Relating to Customers in Consumer Businesses in an Growing Diverse Society Understanding Customer Insights That Hold the Keys to Success and Approaches to Visualizing Return on Investment

Changes to the social environment and consumer behavior are bringing about greater diversity in values. We believe such changes will only accelerate going forward. As considerations beyond individual preferences, such as social responsibility and the environment considerations, came under greater focus, it would also be fair to say that heightened consumer needs are driving diversification in values.

Against a backdrop of behavior changes driven by globalization, an aging population and the digital shift, we are seeing growing diversity in the values held by consumers. As how people work and the formats that their lives take are growing more diverse, the pursuit of individual happiness and self-expression have come under greater focus. It is predicted that this will lead to an even broader range of values in future, going beyond stereotypical (one-dimensional) values (see Figure 1).
Additionally, consumer needs could also be said to be growing more heightened as more multidimensional and refined perspectives beyond individual preferences, including social responsibility and the environmental considerations, come under greater focus as standards in choosing products. With the growth in social media use and access to global sources of information, we are also seeing an increase in consumers with diverse perspectives and in the levels of individual awareness. In line with these developments, companies are also being faced with the need to engage in efforts to address such heightened needs.

Given the background we have presented so far, in terms of the future of the consumer business, the key for companies seeking to take the lead in generating new value will be having greater customer insight and better visualizing return on investment.

It goes without saying that customer data is important for gaining deeper customer insight. Since the companies closest to customer contact points, such as major retailers, will always be at advantage in terms of data volume, however, companies should seek to get an edge not through “volume” but through “depth.”
To get a deeper understanding of customers, it is important for companies to go beyond just analyzing customer attribute data and purchasing data, instead ascertaining what lies behind consumer values so that they can extract “customer insights” such as behavior patterns and decision-making criteria (see Figure 3).
In terms of specific methods, companies can first form “value models” by analyzing the results of consumer surveys and categorizing customers into groups that share the same values. Companies can then combine such value models with the attribute data, behavior data and purchasing data that they have acquired to extract key criteria and behavior patterns at the time of purchase for each value model.

By making use of customer insights, companies can deploy high profitability measures under their own initiative.
As one example, suppose a retailer was facing challenges with the ratio of younger generations in sales composition, so decided to look forward and consider measures targeting the child-rearing generation. This means efforts to target demand from housewives in their 20s. As manufacturers generally struggle to resist retailer strategy, were the company to deploy a strategy of further price cutting, manufacturers would accept further price reductions and profitability would tend to decline. This is unlikely to lead to a win-win business scenario aimed at sustainable growth.
To avoid such a scenario, the manufacturer should implement high value-added measures both by leveraging insights it extracted for itself and based on its partners challenges and strategy (see Figure 4).
In terms of specific measures, we could suppose that, for example, the manufacturer discovered from its insights that housewives in their 20s who focus on cost performance tend to buy products from high-end lines as a reward for themselves once every two or so months. The manufacturer could implement a strategy of proposing the display of their high-end line up items, while agreeing to price negotiations from the retailer on sale of staple products. The manufacturer could thus expect to combine greater sales numbers from staple items with increased profits from high-end lines, enabling them to implement high profitability measures under their own direction.
We believe the manufacturer should thus seek to both secure its own profits and contribute to the retailer’s strategy as a true business partner, by leveraging insights it extracted for itself and proposing measures in line with the challenges and strategies of the retailer.

Growing diversity of values and heightened consumer needs mean companies face greater pressure to invest more to meet consumer and social expectations. At the same time, amidst a changing domestic market environment, there has come to be a greater focus on efficiency in investment.
While it is important for companies to be able to visualize profitability in sales activities and promotions, they should ultimately focus more on contribution to customer value than on evaluating individual measures if they are to pursue sustainable growth.
To that end, by categorizing profitability in sales activities and promotions according to value models, companies can visualize the degree of contribution to customer value of their measures (see Figure 5).

Even on the corporate activity level, companies are faced with the need to invest further capital, including into non-financial value, amidst heightened consumer needs. By evaluating such investments based on customer value, companies can clarify the grounds on which they explain such efforts to stakeholders, beginning with investors. For these reasons, we believe that evaluating profitability based on consumer value models will become more important as time goes by (see Figure 6).