Why is the understanding of the consumer relevant for a Business Intelligence solution?

I was recently surprised when one of my customers asked me if I thought that understanding the mind and behavior of the customer was relevant when designing a Business Intelligence solution. My gut was telling me that the answer was absolutely yes, but I did not have any elements to qualify my response and in all honesty typically it is the other way around, we design Business Intelligence solutions to get insights into the mind and behavior of consumers.

Presented with this conundrum, I really had to go back to my college days and pull out some material on psychology and examine it in the light of my professional experience and role as a consumer. The findings were really interesting as they helped me to put many variables in perspective. I will attempt to document my conclusions on this blog with the hope that others will find them useful as well.

My investigation began while searching for an answer to a basic question: what are our motivations behind consumption? If you think about it, at a basic level, we all have the same physical needs: food, sleep, etc. but our consumption habits are extremely different, even with physical identical twins they might choose different styles, colors or just entirely different products when given an opportunity.

I used Maslow’s hierarchy of needs (Google it if you don’t know what I am talking about) as a base to create my own interpretation of a consumer acquisition patterns (Figure 1)

While it is true that a basic level we all need to satisfy the same physical needs to survive, once these needs are covered, we immediately tend to start looking to satisfy higher level needs that truly vary from person to person according to personality, experience, emotional intelligence, etc. At the end of the other spectrum we have a purely intellectual need that is a reflection of the self where each of us IS truly different.

Definitively an interesting finding, but it and on by itself it does not tell us anything truly new, however it does set the principle that a base level we all need to satisfy the same physical needs. How we decide to satisfy these needs that is entirely up to the self.

Retailers understand this principle extremely well; in fact most of the retail definitions (e.g. stores and brands) exist as the intersection of three variables: Product, Price and Place. It is all about what we want to consume, at what price, where.
So, if it is all about the self and given the choice each of us will select something different, how can we influence what the consumers will pick?
Going back to our retail example, the “easiest” variable to play with it is typically “Price”, as the location of the stores and the item assortments cannot be changed by the minute (while pricing literally can).

Using “Price” to motivate consumption is a science by itself; however, for the purpose of this blog I will attempt to simplify the concept within a continuum as depicted in Figure 2 below.

Most of the consumers will be motivated to acquire a good/service only if it falls within the value zone (the ratio of satisfaction received is proportional to the price), if the price goes too high or even too low we will find extreme behaviors driving the purchase. For example, who can remember when the first Application Store opened for the iPhone there was an application that did not do anything but display the image of a Gem? The developer wanted to charge 1000 USD for the application which only purpose in life was to showcase your friends you were wealthy and had a significant position or social status. Most of the iPhone users ignored the application, but surprisingly 5 people bought the app before Apple pulled it out from the store. The other extreme is an item which is priced too low and we immediately start associating the low price with low quality, for example who would buy a 50 inch LED TV for 250 USD when we know the average price for those TVs is much higher? Again, during 2013 Black Friday there were long lines outside of Target to buy this TV mostly because people enjoyed the trill of getting a very good deal or truly because they did not have money to buy anything better.

During this journey of consumer discovery, we cannot forget that people are social entities that do not live in isolation, but rather in a very complex network of relationships. Our ability to perceive the world is many times tied to the people that we interact more closely, not to mention our emotional and sometimes hormonal fluctuations. In fact, a typical person’s mood might vary significantly during a day in respond to these stimuli as depicted in Figure 3 above.

Retailers or service providers who understand this principle are able to position their offerings in such a way that they connect emotionally with the consumers. For good or bad an emotional connection is many times stronger than logical connection thus once an emotional connection is made the consumer is extremely likely to remain most loyal to the brand and truly go out of their way to acquire the provider’s product or services (e.g. who can forget the long lines at Apple stores with the launch of the early generations iPhones?)

However, it is also worth noticing that while emotion can influence a purchase, the reverse is also true.  For example, for years retailers have been able to determine the shopping occasion by the number and type of items in a shoppers market basket, however using signage, promotions and key interactions with sales associates, the retailer is able to influence and sometimes convert the initial purpose of shopping trip to a completely different outcome. Again, taking our example of Black Friday, many shopper do the lines with the expectation to buy the door buster item and go after the next bargain, but once in the store they can be influenced to stay and shop for other items that were not originally on their list.

I hope that this exploration of the consumer motivations and behavior has shed some light on our original question to determine if this insight is relevant when designing a Business Intelligence solution? A Business Intelligence solution is all about using data facts to measure specific variables against established baselines. However, the key value of the solution is in the understanding of what to measure and more importantly against what baseline. These two variables are invariable linked to the outcome that one wants to optimize and most of the BI implementations are deployed with the objective of improving consumer sales.