How well do you understand your customers? And why this matters (more than you think)!

Neil McKay

If asked how well they understand their customers, most businesses would probably say “Pretty darn well!” But do they really?

Research has demonstrated that customers place a very high value on having a positive experience with the brands they purchase from. For example, 50% of online shoppers say they would never shop again with a retailer who provided them with a poor delivery experience, according to Forbes.

In addition, 68% of customers say that a bad customer service experience makes them less likely to do business with a company in the future, according to American Express. And 32% of customers say they would stop doing business with a brand they love after just one bad experience, according to PwC.

On the flip side, customers who had a positive experience are six times more likely to buy from the same company again compared to customers who had a poor experience, according Temkin Group. In addition, 63% of customers are more likely to purchase from a brand they have a positive emotional connection with, according to InMoment. And research conducted by Bain & Company suggests that increasing customer retention rates by just 5% can lead to a 25% to 95% increase in profits.

The obvious question

All of this begs the question: If businesses understand their customers so well, why do many of them deliver such poor customer experiences? Consider this example:

Chris is a physical type of guy. He works mostly outdoors, trains every day and enjoys activities like walking, climbing and mountain biking. Chris regularly buys training gear from one sports retailer, his go-to. On average Chris spends around £650 a year with this retailer (both online and instore) and has done so for the past few years.

In mid-October 2023, Chris bought a top, a pair of trousers and a pair of socks from the retailer online. The top and trousers arrived a few days later but the £10 pair of socks didn’t, so Chris emailed the company asking where the missing socks were. He was told to wait a week as the item may not have been shipped out with the rest of his order.

Chris waited a full month and the socks still hadn’t arrived. So he emailed the company again asking for an update. Here is the reply he received:

Think about what happened here: Instead of sending Chris a new pair of £10 socks to ensure that he remained a satisfied customer, the company basically blew him off. Not surprisingly, Chris says he will never buy from this retailer again … ever. The company lost £650 of annual revenue over a £10 pair of socks!

Decisions often aren’t conscious and rational

Again: Knowing the benefits of providing a great customer experience, why do so many retailers deliver a poor experience instead? One of the reasons is because most retailers still don’t understand what their customers want and how they make decisions. They think they understand this, but they really don’t.

Businesses think customers are rational and make conscious, logical decisions, but they usually don’t. Decisions often are not conscious, rational choices, but rather the choice of the person attempting to persuade us.

Consider the example illustrated in this chart, which plots the percentages of people consenting to donate their organs after death by country:

Research by Eric Johnson and Daniel Goldstein.

Donating organs is a complex and very personal decision. So why the huge differences in consent? It’s not a cultural or religious thing. Rather, it comes down to how the question was framed to get the desired result.

Countries with the highest percentages of organ donation use consent forms where people must opt out of donating. Meanwhile, countries with the lowest percentages of organ donation require people to opt in to donating.

In other words, the way the question was asked heavily influenced the organ donation decision and outcome.

Here’s another example: Would you would walk 15 minutes to save £7 on an item that cost £15 and 47%? Or would you walk 15 minutes to save £7 on an item that cost £455 and save 1.5%?

Professor and author Dan Ariely explains that rationally speaking, the price of the item shouldn’t matter. What should matter is saving £7 by walking 15 minutes. But many people will base their decision on the percentage of savings (47% vs. 15%) rather than the amount of money saved.

The history of brain evolution

We shouldn’t be surprised by all of this because the rational part of our brain is still very young in comparison to our brain’s evolution. Our “old” brain has been evolving for over 600 million years, going back to when early life first appeared in creatures like worms. This part of our brain is automatically geared toward survival and very much a creature of instinct and habit.

Early humans developed consciousness about 70,000 years ago, along with the ability to imagine and form larger social groups. Humans expanded across the globe and began to make more rational decisions.

When you compare the 70,000 years of rational brain evolution against the 600 million years of total brain evolution, you see that humans have only been able to make rational decisions for 0.01 percent of our brain’s entire evolutionary lifetime. So is it any wonder that we rarely make rational and logical decisions? We are non-rational because our ability for rational thought has only recently evolved.

Our dual-processing brain

Over time humans have evolved a dual processing brain. This diagram illustrates the brain’s two systems — System 1 (automatic/old brain) and System 2 (conscious/new brain):

Quick: What is 2+2? What about 17x14?

The first answer is easy and automatic and requires no effort. This is System 1.

The second answer is not so easy. It requires mental energy to work out the answer of 238. This is System 2. If you didn’t get the answer, you probably experienced what we call “ego depletion.” In other words, your System 2 ran out of energy and defaulted back to your System 1. Since your brain didn’t know the answer, you may have given up trying.

Here’s an experiment for you to experience your two brain systems in conflict with each other. As quickly as you can, name the colours of these words, but do not read the words themselves:

It’s not so easy, is it? Unfortunately, this is exactly what a lot of e-commerce retailers do to their customers: They make things unnecessarily complicated and leave it up to the customers to try and figure things out themselves.

Once you understand your customers’ decision-making process and what part of the brain is leading their interaction with your messages, you can apply the appropriate psychological principles and techniques in your creative to persuade them to make better choices that benefit them and your business.

Do you really know your customers?

Bad customer experiences impede a business’s ability to grow, especially e-commerce retailers. And while most businesses think they know their customers, in truth, many of them don’t. They think customers are rational and make logical decisions, but they aren’t and they don’t.

To accelerate growth, you must improve the experience you provide customers. You need to understand what part of your customers’ brain to engage with to deliver the right message at the right time to achieve your desired outcome: Customer loyalty leading to growth.

Download our free e-book here: Consumer Psychology, Selling Fast and Slow: How understanding the brain’s two systems can boost your sales

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