This article was originally published at CustomerThink.com and being re-posted with some updates and modifications.

Marketers used market segmentation methods for a very long time. However, as our abilities to collect and manage information continues to improve, the new methods of segmentation become available to enable more targeted marketing efforts for marketers and better products and services for consumers. One of the most commonly accepted strategies utilized is demographic segmentation based on an assumption that a specific group (based on age, gender, etc) is a primary consumer of your product or service. Sometimes this assumption is based on the product purchase history. Regardless of the validity of an assumption, it does not often provide an insight on “WHY” this demographic segment would select the product in question or “HOW” they would use it. In other words, there is a lot of guessing that has to take place or additional segmentation strategies to be deployed. In my opinion, the popularity of demographic strategy lay mostly in its low cost and ease of access as behavioral and psychographic segmentation requires a lot of research that translates into high cost and time-to-market constraints.

The advances in technology start to offer new opportunities for market segmentation based on automated analysis of customer-generated content which is becoming available with the proliferation of social media and the rise of Social Consumer. Essentially instead of assuming what demographic group would be the ideal target for our marketing efforts, we could look at a group that already expressed their interest by purchasing specific types of products or services and learn “WHAT” elements of their experience were important to them.

Joel Rubinson, one of my favorite authorities in the field,  posted this on Google+ ”as I review materials for the NYU social media class I am about to teach, I believe that Facebook will lead to the end of demographic targeting for media. Of course, content consumption and sharing behavior also enable this but Facebook will be the catalyst. Why not target on interests and actions? Thoughts?”

Most companies of any size use online survey techniques in an attempt to engage their customers, but the method does not support discovery of customer perspective; it validates assumptions of the company based on questions posed and deemed important. Again, the primary driver of survey method popularity is not the quality of the output and ability to provide better market intelligence, but the cost of implementation. I would suggest there are better alternatives today to learn unbiased market segment knowledge in applications of Opinion Mining technology to unsolicited customer-generated content.

The Opinion Mining approach offers much better quality of market segment intelligence and often rivals Survey approach in terms of implementation complexity and cost. I would like to offer an example to illustrate my point. Let’s look at tablets market segment defined by a few popular products in this category; however, non-like products that compete for the same wallet share can be used to get valuable insights:

• Apple iPad2 (666 customer “stories”)
• Blackberry Playbook (255)
• HP TouchPad (650)
• Motorola Xoom (576)
• Samsung Galaxy Tab 10.1 inch and (502)
• Toshiba Thrive (433)

These products were selected based on their popularity that manifested itself in a number of their customer-generated content references available online in a form of customer reviews, forum comments or social networks product page messages.

The first level of Customer Intelligence gained by Opinion Mining of this customer content is a list of customer experience attributes, sorted by their importance. The importance is measured as a percentage of total number of unsolicited opinions expressed by the customers. This answers the questions – WHAT is important to the customers and HOW important that is.

The next level allows the measuring of the difference between customer expectations and their experience and measures HOW well the customers’ needs are met. We use a two-point scale to visualize that difference (0=unacceptable, 1=experience meets expectations, 2=delighted); however, the measurements can easily be converted to any scale of choice without losing their meaning or accuracy. The chart below focuses on the top four attributes of customer experience by their importance to illustrate the approach.

There are practical implications of these measurements as they reflect on marcom messaging that have created customer expectations the product needs to meet. In the example above, most of the products exceeded the expectations of their customers in attributes most important to them by a significant margin. As an illustration, I would suggest that perhaps messaging about usability of these products could leverage customer sentiment to assure consumers who are hesitant to make a purchase and increase their products market adoption. That calls for a next level of intelligence that provides an answer to WHY customers feel this way and provide a context in which they express their opinions.

Above is a very small sample to illustrate the use of words and expressions (in square brackets) people to describe their opinions, and how they are attributed to a specific element of customer experience. These words, expressions ad even quotes can be used to fortify marketing messaging. Think of the very successful marketing campaign by Tempur-Pedic.

