifying criteria. Take a blanket approach and you’re likely to waste lots of time.
Looking for hints that a particular segment of customers might be interested, such as customer enquiries from an unexpected source, is a good way to be more focused. You may also qualify research by demographic data, such as location or spending power.
Not getting granular enough with data
When you’ve generated ideas on who to target, you need to start fleshing out the customer segment. The first step towards defining a target market is creating demographic profiles of your target customers. Customer personas are a good way to formalise this information.
Brands do this all the time. On the less sophisticated end of the spectrum, an energy drink might market its product to men between 18-30. But it can be much more nuanced. The tortilla maker Gruma, for example, noticed a variance in preference in texture and taste in different parts of the US.
Upon closer inspection, Gruma realised these tastes were affected by patterns of immigration from different parts of Mexico and Central America. The firm now markets its products differently in each region.
In economics, humans are often portrayed as “homo economicus”. That is, infinitely rational figures with a narrow self-interest in optimising value. Anyone in business, however, knows people aren’t really that rational.
Consumers aren’t homogenous. They’re a bundle of intersecting needs, values, desires and cultural mores. That’s where what’s known as psychographics becomes valuable.
Psychographic segmentation divides buyers into different segments based on internal characteristics like personality, values, beliefs, lifestyle, attitudes, interests and social class.
“We’ve undergone a significant branding review, segmenting the market we operate in far more. It’s about playing to our strength in size by having an offering for three generations – from grandparents through grandchildren.”
Darryl Reburn, general manager of The Headland Hotel
The cold hard facts
Generally speaking, there are four: demographic, geographic, psychographic and behavioural. Demographic and geographic can be seen as “who?” and “where?”. Psychographic is the “why?”. As explained earlier, it focuses on shared characteristics like beliefs, values and lifestyle. Behavioural is the “how?”, involving analysis of spending patterns and how a certain demographic interacts with your business.
Quick wins for identifying new customers
Find out what could differentiate your business from larger competitors
If your small business is up against corporate competitors it can feel overwhelming. How can you identify customers that they haven’t already been snapped up? One route is to look at what type of customers are dissatisfied with a larger company’s offering and why.
For boiler installation firm Hometree, competing head-to-head with legacy giants like British Gas was simply not an option. So CEO Simon Phelan had to think out of the box.
Simon’s first priority was defining a target audience. Hometree ran evening sessions with customers every month to test propositions, review the transaction process and find any pain points with the competitor’s customer experience.
While price was the prime motivating factor for some customers, Simon identified a segment of customers that wanted a more transparent experience. While Hometree couldn’t compete with British Gas on price, it could out-manoeuvre them on customer service.
Look at the market as a whole
The market you’re in has its own organic momentum. It’s going somewhere – and the destination could be entirely unexpected. When Bubble Wrap was invented in 1957, its inventors envisaged it as wallpaper. Viagra was originally developed by Pfizer for the treatment of high blood pressure.
The first step is to be open-minded about what your product or service could become or for who it could be useful. Your new customers could be in unexpected places and your products could already be pointing you in the right direction. All you need to do is look.
Rethink your product
Identifying a new market can start by taking a fresh look at your product or service internally.
Write out a feature list and, next to each feature, list the benefits it provides (and the benefits of those benefits). Once you have those benefits listed, consider who could possibly need or want what your product or service offers.
Talk to your team
Your team, particularly sales, marketing and customer service staff, are at the coal face of your market. They’re likely picking up on customer behaviour through conversations, events and industry knowledge. That can help tip you off to potential new customer segments to target.
Perhaps they met someone from an industry they didn’t expect to be at a trade show or noticed a customer base they weren’t familiar with was discussing your product on social media.
Holding a brainstorming session to get ideas on new customers to target can help shape the research you do. Make a point of encouraging people to share ideas when they notice something new.
“We listened closely to what customers were saying and found that they didn’t really like the British Gas customer experience. If you can pick a customer pain point and resolve it, that’s a great place for a business to be.”
Simon Phelan, CEO of Hometree
The cold hard facts
Only one in four micro businesses who are innovating are undertaking research and development, which means most innovation is not research and development led, according to research by the Enterprise Research Centre (ERC).
Instead, innovation is often about investing in intangible activities like market research. The actions innovative businesses are taking, which are most relevant to identifying new customers are market research (24 per cent), collaboration with external partners (38 per cent) and changes to marketing methods (39 per cent).
Now you’ve learnt about the underlying factors that affect how you identify new customers to target, use our action plan to direct your improvement efforts.