July 31, 2017
We recently launched Forrester’s What It Means podcast where we talk with thought leaders to define and demystify the rapidly changing market — and identify what these changes mean for executives today.
In last week’s episode, Anjali Lai, senior data analyst, described how customer expectations and behaviors are changing — across generations and regions — and how that it putting increasing pressure on companies’ performance. The analysis comes out of Forrester’s Empowered Customer Segmentation research, which digs into today’s customer dynamic to reveal the specific attitudes and motivations fueling the market.
Victor Milligan: Hi, I’m Victor Milligan.
Jennifer Isabella: And I’m Jennifer Isabella.
Victor Milligan: Your co-hosts for Forrester’s podcast, What It Means where we explore the major changes in the market influencing executive priorities. And here with us today is Anjali Lai, Senior Analyst in Forrester’s Data Insights team. We will talk about the rise of the empowered customer. Welcome, Anjali.
Anjali Lai: Thank you so much.
Victor Milligan: Anjali, Forrester strongly believes that we’re in the age of the customer, a period in which demanding digitally-savvy customers are reshaping markets and forcing companies to change the very way they work. Does the research you did bear this out?
Anjali Lai: Yes, it does. And over the past few years, we have been mining the decades of trended consumer behavioral and attitudinal data collected through our Consumer Technographics study to understand how exactly empowerment is manifesting in consumer behaviors and what exactly is driving it. And we learned from the data analysis that five key shifts in consumer expectation and attitude are really driving this sense of empowerment. And it’s something that we could discern very clearly in the data that feeds into what we now call the Empowered Customer Segmentation.
Jennifer Isabella: So, Anjali, can you go through the five dimensions?
Anjali Lai: Sure. So, in the data, we learned that consumers are changing in regards to five key dimensions that, as I mentioned, set the stage for and drive customer empowerment. So the first key force of change is willingness to experiment. Customers are becoming increasingly comfortable with seeing new brands and products on the marketplace and experimenting with them.
The second force of change is device usage. That refers to the fact that you don’t have to look too far to know that consumers are relying on personal devices to accomplish their everyday tasks, and this change refers to not just the amount of time that people are spending on their devices, but also the expectation they have to be able to use a personal device in order to execute a task.
That leads to the third dimension, which is what we call digital-physical integration. So, that refers to the fact that the gap between the customer’s digital experience and physical experience is narrowing. Customers aren’t necessarily perceiving digital and physical worlds to be separate, but more so integrated, and now they’re conditioned to use digital tools and technologies to interact with and navigate their physical world.
The fourth major change is information savviness. So, that refers, not only to the fact that individuals are consuming more content than they have in the past, but also that they are developing the skills to navigate this content and discern valuable information when making a decision about a brand or product, a brand to partner with, or a product to adopt.
And the fifth major change I’m calling self-efficacy. That essentially refers to this deep-seeded motivation that customers have to be in control of their experiences and to do business with the best possible, most emotionally-enriching brand, and have that company actually validate that the customer is making the best decision.
Victor Milligan: In a typical data that was used for understanding consumers through segmentation at the individual level has been demographic and behavioral. But this data set upon more attitudinal ones or the expectations that the consumer carries. That’s a different kind of data.
Anjali Lai: Yeah, absolutely. So, this data is really capturing individual motivation and emotional drivers that make each segment distinct. And it is often used as a strong complement to demographic and behavioral data because it helps companies identify how their customer’s appetite for innovation is growing, and that in turn helps companies to identify priorities in terms of identifying which customers are most volatile and are smartest about their options and likely to change or take their business elsewhere or change their behavior if a better option comes along, versus those that are less likely to evolve their behavior.
Victor Milligan: So one of the dynamics of age of the customer is sort of the Copernicus Effect, which is we learn that it’s not true that the customers are orbiting the brand but increasingly the brands have to orbit the customer. So how does the data suggest that those that are further up in the food chain, the Progressive Pioneers, are creating those environments?
Anjali Lai: We see that really manifesting particularly with the progressive pioneer segment because these individuals are relatively most willing to experiment. They actually are driven by almost this lust for novelty, right? They need to feel as though they’re constantly seeing variety, learning new information, experimenting with different brands and products. And so they are also driven to be in control of their experiences, so they want to feel as though they are making the decision and the best possible decision for themselves. So for example, we see this translate into behavior in the financial space, where Progressive Pioneers will not only adopt digital tools that are new because it’s sort of the new, shiny thing, but they’re really harnessing a variety of different digital tools in order to improve their own financial health. And so they’re hyper-conscious of how brands can really help them develop and create more value in their own world. And that’s the mentality that they take to brand relationship, as opposed to other groups that are maybe more receptive.
