How to Group Customers Using Income Data in Data Driven Marketing - dummies

How to Group Customers Using Income Data in Data Driven Marketing

By David Semmelroth

Your data driven marketing campaigns are intended to convince people to buy a product or service. Because that involves a financial transaction, understanding your customer’s financial situation is useful. Having some financial information, most commonly household income, helps you match your offers and messages with the means and needs of your customers.

Affordability in data driven marketing

You have some products that are more expensive than others. It won’t do you much good to target middle-income families with information on a $200,000 Italian sports car. As you try to identify who might buy a particular product, it’s natural to ask a simple question: Who can afford it? If you have household income data in your marketing database, you can answer this question fairly easily.

A simple approach is just to look at who has bought the product in the past. Is there an income level below which very few customers bought?

Income data is normally reported in ranges rather than actual dollars. In other words, you won’t see a household with an income of $37,512. You’ll see that the household has an income in the $35K–40K range. This actually makes it quite convenient to look at how purchase behavior differs from one income band to the next.

If you find an income threshold below which purchases drop off, you can focus only on customers with incomes above the threshold. Marketers call this income qualifying an audience. It’s an extremely common approach to targeting, particularly when it comes to expensive or luxury items. You need to consider a couple things when establishing an income threshold.

Often the number of purchasers drops off a little at a time as you move down through the lower income bands. This means that your response rates drop as you include lower bands. You may eventually pass a break-even point where a few additional responses won’t pay for the additional mail costs.

For some low-cost channels, particularly e-mail, this break-even point isn’t an issue. But there is another kind of cost to consider: Mailing to people who can’t afford a particular product annoys them. You only get so many chances to talk to a customer before they tune you out. You’re far better off talking to these customers about a different product or approaching them with some sort of discount.

Speaking of discounts, there is a flip side to income qualification. You don’t want to be discounting your products unnecessarily. When marketing a discounted offer, you may want to keep high-income households out of the target audience. This is sort of a reverse income qualification. If they can afford full price, why start the conversation with a discount?

How to identify price-sensitive customers in data driven marketing

When it comes to higher-income households, you may not want to lead off with a discount. But in some cases you may end up there. Some people just will not pay the initial asking price for anything … ever. For some people, being frugal is a matter of necessity. For others, it’s a matter of principle. For still others, it’s almost a matter of sport.

Whatever the reasons, there is a difference between a customer’s ability to afford full price and their willingness to pay it. Marketers often refer to price-sensitive customers as value oriented. These are customers who will wait for sales, discounts, or other deals before buying. The Black Friday people, who are in line at 3 a.m. on the morning after Thanksgiving, are classic value-oriented customers.

On the other end of the spectrum are customers who enjoy luxury goods and high service levels. They buy higher-end cars. They pay for first-class tickets. These consumers are variously referred to as service oriented or experience oriented.

When communicating with these experience-oriented customers, you don’t need to entice them with discounted offers. Often, you can actually entice them to pay extra for added services. Focusing your message on exclusivity, special treatment, or enhanced features of your higher-end products may actually resonate more with this group.

When trying to distinguish your value-oriented from your experience-oriented customers, household income certainly comes into play. The higher-end consumer does need to be able to afford the higher price tags. But past customer behavior is also important. Almost anyone will take a discount if one is offered. But looking for people who bought without a discount will help you to increase your profit margins.