Who is The Average Customer?

April 9, 2020
By

[This article was first published on R-Projects – Stoltzmaniac, and kindly contributed to R-bloggers]. (You can report issue about the content on this page here)
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I hate to be the one to break it to you, but the average customer shouldn’t be that important to you. I’m not writing this to repeat the marketing rhetoric you hear about how “millennials” want massive amounts of choice, personalization, customization, etc. I’m here to tell you that people misunderstand the facts about their business – even when the numbers are correct!

Recently, I was asked to look at marketing performance for a company in Chicago. The company told me, “on average, we make about $100 per transaction.” At first glance, they appeared to be spot on.

Daily averages showed a nice normal distribution with a mean of $100.\

average_orders

With that knowledge in mind, the company had set a hard and fast CPA goal which could take into account profit margin and all of the other goodies! All of the marketing tactics and materials were developed and targeted for the average customer at the average price of $100.

Sounds great, what’s the problem?

First of all, transactions are different than customers. One customer can make multiple transactions! Let’s put that point aside for now and assume each person is only buying once. The company’s numbers weren’t wrong but they didn’t accurately describe what was going on. Take a look at the chart below:

segmented_orders

The company offers two different ways to purchase their products, online and in-store. Clearly, there is a discrepancy between the shopping behaviors. Those who are buying in a store are spending an average of $110 and online the average is $90 per purchase.

Now you have two averages rather than one, is that actually better?

With the technology we have today, it is easier now than ever to figure out what creates these discrepancies and how to make the most out of them.

In the case of this company: 

  • Every online purchase was given a 10% discount if the customer signed up for an email newsletter
  • Discounts through affiliate programs were attached to the majority of online orders
  • In store purchasing capitalized on upselling techniques by salespeople 
  • Stores had a prominent display of multiple pricing options, which created larger variance compared to online (which should help merchandisers)

Now the business can approach online vs. offline marketing with a bit more knowledge, so I would say it’s a great thing to have two averages!

Keep in mind the average customer is not a real person. While you can tailor your marketing to this group, make sure you’re not wasting your money. Drill into your data where necessary but don’t go too far. Knowing where to slice and dice takes skill and effort – don’t try this at home!

I’ll save the changes in strategy for another post, thanks for reading!

**FYI** In this post, the story is real but the data is simulated (for the sake of privacy). While real data is always much messier, I hope you’ll find some of this useful.

To leave a comment for the author, please follow the link and comment on their blog: R-Projects – Stoltzmaniac.

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