Jennifer Isabella: So, for example, the Starbucks Mobile App or paying via that app, right, would be an example of a digital tool that they would be using more frequently than, say, other segments.
Anjali Lai: Right, exactly.
Victor Milligan: And is there a natural movement afoot so that, if you look at the Progressive Pioneers – those that are most advanced and most experimental, if you will – are they teaching others those tools so that you have a natural gravitational force towards a more advanced population? Do you see movement in the data as we’ve measured over the years?
Anjali Lai: Yes, we do. The Progressive Pioneers are also the most passionate advocates and critics of a brand. So they also have – they wield great power when taking control of a brand’s narrative and sharing that with fellow consumers through peer review sites or through social networks. And the Progressive Pioneer group is followed by what we call the Savvy Seekers who are particularly strong in that department. They are the ones who are very closely following company news, reading privacy policies, heavily leveraging peer reviews when making decisions, and also talking about their experiences to influence perceptions of others. And so this energy or this kind of interaction that we see really generated by the Progressive Pioneers and the Savvy Seekers has a ripple down effect, and so, as you mentioned, consumers are moving from the “less empowered groups” towards the “more empowered groups.”
Victor Milligan: Yeah. We’ve had some podcast talking about the democratization of brand and in the podcast we did with you, actually, talked a little bit about how customers go tribal with brands. They expect the brands to fit their social or political or economic picture that they might have in their head, and so the idea would be that these segments are having a disproportionate oversized impact on how the brands are trying to handle this idea that their brand is no longer fully in their control but increasingly being manipulated and changed and evolved based upon people that are very willing, and more importantly very skilled, to do just that.
Anjali Lai: Yeah. And we see in the data around the Progressive Pioneers again explicitly that Progressive Pioneers desire to be deeply engaged with the brand. So they are most likely to join a co-creation effort, for example, or be part of a community where they’re constantly giving feedback to a brand on a particular product or based on an experience. And then also are receptive to programs that incentivize them for advocacy and things like that. So the Progressive Pioneers are sort of interesting because there’s a little bit of a double edged sword there, right, where they are incredibly engaged and they want to forge this deep connection with a particular brand, and rely on brands, and really partner with brands in various sort of aspects in their own life. So they’re ready for a broader and a deeper brand connection. But then the flip side to that is because they are so knowledgeable about their options, again, because they are the most sophisticated and the most empowered, they’re also more volatile and likely to switch.
Victor Milligan: Yeah. I think one of the dynamics is that there’s always this implied switch costs, which is if I acquire the customer then the customer will stay for a period of time because coming off is just too hard. It’s too costly, too hard, too annoying, or whatever it might be. And this segment is teaching sort of the marketplace that these switch costs are mostly fabricated. That you can move into a hyper-adoption, hyper-abandonment world and have people come very quickly to experiment, but equally, quickly leave.
Jennifer Isabella: Are these attitudes consistent globally?
Anjali Lai: Yeah. That’s a great question. They are consistent globally. We found in the data that those five dimensions I mentioned at the start apply in every market in which we study. What’s interesting is when you start to compare some of the global data, you see curious nuances in how, for example, empowered one particular group or one particular population is compared to another and also what that rate of change is and how that differs.
Victor Milligan: So one thing I glean from the research is that the constative and experience economies proves itself out, especially in the more advanced segments, where they really value not just the efficacy of the experience or the product, but what’s the emotional value that they got from that. And that seems to be a big motivation for them to stay or go.
Anjali Lai: Yeah. So this is definitely something we see play out, particularly in the more empowered segments. Progressive Pioneers tend to be more sensitive to the emotional quality in the customer experience and tend to pay more attention to the emotional qualities and experience when making a decision about, again, which brand to partner with or which brand to begin partnering with or to switch their business to. So for instance, if you were just to do a quick comparison between the Progressive Pioneers and the Convenience Conformers, which is the third segment, Convenience Conformers are more likely to say that they would switch to another health insurer if it offered a similar plan with a lower premium, whereas about a fifth of US Progressive Pioneers would switch to another health insurer if it provided better customer service. And even in industries where customer choice is relatively limited, or there isn’t a whole lot of latitude on the customer part, even in those cases, Progressive Pioneers are more sensitive to the emotional experience. So for instance, more Convenience Conformers, close to a third of Convenience Conformers in the US say that they remain loyal to their Internet Service Provider because it’s a hassle to switch. But on the other hand, Progressive Pioneers are more likely to remain loyal to their service provider because they feel like a valued customer.
