SPEAKER_01 0:16

Okay, let's get into today's episode. Last week, I'll remind you that we talked about willingness to pay and that that's the best measure of, you know, whether there's an appetite for the product or service that you've designed and priced and delivering, and that, you know, compliments and reviews and these sorts of things are great. But at the end of the day, the best way to really measure that willingness to pay is money in the bank and hopefully then actually profit in the bank. So that is you can sell and deliver your product or service profitably. Now today we want to talk about who are you selling that product or service to. Because if you don't have a well-defined, clear target audience, target customer, an ideal customer profile, whatever you want to call it, the problem by not having that is that everything else gets vague. You know, the pricing becomes harder because who you're really pricing for, the messaging becomes less clear or less effective because you're trying to appeal to a really everyone, a very wide audience. And even who you hire within your business as you build out your team can be a bit vague as well. So you end up building a business really for everyone. But as Seth Godin says, as soon as you want everyone, you want no one. So today we're going to pull apart how to build out a target customer audience. And I guess the first thing to say at the beginning is that you might have several target segments. So it's not necessarily you just need to build a business around one target segment, although that is ideal because, as I said, you can then design your value proposition, your engine, your reach strategy, and also your team to really optimize that one target customer. There's lots of examples, Mina, that how different businesses think about their target customers differently and how they frame them. Let's talk about that.

SPEAKER_00 2:01

And I think that's where most businesses get it wrong. It's right at the start of the business proposition because most businesses stop at a certain demographic label. And most of you who are listening to this podcast are probably a sort of business owners who are targeting, for example, you know, business owners, the SME market, the parents, you know, homeowners, professionals, and so forth. But these aren't categories and they're not buyers. It doesn't tell you anything about why someone will choose you today and pay the price that you're asking. So let's use an example. Take Peloton. Now, on paper, you think that it's a category for people who wanted to exercise at home, people who are time poor, they just want to take certain 30, 45 minutes at home between, you know, putting the kids down, between dinner or work, whatever it is, to basically exercise at home and try to get fit. But from my perspective, that's an enormous and useless target market. It targets hundreds of million people that fit the description, but it's not a target segment. You can spend a lot of money and time trying to sort of target this segment, but if you're not really precise on who you're or narrow it down on who you're trying to target, you're basically trying to target everyone because I can't probably think of anyone that wouldn't like to get fit at home cost effectively. But if you think about who the real buyer for Peloton is, it's someone who's already in the market who prefers the studio fitness or the one-on-one coaches, the instructor-led, the community, energy, and so forth. So think about things such as your F45 gyms or your cycle bars or the yard. These are the types of target customers for Peloton. It's someone that just wants to have that community around them, someone that keeps them accountable, someone that can track their performance and how they're going in their fitness journey. A similar example is a US business called Chewy. Now, Chewy was a pet supplier retailer, but they took a real care for people with pets who treated their pets like family. So it wasn't sort of a pet bar or a pet stock or something like that. It was someone that actually cared and built a service model around providing the right food, the right sort of care around pets, rather than being a generic pet supplier shopper. And funny enough, they actually sold in 2017 for three and a half billion US dollars because they got their target customer right. You know, they will do things such as if your pet passed, they would actually send you flowers and offer you support calls through the process and customer service reps who will send you sympathy cards and so forth. Whereas if you think about the generic pet suppliers, they wouldn't even know what's gone on or what happened to your pet. You know, rather than they'll probably just still send you, you know, any specials that they've got along the way, you know, even if your pet's passed. So they really had a point of deference and targeted the right customers, and that's why they were so successful in in their proposition. So the test I would apply to you or encourage you to do is if you could swap your target customer description into your competitors' marketing, would it still work? And if it does, it's probably still too broad. It has to be specific enough that it could actually describe your only buyer, your one buyer or your one target segment. Like Stuart said, you might have multiple segments, but it's about how you target those segments. And I think it really comes down to four layers. And most businesses stop at the shallowest one. Now, the four layers tend to be demographic. So think of age, income, location, business size. Now, you can't just stop there. You've got to keep going into the other layers. So think of firmographic if you're a business-to-business type of proposition. So what kind of industry you're trying to target, the headcount, the revenue bands. Then there's psychographic. So think of things such as your values, what type of attitudes or identities that you're trying to target. And finally is behavioral. So what they've actually done before, not what they said they will do. So think of like giving businesses who who would sort of donate part of their proceeds or profits to a certain charity. It's really important to understand who you are in that target customer. And I probably want to use Australian brand Lululemon here as an example. They got a lot of success because they targeted a certain demographic. They targeted women aged 25 to 40, who were professional women, university educated generally, single, no children, with discretionary income to spend on themselves, who saw fitness apparel as an extension of their identity. That demographic and psychographic and behavioral detail combined into one biodemographic. And that's now a worldwide recognized brand. I was actually quite surprised I was in Europe last month. And the amount of storefronts that Lululemon presented across, you know, various countries, it was incredible. And that's it, they've done it well because they've targeted the right consumer base. So, Stuart, once we've sort of established the four layers or around demographics, firmographics, psychographics, and behavioral sort of parameters, how do we take it a step further and define the target cusper with what they're trying to achieve?

