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Starting up a business: how well should you know your customer?

In this blog, growth start-up advisor Phil Starr underlines the importance of focusing on your customer, which can be the difference between start up success and start up failure.

A common thing I hear from start-up businesses, particularly those selling direct to the public, is that “everyone is my customer”. Whilst on the face of it appealing to as many people as possible might seem a good way to increase sales, it may not be the right marketing strategy for a business.

For any new venture, understanding your customer profile is vital. To illustrate this, compare a high-end food hall with a discount supermarket. Both sell food to all to anyone who walks through the door- but think of the difference in the type of customers they see, and how this affects their marketing strategy.

For instance, ask yourself what socioeconomic group the customer is most likely to belong to. The high-end food hall might attract those working in managerial positions, earning above the national average; the discount supermarket customer might have reduced personal means, and so prioritise price over convenience, brand or variety.

Why does this matter? The food hall might focus its promotions on high-end, prepared multi-course meal deals for someone to pick up on the way home from work. For the same price, a family shopping at the discount supermarket could enjoy a number of meals, especially if they take advantage of promotions like buy one, get one free. A customer on a lower income is more likely to focus on putting bread on the table ahead of anything else, so the focus is on “buy more get more” (Maslow’s famous Hierarchy of Needs details this).

What about location? As a start up, get this wrong and you could be stuck with a high fixed cost for many years, so think about your customer again. Where a customer is on a lower income, they might be more reliant on public transport – so a town centre location, with easy access by bus or train to civic buildings and budget shops would be desirable.

The supermarket Iceland has used its customers’ travel needs to tailor one marketing promotion: if you spend £20 with them, Iceland will deliver for free (useful for a digitally excluded customer, elderly or with a pram on public transport, as now they can spend more money in the shop).

The food hall will be located in prime commuter locations, so out of town retail parks for those driving, and high-end main streets near prime office locations.

How about your pricing strategy, does that matter at all?  Who is more likely to be on a budget, and perhaps pay with cash not card? Go into most budget stores you’ll see big signs showing prices, typically in yellow and black, highly visible and often in multiples of £1. If your customer is on a budget, they need to know how much they’ve spent. Does a supermarket want people getting to the till and having to put things back because they’ve overspent? Nor do they want customers counting out £17.82 in loose change - time consuming and costly to bank.

Simple pricing speeds up transactions and reduces use of coins. Conversely, the food hall customer may pay less attention to prices, knowing that they don‘t need to worry when they pay with their card.

Ask yourself about your own customers when devising your pricing strategy. If you are dealing with new businesses, can they really afford to pay large deposits up front (and can you afford them not to?)? Would they welcome a clear fixed price, so they can budget ahead, or does your brand want to attract those with disposable income, who welcome being in the elite?

So, think about your customer- their lifestyle, their motivations, their needs. What will attract them to you?  What can you do to make it easier for them to do business with you with your location, pricing strategy, online presence?   Your time and money are finite resources. Focusing on your customer, not any customer, can be the difference between start up success and start up failure.

 

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Phil Starr

Phil Starr, Growth Start-up Advisor

Phil’s career started in medical and scientific sales and marketing with several multinational pharmaceutical companies dealing in Primary, secondary and social care sectors before he moved into the Financial Services Sector. Phil established his own business that provided mortgage advice and insurance in the residential and commercial sectors as well as debt management and other financial services.

With the changes in the market in 2009, Phil entered the Social Finance/Not for profit sector, where he opened and managed three offices across the Merseyside/North Wales area. He also managed the pilot of the first New Enterprise Allowance Scheme by the DWP, prior to its nationwide role out, developing the policies for the loan underwriting.  Phil also brings experience in partnership working with Local Authorities, Housing Associations, National Government Departments, criminal justice, social and third sector organisations to his role as Start up Adviser at the Growth Hub.