The flip side of the coin – early understanding of root causes of customer disappointment – can help to alleviate larger problems, turn the problem situation around or even present an opportunity for differentiation as illustrated below.

Looking deeper reveals a lot of unhappiness about compatibility:

And even deeper analysis will provide a context that is invaluable for taking an advantage of the opportunity (click on the image below to make it larger):

To sum it up – this type of market intelligence can be produced within a few hours at cost of a few hundred dollars without any installation, implementation or training investment which makes it difficult to ignore as an alternative or addition to survey and panels approach. As GPS technology thought us – multiplicity of signal sources results in better decision quality.

The discussions on importance of innovation are all over Social Media. The calls for innovating ourselves out from the current economic malaise are coming from the President of Consumer Electronics Association to the President of the United States. In the words of Louis XIV (or was it Mel Brooks?) – “It’s good to be the King!” – for the rest of us it would be helpful to put some definitions around these terms. I do not pretend to be an expert on the subject of innovation, but I like to be specific and want to offer some ideas for discussion.

So what differentiate commercially successful product or service from the innovation?

I would like to propose that successful products gain market traction, meet their sales forecasts and generate anticipated profit margins.  Innovative products re-shape the market place, create new categories, and generate blockbusting profits. Innovative products successfully defeat the competitors’ assaults for long periods of time.

Development and introduction of successful products or services is a very challenging and risky endeavor, as we are well aware.

The Recent Portfolio Management Benchmark Survey sponsored by Planview, reported that only 52.3% of products meet with commercial success, while 21.2% were “killed prior to launch”.  They did not specify the type of products or industries covered by this survey, but my personal experience pegs the success ratio well under 40% mark.

The risk level for innovation is even higher. It is estimated that only 1 out 3,000 new innovative ideas becomes a commercial success. We also know that most innovative products rarely have anything to do with technological inventions, but have everything to do with the scale of market adoption. Peter Dreker, the father of modern Management Science, wrote in his book “Innovation and Entrepreneurship”, that a 15 year “gestation” period is the average time observed between the time of an original invention and the time of its commercial realization.

We all know examples of such innovations as Ford T, Microsoft Word, iPod and iPad to name a few that dominated and still dominate their product categories. These are very different products, however the thought process, methods and techniques of the people who are behind the creation of these products, are a mystery we want to discover.

I would like to propose that the key difference between really good Product Managers and the Innovators is in a way they perceive and understand the markets they target.

While a Product Manager segments the markets in terms of demographics or personae for which they develop a product, an Innovator is focused on the Customer Experience of people, who struggle to use existing products to do their chores, and interprets these struggles into the definition of innovative vision for new generation products.

In other words they concentrate on improvement of EXPERIENCE as oppose to improvement of a PRODUCT.

I am honored to present this webinar sponsored by Grandview Product Management community on June 22nd, 2011.

There is a heated debate in a Product Management community about the Role of Market Research in creation of innovative products and I have mused on this subject earlier on this blog.

Product managers, who subscribe to a “thought leadership” (as oppose to “customer participation”) model, love to quote Henry Ford who supposedly said – “If I asked my customers what they want, they simply would have said a faster horse.”  The “customer driven innovation” camp proponents are swearing by Customer Feedback and Voice of Customer based methodologies. However there is no clear evidence that either site consistently out-innovate their opponents.

During this webinar we will explore and analyze traditional methods of product definition process, their limitations and their applications that often lead to incremental improvements as oppose to true innovation. We will talk about

• What separate a successful product from INNOVATIVE product
• What are differences between a Product Manager and a Star Product Manager , and
• How the knowledge of the market helps to close the gaps between the two.

