Having an idea about your customer base is one thing, but truly understanding them is something else entirely. The more insights companies gain into their target market—whether through purchase data, customer reviews, focus groups, or other means—the better prepared they are to stimulate growth.

With the rise of AI in marketing and a burgeoning amount of data available on both industry and consumer levels, businesses are in a prime position to understand their customers in ways that lead to more intelligent growth strategies and increased profits.

Provide more personalized customer experiences

The key reason for gaining a deeper understanding of your customers is to more effectively meet their needs and comprehend why they choose your products or services. A clear instance of this is seen in Amazon’s tailored product recommendations, which propose related items that a customer might be interested in purchasing. These recommendations are derived from the company’s data on other customers’ buying habits, along with the individual’s own purchase history.

Amazon’s data-driven model has become a powerful element in driving growth and additional sales among its existing customers. As far back as 2013, “also bought” recommendations accounted for 35% of Amazon’s sales. The success of this model has played a major role in positioning Amazon as the go-to online retailer for so many customers, causing other retailers to attempt to replicate this design.

Understanding your customers can also be applicable in less retail-oriented settings. For example, a report from BuzzRx found that women aged 30-39 filled the most mental health and ADHD prescriptions in the United States out of any demographic.

For healthcare providers, understanding the higher prevalence of these conditions in this age group (as well as which prescriptions are most commonly filled) can lead to higher-quality care. While not necessarily profit-related, this personalized support can help healthcare providers retain patients and provide better care.

Tailor your messaging appropriately

Knowing your customer also enables smarter marketing that is likely to result in higher sales. By understanding customer needs and preferences, marketers can ensure that their campaigns will reach the right people, on the right platforms, with the right type of messaging. If any one of those three factors is off, your marketing budget could go to waste.

Furthermore, by gaining a deep understanding of your target audience, you can adjust your messaging and tactics as needed as circumstances change. For example, during the height of the pandemic, Lowe’s released a commercial highlighting various ways that suburban parents could turn their backyard into a fun place to spend quality time, even as pandemic-related closures limited traditional summer plans like going to the movies or visiting the beach.

By understanding how customers might be feeling when they were spending more time at home, Lowe’s and its rival Home Depot saw significant sales growth during the early days of the pandemic.

Targeted marketing that understands audience pain points can result in a massive lift on your advertising return on investment. In fact, 74% of customers report being more likely to stick with brands that they feel understand them and provide relevant communications. This only happens when you learn more about your customers.

Guide your product development

Finally, businesses that understand customer preferences can use that information to improve their products and services. Savvy businesses take customer feedback very seriously, whether in the form of complaints or even recommendations for a product, service or new features that could meet additional needs.

This can also be true when a product or service doesn’t resonate with your customer base. In an interview with CNN, former Nintendo of America President, Reggie Fils-Aimé, was quick to note that the failure of the company’s Wii U console was a direct contributor to the success of its follow-up — the Nintendo Switch.

Aside from making improvements to the design of the system itself, Fils-Aimé also referenced how the company learned the importance of providing a “crystal clear” value proposition to differentiate the console, as well as a steady flow of games. The lessons learned from what previously did not resonate with customers have led to the Nintendo Switch selling over 150 million units to date.

Whether you are refining an existing product or developing new offerings that will better meet market demands, knowing your customer can drive more innovative and customer-oriented product development. This will, in turn, make your products more desirable to your target audience, creating higher sales potential.

Knowing your customers is a competitive advantage

Truly knowing your customers can provide a powerful competitive advantage in any industry. By using your knowledge of your customers to offer more personalized, higher-quality experiences, adjust your marketing and even guide product development, you can build an ecosystem that increases customer satisfaction and loyalty.

Remember, acquiring a new customer can be five to 25 times more expensive than keeping your existing customers. With greater knowledge of your customers, you’ll be able to keep your current base and drive more purchases, while also being able to acquire new customers in a more cost-effective way.