Victor Milligan: So I go back to the dimensions for a second. There seems to be a part of the story that says that a fair amount of the segments are comfortable with the role of technology in their lives. It’s almost as if two years from now, people will be astounded there was an Alexa tower and expect Alexa to be on their phone and on their person throughout their day, and that they’re comfortable as we think of things like AI and Internet Of Things, they’re comfortable with a very powerful role technology will play in their lives. It’s not just their inherent comfort with this. There seems to be now a growing expectation for that to be true. Do you see that in the data?
Anjali Lai: Yeah. There’s definitely a growing expectation, and it’s also a sense that customers are becoming conditioned to not only engage with but also desire these kind of experiences. The key to remember in that case is that because empowered customers are characterized by unique motivations, the smartest companies that win empowered customers through these types of technologies and experiences are the ones that play to those distinct emotions.
So, for instance, the Progressive Pioneer would be one that needs to feel in control at the end of the day. And oftentimes we’ve found in the data that when a Progressive Pioneer feels as though he is losing control he will immediately stop or change his behavior and opt for another channel of interaction. So, the key, in that case, is to create some sort of dialogue or conversation that also validates the decisions that the Progressive Pioneer feels as though he’s making. Whereas, when it comes to winning or serving a Convenience Conformer, those individuals typically gravitate towards experiences that evidently simplify complicated moments in their lives. And they are not necessarily out for a novelty like the Progressive Pioneers are. They’re okay with a no-frills, very basic, fundamental experience that works. So, if they are able to be convinced that a digital assistant can make their lives or make a certain transaction faster, more convenient, simpler, that is the emotional hook that will then draw Convenience Conformers into that particular experience.
Victor Milligan: So it’s a lesson learned for the disruptor because disruptors come to the marketplace and they can leverage the Progressive Pioneers because they want to be in control. I mean they want to shape the nature of the disruption itself. They’re more co-creation at that point in time. And as it flows down, the disruptor sort of picks up people along the way when they can prove some convenient value to be had. They’ll pick up the vast majority of customers. The reason I say this, I’m astounded by how fast disruption can occur in the fact that we’re so used to that pace right now. We’re used to things coming on the horizon, going from the idea to physically being in front of us and manifesting itself digitally as you described it and then quickly flowing into normal, whether that’s Uber or AirBnB or any of the sharing economy indicators. It’s amazing how fast and how graceful that is.
Anjali Lai: Yeah. And it’s sort of what feeds into this concept of a hyperadoption, I guess the idea that things that were very recently considered improbable are now very much a reality, and that will just continue. So the Empowered Customer Segmentation essentially helps explain why that’s the case. But also with understanding, the nuance how motivations and emotional drivers differ between segments, companies can ideally play to those keys and draw customers into a particular experience or hasten the pace that inexperience is adopted and is shared.
Jennifer Isabella: So Anjali, in previous episodes, we’ve talked about emotion, the theory of emotion, the science of emotion. But it appears in this conversation that the data is showing us that consumers have a desire for that emotional engagement. But are we moving from a desire to a full-on expectation?
Anjali Lai: Yeah. I think that we have reached a point where the idea that emotion is critical to not just a successful customer experience but also is fundamental to how and why consumers make decisions, and exhibits or behaviors, that is no longer debatable. That’s almost table stakes, that’s really fundamental. Right now, the key is for business leaders to identify the nuance in how emotion drives their consumers’ behaviors based on their customers levels of empowerment. So that means, not only identifying the core motivations that make their empowered customers distinct or that maybe they can map or use to organize their customers and prospects but also what are the key emotional levers to pull to trigger particular behavioral outcomes that draw customers into an experience and keep them coming back.
Victor Milligan: But this is not just an interesting point, but an economic point. These more advanced segments have significant buying power and they’ve sort of proven that they will buy. And on the flip side of that, they’ll also proven that they will churn.
