NPS Blog

There’s no such thing as an “average” customer

Net Promoter System podcast“Our average customer is a 38-year-old married woman with 1.4 children who lives in a suburban neighborhood and drives a Japanese-make minivan.” How many times have you heard an executive talk about his or her company’s average customer? How much time and money has been spent researching the habits and demographics of the average customer? How much does this customer spend, and on which products or services? How often? How do they respond to promotions? What is their average number of visits to our website?

But when we ask an executive to define more closely what we call a company’s “design target,” we often get a negative reaction: “We serve everyone. We need to appeal to the whole market so we can sustain our growth.” And then businesses spend a lot of money trying to attract and retain more of these “average” people. By meeting the needs of the broadest possible audience, these companies figure their investments will net them more customers than if they targeted a more sharply defined segment of customers.

But what if your best customers aren’t really “average” at all? What if the average customer is less loyal—and therefore more costly to serve? In our experience, this is almost always the case. Moreover, it often turns out that—somewhat paradoxically—focusing on a set of customers more narrowly can result in growing the business more quickly.

Peter FaderPeter Fader, my next guest on the Net Promoter System podcast, spends a lot of time pondering questions of customer segmentation as co-director of the Wharton Customer Analytics Initiative at the University of Pennsylvania. He makes the case that there is no average customer, and companies that chase the mean set themselves up to miss their potentially most profitable business opportunities.

Peter’s an actuary at heart. As he says, rather than “predicting how long it will be until someone dies, I predict how long it will be until someone buys.” His book Customer Centricity: Focus on the Right Customers for Strategic Advantage (Wharton Digital Press 2012) argues that some customers are worth more than others and that companies should make business decisions with the most valuable customers in mind, even if that means ignoring customers with less payoff potential. Peter is also a fan of using the Net Promoter System as a tool for segmenting customers.

You don’t have to be a quant to enjoy this episode. Even though Peter is a hardcore number cruncher, he has a knack for explaining how data analysis can help companies serve their best customers better.

You can listen to our discussion on iTunes, through the player below or on our podcast pageClick here to browse more Net Promoter System podcasts.

One Response to There’s no such thing as an “average” customer

  1. Very good point. Importance of customer segmentation by demographic characteristics is declining as much reacher data becomes available. For the purpose of product/service marketing the most effective approach was popularized by Clayton Christensen – “The job, customers hire product to do, not the customer, is the fundamental unit of analysis for a marketer who hopes to develop products that customers will buy”