Please click on this link to register

With introductions of new tablets from major players taking place almost every week now, we decided to check the “pulse” of customer perceptions with products of this market segment. We limited the list to four most popular products in the interest of keeping the chart neat, but you can check the reputation of other tablets we track by going to http://tinyurl.com/aaidemo, entering the product name or number like “Apple iPad 2″ and clicking on “Submit” button. The system will aggregate and analyze customer reviews to calculate the reputation metrics for you and will let you read the reviews if you want to. You can also compare it to the other tablets reviewed.

Below is a screen shot of Customer Intelligence Analysis dashboard (in private beta) that compares scores of the attributes that are most important to their customers. The importance value is indicated on the right side  and measured as an average percentage of all opinions expressed for these products.

Click on this image to enlarge it.

6,314 customer reviews were processed by the Opinion Miner® software to produce these results. It appears that Reliability (i.e. availability of the device’s to provide intended functionality to a customer) is the most important attribute of the tablet devices as 8.21% of all opinions expressed are focused on that part of the experience. Please contact us for the access to the detailed analysis of ALL attributes for these, or any other products of interest to you. Our customers use this information in their product planning process and for tuning their marketing communications.

Our research shows that customers who purchased Apple iPad 2 report their overall (CSI) expectations were exceeded by over 36%. It is 8% higher than the results achieved by original iPad and newly released Motorola Xoom.

These results, particularly about the newly introduced tablets, will most likely change within a few weeks as the customers will have more time and opportunity to experience them in wider range of circumstances, and more reviews will be posted online. We will continue to monitor the market segment perceptions as new products are introduced and keep you posted.

Many Social Media proponents, activists and analysts express strong believe that its advance creates revolutionary changes to role and importance of consumer voice in market dynamics.

So far it gave birth to hordes of consultants and marketing services that promote ideas of influencer chasing and reputation management monitoring technologies, however the “scream” of offerings seem to counteract the idea of increasing the volume of the voice of customer.

One example is a number of websites, offering depository of customer reviews about products and/or services, outnumber the customers who are willing and capable to contribute to these depositories. The end result seems to be counterproductive as consumers who look for such information are hassled to sites that have no content to offer.

Some companies spend substantial energy to explore and pursue some form of activity involving Social Media and there are very few, but loudly celebrated examples of those. However that doesn’t seem to change overall reputation of these companies. One of my favorite whipping “boys” – Comcast is still rated dismally for the delivery of their customers experience, despite heroic efforts of their Social Media team on Twitter and Facebook.  Here is another example, a darling of the Social Media mavens – LinkedIn. Based on Customer Service Scoreboard scores

LinkedIn is ranked #253 out of the 273 companies that have a CustomerServiceScoreboard.com rating with an overall score of 19.35 out of a possible 200. This score rates LinkedIn customer service and customer support as Terrible.

There 56 negative comments vs 1 positive one and most of them by paying subscribers, who cannot get their issues resolved. Ironically the 19.35 score is below the LinkedIn lowest monthly subscription fee of $24.95.

I know that 56 complains is a very small number considering millions of people who use the network, but I wonder what is a percentage of them who actually use it actively enough to care, and even more interesting is how many actually pay for it. I personally am one of them and my experience is one of neglect. I have an issue outstanding for almost two years without resolution. The issue resurface from time to time and causes me a lot of aggravation and waste of time. I finally decided to use LinkedIn Inmail to escalate the problem to the founder of the company, Reid Hoffman.

On 7/2/10 12:18 PM, Gregory Yankelovich wrote:
——————–
I am expending a valuable Inmail credit and hope that you will read it.

This is the 3rd time I am erroneously locked out of my ability to ask for Introduction. I am paying customer, but I cannot get resolution for almost 2 years. The 1st time I have experienced this problem, I reported it 10/27/2008 and I am having problems with it once again and it negatively impacts my efforts to bring my product to the market.

I rely heavily on my network to reach out to potential customers and partners. However every time I encounter this problem I have to wait for 2-3 days for your Customer Support to reset the system’s counters. 2-3 days are a long time to waste in the life of a startup. I understand the power of reputation more than most people and don’t want to scream #fail all over Twitter. Please help.

