Psychographics: The Science Of Knowing Your Customer

Written by: Tom Buxton, President & CEO, Buxton

For many years, demographic analysis was the preferred method of examining and predicting customer behavior. However, today's digital technology has led to a more effective means of gaining insight into consumers' minds: customer analytics.

Customer analytics goes far beyond demographic analysis into the realm of psychographics. Although some use the terms "demographics" and "psychographics" interchangeably, in actuality, they are quite different. Demographic data identifies customers by broad categories such as gender, age, race, household income and educational level. This information is useful but still tells very little about the customers and what sets them apart. After all, two people can have the same demographic profile and be totally dissimilar. One may be a fan of sporting events, and the other an avid devotee of crime dramas. One may read National Geographic magazine, while the other subscribes to Smart Money.

Rather than viewing the customer as a small part of a larger group, psychographic analysis views each customer as a unique individual. To what brands is he or she most loyal? What magazines or books does this person read? What distance will the person drive to make a purchase? Psychographic information gives you all of these answers and more, delving into lifestyles, retailer preferences, hobbies and media choices. This type of analysis is far superior to group-level demographic analysis, and the insights it yields are far more valuable.

Where does psychographic information come from?
Virtually every person in America leaves a "data trail" wherever they go — when they use a credit card, subscribe to a magazine, complete a survey, register to vote or change the channel on cable TV. By analyzing the data, it's possible to know an individual's specific buying habits and lifestyle preferences, revealing a distinct psychographic profile. With enough data, it's possible to develop detailed customer profiles on virtually everyone in the United States.

Of course, psychographic analysis through customer analytics requires an absolutely enormous amount of customer data. Millions of transactions and pieces of information must be cataloged, cross-referenced, analyzed and continually updated. For instance, our information technology center manages approximately 250 separate databases — purchased from a variety of top-quality sources — totaling nearly 30 terabytes of data. To put that number in perspective, the U.S. Library of Congress contains around 16 terabytes of information.

Turning psychographics into profits
Once you know the psychographic profile of your customers, you can do truly amazing things with the data. To find the best sites for stores, you can examine any trade area in the United States to find concentrations of customers that match your store's customer profile. Once your store is open, you can identify the most profitable product mix for each store based on the surrounding customer base. You can also cut the waste in your marketing program by targeting only those customers who are likely to respond to your offers.
It all boils down to better decision-making. Psychographic analysis gives retailers confidence that the moves they are making are the correct ones — for both the short and long term. For this reason, the most progressive retailers are exploiting this new technology to the fullest.

Tom Buxton is the president and chief executive officer of Buxton, the leader in customer analytics for the retail industry. Buxton has served more than 1,500 clients in every retail, restaurant and service concept, providing retailers with customized solutions to make more informed site selection decisions.