SPEAKER_01 6:46

And that's an important step, Mina, because we can define a target customer audience, as you said, by those elements like how old they are, where they live, their background, all those sorts of things. But we also need to have a clear picture on what are they trying to achieve. So what problem or what solution are they looking for? So what problem they're trying to solve, what solution they're looking for. And also we need to think about, you know, who has the authority to say yes, because again, we need to define or design our whole business around that individual, those individuals as a collective, you know, if it's typically B2B, for instance. So there used to be this old sort of qualification system and the acronym was PAM, PAM, and it stood for pain, authority, and match. And it was a way of qualifying potential customers to see if they were really going to, you know, in terms of how high quality that customer was. So pain was, you know, how much, how much do they really need what you were selling in terms of the solution you're selling? Authority is, you know, who has the authority to make the decision. So for instance, if you're selling something, I don't know, like a kitchenware sort of business, for instance, or maybe both spouses need to be there to make a decision. You know, if you're speaking to the husband, maybe he's not going to be willing to say, yes, we're going to buy this stove or this oven or whatever, without, you know, his partner's authority. And match is really like, how closely do they align to your target customer? And I mentioned this now just to frame it so you can kind of understand kind of what we're trying to get at here. A common example that I use is say a C-suite executive that's looking to hire a barrister for some sort of commercial dispute. Often you might think, or the barrister might define his target customer or her target customer as large companies, you know, listed companies or something like that. Well, actually, you would take it a step further and you'd probably define your target customer as a C-suite executive that's looking to manage their personal and career risk. Because ultimately what you're trying to do is uh or what you're offering as a barrister, whether it's the chief counsel or CFO, whoever's making that decision, they're gonna have to report to the board and they're gonna have to report to the board why this barrister was the best person to hire. That it showed that it demonstrated that we were taking the matter seriously, that we were taking every opportunity to minimize, you know, negative outcomes as a result of the matter. It's not really just about, you know, I hired this person, their win-loss ratio, or, you know, the alley rate, these sorts of things that, you know, the barrister might be thinking they're the important things. And of course they're considerations, but really it's about I'm gonna hire. If I'm a CFO, I need to hire a barrister for an important issue, I'm gonna hire someone that's gonna make me look good. And even if we lose, at least I can point to, well, this was the best person and no one else could have done a better job. As long as I can sort of sell that internally in my business, I'm gonna look good as a result of making that decision. So it kind of reframes, you know, you gotta kind of reframe how you're really thinking about or defining your target customer audience. Another example with respect to mortgage broking, because mortgage broking is a really interesting business because mortgages are pretty much a homogenous product. Okay, there's some feature differences, you know, offset account, variable, fix, although, you know, these days fewer feature differences than there were 20 years ago. The the product is very homogenized now. The only difference maybe is pricing in terms of interest rate, discount, and so forth. But quite often we can define ourselves as mortgage brokers by saying, well, we're getting the best rate or the best loan or whatever. But really, people are either coming to buy their dream home, get into the property market, or if they're investors, get ahead financially. So that's the solution they're seeking. That's the solution to the problem that they're seeking. I mean, it's still important that they don't get ripped off and pay a higher interest rate, of course, but that's just mechanical. That's like the ticket to the dance. There, that that's the entry price, if you like, or entry cost. Really, what you're trying to do is help that client, that individual, buy their dream home or start investing or get into the property later. That's the most important thing. Another example I can use is say American Express Platinum Card. You know, there's going to be a cohort of people that use that sort of product, you know, that they can justify paying $1,500 a year for the card because they're getting points or because they need to make large transactions, you know, that you couldn't make using a credit card, these sorts of things. But a large cohort, a secondary cohort and large would be really around status. They're paying $1,500 for a platinum card so you know that their friends and colleagues and uh can see them put it on the table when they go and pay for their restaurant bill. And there's a lot of businesses that use status as a way of targeting customers. And there's no right or wrong here. There's certainly no judgment from that perspective, but status drives a lot of decisions. You know, status can work, it's not just financial status either. You know, status can work for people that like to be green or conscious about the environment, those sorts of things. I'll go out of their way to, you know, signal to the market, you know, that I'm buying secondhand clothing or, you know, I'm driving an electric vehicle or whatever it might be, it's still status signaling to the cohort that they identify with. So as you can see, you really need to define your target customer audience not only by the attributes that can describe them, but also what they're looking to solve and and really digging a bit deeper helps you understand. And you can see now that if I have a really good understanding, if I go back to the barrister situation, well then and I'm designing a value proposition or I'm designing a reach strategy or I'm designing engine in terms of deliverability. The distinction between I'm competing on price versus I'm saving someone's career or enhancing their career and reputation. It's a massive difference between those sort of two approaches, and you can see how it will influence the pillars within the Vert flywheel system. Now, the next thing we want to talk about, Mina, is the trigger. So, what triggers a potential customer to actually need your service? You need to really think deeply about that. Isn't that right, Mina?