To Reid’s credit he responded

Gregory,
I am reading it; I’ll put your issue into the executive escalations. Since I don’t know what you’re doing that hits problems, I don’t know if we support what you’re doing or not. (For example, not saying that this is what you’re doing, but we have very clear messaging limits to prevent spam.)
Hope it all works out. (And, btw, you can write what you feel is right on twitter: I apologize for where we step when we’re wrong or slow.)
all the best,
Reid

However his response was the only one, I am still waiting for any contact from the Customer Support. I eventually did express my frustration on Twitter:

Wasted yet another day waiting for help from #LinkedIn technical support – still no love.

What is a reasonable response time for #customersupport? Does anyone else has #LinkedIn Introduction Withdrawal or is it just me?

and here the reaction I have received

@piplzchoice Do you have a free linkedin account? If so, be thankful you get to use linkedin at all. Just sayin.

I did not write this to whine about my “misfortunes”, but to explore what, if anything, is actually changing with advent of Social Media in respect to the treatment of the customers. Advertisers keep complaining how difficult it is to gain share of consumer attention, yet when a company like LinkedIn or Facebook, does manage to do it, and end up raising enormous amounts of capital based on that fact, our attention doesn’t seem to be that valuable anymore. Let’s face it, Social Media is nothing more than another communication channel, like a next generation of telephone, radio, TV and email. All of these improved our life experiences at some cost to our privacy or quality of life, but how we use these channels is the only thing that may influence how Market delivers our Customer Experiences.

As consumers we all can recall the experiences that have left us feeling abused and mistreated by companies we have selected to give our money to. In some instances I promised to myself never to come back for more and kept my promise – I would rather go back to dial-up ISP than deal with Comcast.

According to the research of Bruce Temkin, former Forrester analyst and an authority on Customer Experience management,

In Forrester’s 2010 Customer Experience Ranking of 133 companies, Comcast came in 126th for it’s Internet business and 125th for its TV service. It also came in 105th/109th out of 114 companies in the 2008 rankings and 95th/101st out of 112 firms in the 2007 rankings.

The point of this writing is not to bash Comcast, even though it definitely deserves bashing, but to ask an important question: Does the Customer Experience (or Customer Satisfaction) really matter if in spite of its miserable scores a company like Comcast can produce healthy profits?

These financial statements show steady growth in revenues and profits over the same periods, and the numbers do not provide any evidence to support the belief that mistreatment of the customers is a good business practice.

I have posed this question to Bruce and his response

“@piplzchoice Good question. Cust exp is a long-term asset. Comcast (and others in the industry) are squandering it. It will catch up to them.”

This response is encouraging, but not entirely satisfying because it appeals to emotional belief (faith). I would prefer some empiric evidence of correlation between profitability and customer experience ratings or reputation.

I have heard about Claes Fornell of CFI Group who has done very interesting work in that field, but yet to learn more about that methodology.

To be fair, one example, particularly of a company that operates in rapidly growing market with very few competitors, does not offer any meaningful insight and I would love to find some other, more representative examples.

Woody Allen once said – “I would gladly accept existence of God if he would give me some evidence of his existence, like transferring $5M to my Swiss bank account”. Please let me know if you are aware of any definitive studies and/or methodologies that quantify and/or predict financial performance based on the Customer Experience – I am still faithful, but yearn for evidence.

These days a huge gap has formed between listening to our customers and actually understanding what they are saying.  It’s now evident to most companies that Social Media has opened new doors for listening to customers.  Although it seems they are drowning in volumes of voices, without good tools and/or methods to extract clear and actionable signals.  In a sense they can’t see the forest for the all the trees.

While CRM has become the hottest way to connect with customers, it is often mistaken as a form of technology used to disclose customer feedback throughout a company.  CRM is much more than technology; it’s an ongoing process to improve relationships with your customers resulting in better customer service, improved customer satisfaction, retention and loyalty.

