Question Number 2: Why are psychographics important?

For those of us in marketing who understand the science, the answer is fairly obvious.  But many times, we take that for granted and tell our clients to gather psychographic data without telling them why.  This can be frustrating for the client and doesn't really help build a relationship.

In the simplest of terms, psychographics aid in market segmentation and help you identify your perfect customers within the pool of potential customers.  Separating out the group of people who shop at your store every day and tell their friends about you from the rest of the crowd.  Remember, your perfect customer is the one responsible for driving your bottom line - knowing who they are and why they're your customer helps you improve your business.

Consider this basic case study.  Mobius Enterprises is a manufacturer of high-end, high-tech widgets.  The widgets can come in any color, be packaged in any way, and be sold through a multitude of sales channels.  Through intensive market research, Mobius has identified its target customer to be unmarried men between the ages of 25-40 who own their own homes.  A narrow target to some, but a broad market to be sure.  Mobius chooses a $50 price point for their widgets and begins to sell roughly 1,000 units per month.

This is just about their break-even point, so the managers begin to question the sustainability of the enterprise as the economy begins its decline and customers start asking for deeper discounts.  Luckily, they hire a new marketing intern straight out of college who has studied psychographics and truly understands the science.

She starts asking their customers questions that have less to do with product satisfaction and demographic profiling.  She begins to build a day-in-the-life profile that details purchasing habits, favorite restaurants, and the actual use of the widget as opposed to its intended use.  After two weeks of data collection, she sees a very telling trend.

Eighty percent of the target market buy the widgets based on customer reviews and referrals from their friends.  They don't necessarily need the widget, but are still willing to pay a premium just to fit in with the "in crowd."

Fifteen percent of the target market buy the widgets because of what's advertised on the box.  They find the gadget to be useful, but not essential to their daily lives.  They also find chat rooms and Internet forums to be a waste of time and only peruse them to complain about product failures and when popular TV shows kill off their favorite characters.

The final five percent of the market buy the product for a completely different reason.  While the widget was intended to increase performance and add a handful of diagnostic features to a modern sedan, they have been using it to customize classic muscle cars.  Rather than cutting their budget to afford only the essentials, this is the group that invests thousands of dollars restoring classic cars.  They travel customer forums heavily and talk not about product packaging or performance, but the sound the widget gives their engine and the feeling of driving the custom automobile.

Traditional marketing strategy would tell you to target the majority.  Demographically, these three groups are identical - but they buy and use the product for entirely different reasons.

The new intern at Mobius Enterprises recommends that they make a few minor changes to their line.  First of all, they raise their price to $75.  They also start using customer quotes directly on the packaging.  After that, rather than offering a single color, they use research about car customization to offer a variety of widgets that will fit in the most popular color schemes.

Raising your price in a tough economy is always a risky move, unless you do it for the right reasons.  In this case, Mobius actually increased its sales to 1,200 units per month.  The 80% crowd increased in size as the 5% crowd began raving about the new colors (and the fact that they didn't have to repaint).  Any complaint about price by the reluctant 15% crowd was immediately hushed by the 5% crowd who pointed out that further customizing the custom unit would have cost more (not necessarily true) and a $25 price hike was worth it.

From $50,000 per month in revenue to $90,000 just by changing the way Mobius targeted the same group of men.  Without an understanding of psychographics (and a brave new intern) this would never have been possible.  Would your business benefit from using psychographics?