SPEAKER_00 13:17

This is really where you really need to be objective with yourself. You know, you need to go back through your your wins and your lost deals and ask yourself what the buyer said in their own words. Now, I think of myself as an accountant. If someone comes to me because their other accountant's done something wrong, an order or an ATO audit or review has been triggered, that's not really a reason why people or someone will pay for my service. It's more so they're just coming to me out of need. It's not because they believe in what we offer or what we're doing or out what we're credible for. So you need to go back through your list and ask yourself objectively, what actually made the customer pay for my service today? Or if I lost this customer today, were they the A, were they the right customer for me? And B, if they were, what made them move on? So you've got to ask yourself, what causes a specific person to act rather than filing your product or service as a someday product or service? Is it a regulatory deadline? So an order or a painful event or a sudden change in circumstances? Nothing gets bought without a good pitch or understanding what you're trying to target. And triggers aren't all the same. It's worth contrasting two businesses so you can get a good picture of what we're trying to achieve here. So think about ring, the doorbell company. It's built around an acute fear of a break-in on your street or a neighbor's package being stolen or someone popping up on your doorstep that shouldn't be popping up. You know, all these things are really where sort of ring doorbell are sort of targeting or triggering you for a customer to purchase their product. However, if you compare that to ClearDocs, for example, Clear Docs is a legal or generic legal document provider that provides and sells wills and estate documents. And being in the financial services industry for a long period of time now, I can tell you that no one really wakes up and says, Oh yeah, let's do our wills and estate planning today. It's usually a trigger event unless it's forced by their advisors to go and do so. It's otherwise a trigger event for someone to go out and actually decide, okay, I need to get my wills and estates done. That could be because, you know, birth of your first child, you taking on certain debts, or you've paid back your home, or it could be a death in the family. These are the underlying life events that might trigger you to actually go and do your wills and estate planning. So if you're clear docs, you know, you really got to understand your marketing calendar and who you'd ask for referrals from. So if you're clear docs, you'd partner with people such as, for example, accountants, financial advisors, and the like to get to understand and get the referrals to your business. Now, the second thing to concentrate is your constraints. What stops a buyer when they generally want the outcome? And it could be things such as, you know, it's not the right time. It could be a spouse or a business partner who doesn't agree. It could have got to do with switching costs. You know, if I think about our industry, for example, you know, it's not uncommon for one business partner wanting to engage us while the other one doesn't. And that could be because that other person has a certain trust in their current advisor or doesn't really care about sort of their financial outcomes, you know, and it could be the fact that they're all worried about, you know, switching advisors, you know, do they know the history? Do they know what we're trying to achieve? But it's really important to understand what these constraints are so that you can actually, you know, market it and explain why it's not such a big deal. You know, for our, for example, if I use the accounting industry, we uh generally advise clients, you know, we we send an ethical letter to the other accountant where they're, you know, ethically obliged under the TPB and and other guidelines to provide us with all the history of your lodgement affairs and so forth. And we manage that process. So it's about reassuring and making sure that this, what the issue is, is not really a constraint. Another example is Planet Fitness, which is a gym industry that was a gym created around targeting a certain clientele that were concerned about committing to a certain gym around six or twelve month memberships. Whereas what they've designed is a month-by-month membership, a no commitment month-by-month membership that was really cheap. I think it was around US $10 per month. You know, at that kind of price point, you know, yes, it's a volume-based business, but they were able to succeed in a very highly saturated industry because they knew they understood what the constraints were for the target customer. Now, finally, you can build up a segment around pricing, Stuart. So why don't you tell us more about that?