So what is Social CRM?  Simply defined, this new advancement is a way to manage social relationships.  Its function is collecting data found in social networks and disseminating among the areas within the company that can respond to it. In the words of Paul Greenberg:

“Social CRM is a philosophy & a business strategy, supported by a technology platform, business rules, workflow, processes & social characteristics, designed to engage the customer in a collaborative conversation in order to provide mutually beneficial value in a trusted & transparent business environment. It’s the company’s response to the customer’s ownership of the conversation.”

Typically, it has taken a drastic measure such as decreased revenues, customer churn or product issues to compel us to reach out to our patrons. On average, this knee-jerk reaction is short-lived and dropped once the next crisis appears.

Customer satisfaction surveys are also utilized by many companies as a way to ‘connect’ with consumers. Although well intentioned, satisfaction surveys are often self serving and primarily give management the impression they are accomplishing something.

A good place to start connecting with your customers is by way of:
- Buyer behavior – adopt a ‘buyer orientation’ vs. the typical ‘seller orientation’
- Voice of the Customer (VOC) programs – go beyond satisfaction.  Bruce Temkin, a principal analyst at Forrester, defines VOC as “a systematic approach for incorporating the needs of customers into the design of customer experiences.”
Empowerment – make sure your organization is focused and able to make changes based on customer feedback.  Lack of this key element is often why customer satisfaction surveys are typically a flop.

Another interesting fact is the correlation of customer satisfaction with a company’s market performance.  A study published in the Journal of Marketing found that companies at the top 20% of the American Customer Satisfaction Index greatly outperformed in the stock market, generating a 40% return.

There is also a strong correlation between customer satisfaction and financial performance.  A study by JD Power and Associates discovered that organizations with the highest levels of customer satisfaction experienced profit margins at three times the growth rate than those with medium levels of customer satisfaction and more than 21 times that for low customer satisfaction ratings.

Often an organization may possess various methods of obtaining customer feedback but they are not able to comprehend it, creating action plans while many do not have the resources to try.  As a veritable strategy, perhaps we should be focusing more than ever on CRM (& Social CRM) development to bridge the enormous gap between listening and understanding our customers.

Create a Customer Experience that delights them.

I’d love to get my hands on data for comparative analysis of the resources required to design remarkable products vs marketing ordinary ones.

Robert Stephens, the founder of Geek Squad that was acquired by Best Buy, reportedly said that “Advertising is the tax you pay for being unremarkable.” Given the choice, I would always select voluntary taxation such as consumption/sales taxes and/or lottery instead of mandatory, regressive income taxes, however, the governments have the luxury to extract both and don’t give us much room for choice.  The reasons companies elect to pay an “advertising tax”, that often reaches 30% of retail price, is because we, the Customers, pay it.

I do realize that advertising is only a part of the marketing budget, and wonder what role the rest of the marketing organization play in maintaining competition based on the price per feature strategy.  How much do marketers know what their Customers think about the product they purchased? Have they realized the value they were expecting? If not, what is the best way to close this gap?

Standard Deviation of Average Headphone Reputation.

Based on 64,601 Customer Reviews published before January 26, 2010

When you exceed Customer expectations, just unobtrusively help them to share their experience as much as possible. At this point all they really need is a really tall soapbox.

In MITSloan Management Review Article “A Plan to Invent the Marketing We Need Today”, Yoram Wind wrote

This world has led to a new breed of consumers. They expect customization (make it mine), communities (let me be a part of it), multiple channels (let me call, click or visit), competitive value (give me more for my money) and choice (give me search and decision tools).

In this post I would like to focus on the combination of the first (customization) and the last (choice) and call it “personalization” for the purpose of this discussion.