Anjali Lai: Yeah. So two points actually that come to mind on that. What’s interesting and what is almost a little bit surprising that we found in the data when constructing the Empowered Customer Segmentation is that, yes, the Progressive Pioneers, the most empowered, most sophisticated group tends to be most affluent. They tend to have the greatest purchase power. But they’re actually followed by the Convenience Conformers. The third most empowered group tends to have the second highest purchase power after Progressive Pioneers. And again, it varies because income isn’t a variable that is built into the segmentation, it varies according to particular customer group of a certain brand or according to the market. But that tends to be the pattern that we see, which is an interesting point because it shows that empowerment, right, in theory or in concept, isn’t necessarily correlated to income or to affluence. Again, it’s really a function of motivation or emotion.
And the other thing I was going to mention is that what’s important is when applying this sort of framework and really kind of putting into action is to have a company identify the relative profitability and risk of each individual segment. So, Progressive Pioneers, for instance, may be much easier to attract or to acquire because they are, as we’ve discussed already, driven by this interest and need for novelty. They’re willing to experiment. But the flipside of that means that they’re also harder to retain versus Convenience Conformers because their behavior changes far more slowly will be harder to acquire but possibly easier to retain. So that’s sort of a business decision that then has to be waited in the context of a company’s customer base.
Victor Milligan: Yeah. And you see, especially in the retail space, the value or the impact it’s having in terms of provided recommendation engine simplifying the buying process is importantly creating a very short window between, I buy something and it’s delivered to my door. I mean, that convenience factor must be stimulated in that segment.
Anjali Lai: Exactly.
Victor Milligan: So in the second piece you said Anjali, was very interesting because you actually hinted at something that we’ve explored in these podcasts, which is individualization. At some point in time, I’m going to score Peter differently than Betty or Sue or Paul. This is a form of math to get to individualization.
Anjali Lai: Right. Exactly. And it’s a tool that often complements proprietary segmentations or behavioral segmentations based on behavioral demographics that companies tend to use already. So, this is essentially another lens of insight, is how you can think about it, right, to map your own customers or prospects according to the level of empowerment. Use the research to understand what that means about customers, appetite for innovation, potential to turn, relative risk, and then exactly as you say, tag individuals in your own customer base to these segments. And then come up with a list of priorities accordingly.
Victor Milligan: And this feeds into this whole concept of predictive analytics. This segmentation is a natural predictor. It’s a focus on motivations and expectations, sort of feature actions based upon existing realities. I mean, this is nested right into that prediction logic.
Anjali Lai: That’s exactly right. And that’s really the core reason why this segmentation is built purely on motivation and attitude. It’s because that allows us to be predictive and essentially anticipate how a customer will likely respond to a particular innovation and why that’s the case.
Jennifer Isabella: So we’re asking business leaders to know their own data and perhaps they have their own segmentation layering on this empowered customer segmentation. Are brands ready for this work? Are marketers ready to go after the consumer at that individual level?
Anjali Lai: Yeah, I think that they are absolutely ready for it but even more than that it’s almost imperative now for brands to tune into their customers’ rising expectations and apply some sort of statistical model to actually measure how that’s changing today and how that will be likely to change in the future. I think that the companies that develop that razor sharp focus on the core motivations that are driving customer empowerment are the ones that are going to be able to play to it and also get ahead of the curve, which is, as we’ve talked about already, critical to surviving in this rapidly changing environment.
Victor Milligan: So the age of the customer describes this dynamic where customers are able to reshape markets and change the way businesses have to work, going back to your word, imperative. And it’s providing the actors in a play for this extraordinary drama taking place out in the marketplace. So if I’m a leader, what does it mean to me to take all this in and start taking actions that are very different than I would have taken before, either because I didn’t have the knowledge or I didn’t see that affecting my business, whether it’s on the upside or on churn?
Anjali Lai: Yeah. That’s a great metaphor of the characters in the play. And I think that if the, I guess, marketer or really the business leader or business decision maker sort of sees himself or herself as the choreographer of this whole thing, I think that it means that the business leader has to really break down his or her assumptions around what customers will do based on their historical behavior, what they’ve done in the past. Also, have more of sort of an experimental mindset and be nimble and ready to engage the most empowered customers and glean, collect feedback in order to make decisions. So it’s very much embracing the whole customer-obsessed mindset.
At the end of the day if you really think about this even from a philosophical standpoint this data and this research and the framework all together is applied in the consumer context obviously. But it really is about fundamental shifts in human behavior. This is addressing things like emotion and motivation and rising expectation that are the very things that really make us human and companies really have to wrap themselves around this reality.
Jennifer Isabella: Thanks Anjali for joining us.
Victor Milligan: Yeah, thank you. This is great. Thank you.
Anjali Lai: Thanks a lot.
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