SPEAKER_01 17:30

Exactly, Mina, and we definitely should consider pricing. And there's really two elements to consider here. There's the capacity arithmetic. So can someone afford to pay the price? But that doesn't tell us about the willingness to pay the price, right? So we need willingness, and that's where I'd probably focus most of the energy. Let's use Tesla as an example. You know, when Tesla first started producing cars, they couldn't do it on a mass market in terms of they couldn't produce ridiculous volumes. So they first released the Roadster and they released some collectible edition roadsters, and they were sort of selling for around about a hundred thousand US dollars, which was a premium price point back in 2008. And they marketed really to early adopters, you know, people that wanted to probably most of it was status, you know, they wanted to be the first person in their friends group that owned a Tesla. They wanted to demonstrate that they're early adopters with technology, or maybe the lean was towards, you know, green energy and electric vehicles and not using dirty combustion engines, these sorts of things. Whatever the driver was, what Tesla did is targeted to that very niche audience. They couldn't target a mass market because they didn't have the production facilities to deliver that sort of volume yet. So what they did is targeted not only people that could afford to pay 100,000, but were willing to pay 100,000. Now, of course, Tesla has pivoted with other models now. Now they sell cars for about 30,000 US dollars and they can deliver to a mass market. We've got to remember and remind ourselves that quite often we make decisions emotionally and we justify them with logic. So if we're looking at that Tesla by that early adopter, they really wanted a car. They wanted to drive the first Tesla because that is part of who they are, that's part of their status, that's part of, you know, their cohort. And they could justify it by logic by saying, well, it's important to me that I have something that's green, and so I'm gonna pay a premium to get that. It's similar. Like if we think about car tier and car tier jewelry and high-end jewelry, there's plenty of millionaires and billionaires that can afford to pay for car tier, but uh, very few will. Like the proportion of millionaires and billionaires that are buying very high-end jewelry, it would be well less than 50%. I don't know what the stats are, but it'll be low well less than 50%. So what is it that drives someone to buy that? Similar with art, for instance, it's a collectible, it can be about status, it can be about art and the connection with the art. Same with jewelry. You can look at high-end jewelry as, you know, artesian pieces, just like a painting or whatever. But again, we've got to really think about and define our customer audience by not only do they have the capacity to be able to pay, can they afford to pay the price that we want? But we've got to take it to that next step and consider willingness to pay. So, really, when we bring this all together, a target customer isn't someone that just vaguely wants the benefit. I mean, if we're marketing financial advice, for example, it'd be crazy to define our target customer as someone that wants to become wealthy. I mean, everyone wants to become independently wealthy. That's a nonsense, right? So that's not really a strong enough target. So, and it's not someone that can theoretically benefit or someone that says it's a good idea. A real target customer is, you know, someone that has that live trigger event that Maina just sort of spoke about, someone that works with a constraint that you've designed around, and then someone that has the willingness and the capacity to pay the price that you have designed. And you need all three of those things to be present. You need all three of those things to be able to define a target customer audience. But just as we design or define a target customer audience in a positive sense, we also need to define it in a negative sense. Like sometimes in business, it's who you say no to that determines how well your business does. Because, you know, you can take on 10 or say nine perfect customers and deliver your product or service, but you make a mistake and get the wrong customer, that the one out of ten wrong customers, and they will destroy, you know, potentially all the profit and cash flow and benefits that the previous nine have delivered. So, I mean, sometimes we need to define a customer audience by who they aren't.