As a consumer selecting a product to purchase, I rely on marketing collateral to form my expectations, and on the comments of my peers who already experienced the products I consider to buy. Any decision is made with a relative shortage of information required to make this decision. An unavoidable ambiguity of available information from marketing collateral and product scores from online retailers or advertisers, does not help the consumer to reduce uncertainty of their decision easily. I want to know how likely this product will satisfy me, because while I know that other customers, who described their experiences are my peers, their product scores do not help me to understand whether we share and value the same aspects of a product experience. The only way to figure that out is to read carefully the descriptions of their experience. That takes a lot of time and effort.

The higher number of customer reviews and more detailed their description of a product experience (more data), the more useful and accurate are the results of personalized information to support the purchasing decision.

The key element for me, as a consumer, is the reliability issues of the Garmin product when it is compared to very similar Magellan GPS. These reliability reputation issues are not “visible” looking at traditional 4.5 stars customers gave to Garmin. However for me reliability of GPS device represent the highest differentiator, and allows me to “personalize” my choice.

A very similar problem facing marketeers who want to understand specific, personal characteristics that affect the reputation of their products and brands, and how they influence their competitive position in their market segments. Their problem is multiplied by a number of products, brands and competitors they have to follow and lack of consistent methodology to produce effective output. The technologies are complex to implement and costs are staggering.

Professor Wind continues

Through its maturation as a discipline over the past half century, marketing has emerged as a rigorous field. Tools such as conjoint analysis, economic and econometric modeling, behavioral economics, data mining, and techniques derived from mathematical psychology have raised the level of rigor and strengthened the insights that marketing can contribute to the enterprise. But many of the most rigorous tools were developed years ago. Today’s challenge is how to move from using old tools that are focused on solving problems of the past to developing new and rigorous tools that are relevant to the challenges of today and the future.

I would like to pose that “personalization” is the new “segmentation”, and certain aspects of personal Customer Experience provide a lot more guidance for marketers than demographics, ethnicity, etc. because they are much closer correlate to  how your customers use and experience your products in their circumstances.

Marketing is divided between behavioral and quantitative approaches to marketing questions. Increasingly, the recruitment of faculty and doctoral students, and the design of workshops, are focused separately on behavioral and quantitative approaches. Ideally, the
two sides should come together. Markets can be seen through either a behavioral or quantitative lens, but as with binocular vision, we gain more depth when we look through both.

Customer Satisfaction is usually considered to fall into a domain of Market Research, to me however it is one of the most critical traits of CRM universe. After all Customer Relationship Management systems suppose to help you to know how your customers feel about your company, your service and your product at any given time. Therefore it is critically important to enable and optimize two ways communication channels for capturing and analyzing the resulting information flow.

“Unless the source of the statement (or comments) has extremely high qualifications, the statement will be more revealing of the author than the information intended by him. This applies, of course to matters of judgment. A book review, good or bad, can be far more descriptive of the reviewer than informational about the book itself. This (probabilistic) mechanism I also call Wittgenstein’s ruler: Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table you may also be using the table to measure the rule.”

The underscored words are mine.

“The information from an anonymous reader on Amazon.com is all about the person, while that of a qualified person, is going to be all about the book”

“Fooled by randomness – The hidden Role of Chance in Life and in the Markets” – Nassim Nicholas Taleb

While completely agree with Mr. Taleb, I would like to pose that this is mostly accurate statement about general sentiment of liking or not liking a book or a product. The reference to disagreement of accuracy of specific fact stated in the book and questioned by the commenter, assumes certain expertise and therefore is about the book and not about the writer of the comment. The reference to specifics of the customer experience with a product also provides more practical information than reflection of commenter’s personality or expertise, and if it is consistent with experience of other customers , warrants further analysis, and perhaps corrective action.

Based on Wittgenstein’s ruler approach I would suggest that CSI (Customer Satisfaction Index) is a relatively low value instrument which is like a thermometer, can point to the fact that your body is not well, but to none of potential reasons for that condition.