SPEAKER_00 22:03

That's right, Stuart. You really need to really deliberate about what you're trying to do or who you're trying to target. Like Seth Godin says, as soon as you want everyone, you want no one. And if you think about, for example, some of luxury brands such such as Herma's or or Porsche or Rolex, they're the cleanest example of how they've created a competitive advantage. You can't simply walk into their boutiques or dealership if you're if you're a Porsche and order certain products. So in Hermes, for example, can't be a a Birken or a Kelly, I think they're called. In Porsche, there's certain 911 models that you can't get in Rolex. Most boutiques around the world don't even have any stock that they can actually sell you. They've really created that competitive advantage. The brand deliberately constrains supply and by doing so created the demographic that wanted to be there for basically a status symbol, you know? And funny enough, the secondhand market in all these examples actually more excess more expensive than the actual retail price because it's a customer constantly chasing that particular product. And every year you find that these products would actually increase their prices year on year and people still line up at their doors wanting that particular product. It's really a great example of not targeting the whole cohort. It's not, you know, a David Jones or a Maya that has an abundant supply of products. They really targeted a real cohort where they're they're not looking for lower trigger prospects. They really want the higher end people where they can establish high margins at a very low cost. And you don't need to be a luxury brand to do this. Like if you think about Costco as an example, Costco charges an upfront membership fee before a customer can actually buy anything at all. And that single mechanism filters out sort of casual price conscious uh shoppers who will just go in there just to compare prices. You know, you I think you can't even get in without the the membership card. So it really sets themselves apart from you know the bigger other sort of grocery shop outlet. So what we're really trying to get to here is that the moment you try to be flexible for everyone, you know, you could be trying to offer a different price for the price sensitive buyer, could offer a different scope for the one that wants a service or a product in a hurry or different terms for someone that complains the loudest, you erode the exact uniqueness of your product to offer and you erode the value that you have that the specific buyer is willing to pay for your business. So if you're losing customers who are never really your target buyer, that's not an issue. For me I I consider that actually a win. You know you can't target everyone you can't appease everyone or make them happy. You really need to understand who your target customer is and that's where you're really going to get value and scale out of your business. So sure I think that's everything someone needs to go and actually do for their own business. What would you say or what would you leave them with now?

SPEAKER_01 24:53

Well once you finish listening today's episode I think just sit down and think about clearly what you how would you define your target customer audience. Again you might just only have one target you might have you know several sort of cohorts or segments if you like I often say that perfect is the enemy of done. So don't think you just sit down you need to nail this the first time you start it. I think the first thing you sit down is just start writing what a description around your target customer is and then park it for a while and then come back to it. But ultimately over the next couple of weeks you hopefully want to get something that's really defined and well defined and as Mina mentioned earlier on in today if you've got something so generic that you could could apply to you know any of your competitors that's probably where you know there's a sign that you need to work a little bit harder on it. So there's really four questions that your target profile needs to answer. The first one is who has the authority to make the decision or or say yes because again you need to make sure that that's in the you know how you're going to design your value strategy, your engine, these sorts of things. Secondly, what are they trying to achieve? So again, you know going back to the barrister example or the mortgage broker example try and push beyond just advertised features and these sorts of things really go down to ultimately what are they driving. Then think about the trigger and you want to you know include that in your definition around target customer and then finally your capacity and their capacity and willing to pay. So not only just the demographics but really make sure that your definition hits on all four of those things. As I said a very different way to really defining your target customer and it really takes a little bit of time. So sometimes just even if you're able to do it on a walk or get out of the office or get away from you know where you normally conduct your business so that you're able to sort of think a little bit wider. The other thing too is Mina said have a think about you know who are your perfect target customers both from a profit and revenue perspective and what do they have in common. And also maybe even then talk about or talk to and interview you know some of those perfect customers so you can get a better understanding. But it's a very important part in terms of the value pillar because as I said there's a lot of downstream consequences of that. Okay next week you know one of the points that I made today was you know that we often make decisions with emotion and justify with logic. Well we're going to talk a little bit more about that and how you can include that observation in designing out your value strategy. So until then bye for now.