Ideal Customer Profile (ICP): How To Create A Comprehensive Customer Profile

This article is originally published in full - on mykpono.com.

"Because the purpose of business is to create a customer, the business enterprise has two — and only two — basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business." - Peter Drucker

The goal of business is to create a customer by convincing someone to buy your product or service. The only way to achieve this goal is to truly understand the people whose lives you want to improve. How well an organization knows its customers defines the success of its product and brand. The organization that is closer than competitors to its customers will win.

Principle #1: The organization that is closer than competitors to its customers will win.

Understanding your customers is an essential step to building a product that people are willing to pay for. You have to put yourself in the shoes of your target customers to truly understand who they are and what they care about. Only then you can build a product that customers need and deliver it in an efficient way.

However, understanding your customers goes beyond merely knowing their pains and problems. Ask marketing or sales professionals to describe their customers and, more often than not, they’ll tell you all about their pain points. But understanding someone’s problems does not give you the whole picture. If that’s all you know about your existing or potential customers, you’re missing the context in which this pain occurs. Building empathy for your customers, in turn, creates brand credibility.

Let's say you want to buy a couch, so you go to a furniture store. A salesperson approaches and asks how she can help. You tell her that you need to buy a new couch. This is your primary problem or “pain point.” She asks a few questions and then recommends a few options depending on your budget and taste. However, the salesperson never asked you about the size of your room, how bright it is and what furniture is already there.

Principle #2: Context is everything.

This is exactly what happened to me when I was shopping for a couch. While the option a salesperson recommended fit my taste and budget, I felt it was too large for my place and might not fit well with my coffee table. This was obvious to me but not to the salesperson.

From the salesperson’s perspective, it's difficult to be aware of what she doesn’t know about her customer, and what she should know in order to provide a customer with the right option.

Similarly, in B2B sales, we are often aware of who our customers are and their problems. But that's not enough: Organizations must also understand the context in which their customers operate. We must know how their organizations operate, what their typical day looks like, what they feel about issues at hand, what events they attend, whom they follow on social media, what they read, and what products and services they use and like. Building empathy with your customers in this way helps you create effective marketing and sales strategies that focus on your customers and not your product or service.

Most companies start the process by creating customer personas based on demographics and psychographics that include things like attitudes, values, and interests. They might find generic industry-specific personas online, or make assumptions based on what they think they know about their actual or potential customers. More often than not, these personas amount to guesswork. And there’s a better way.

Before you develop a persona and the ideal customer profile, take time to understand the broader audience. This knowledge will help you select the optimal customer segment to target and even the personas whose attitudes, values, and beliefs align with your organization. It will also form the basis of your go-to-market strategy.

Principle #3: You can't please everyone.

Here are the steps you can take to build a more comprehensive view of your customers.

1) Understand the larger target audience that might be feeling the pain that you are solving. For example, say you offer training for sales reps. Your target audience might be VPs of Sales across organizations of all sizes or in any industry. However, the fact that people experience the same pains doesn't mean that they have an identical context. While every VP of Sales will find it important to train their sales reps, in a large organization, the VP of Sales has a larger budget to deal with this problem and can hire external coaches. In a smaller organization, the VP of Sales might have to coach direct reports herself.

This same approach works even for a consumer company. Let's take Petcube, a company that develops hardware and software products for pets, as an example. The target audience for Petcube is everyone who owns a pet.

2) Identify potential customers (people who have a particular problem that your product or service solves) out of the larger target audience group. For example, your potential customers might be VPs of Sales from organizations generating over $1M in annual recurring revenue (ARR).

Again, this works for consumer companies too. The price for Petcube products ranges between $100-$300. A potential customer is a pet owner with a budget to afford their products.

3) Build an ideal customer profile (ICP). Your ideal customer is prospects experiencing pain you can solve who are ready, willing, and able to buy your product or service. Ideally, the person who fits your ICP is aware of the problem and already looking for a solution. Continuing with the example above, your ideal customer profile could be VPs of Sales at organizations with over $1M ARR experiencing high turnover in the sales force due to poor training.

For the Petcube example, the ideal customer profile is a pet owner with enough disposable income to afford spending a few hundred dollars on their pet and currently looking for pet toys and products. 

4) Create customer personas. Only after you understand the larger target audience and outline the primary target in the form of an ICP can you dig into the psychographic and personality traits — attitudes, beliefs, values, etc. — of your customers.

For Petcube, the persona is a pet owner with disposable income who is actively shopping for pet products and believes their pet deserves the best solutions to prevent loneliness.

The point to analyze the broad target audience before defining your ideal customer profiles and personas to ensure that you understand the market you are targeting and select the right targets. The diagram below summarizes the ICP and persona discovery process.

Figure 1. ICP and persona discovery process

In other words, understanding your customers requires you first understand the whole marketplace and then zero in on an ideal customer profile to pursue. Understand first, then segment. It's also worth noting that picking the right market and the right customer can decrease your customer acquisition cost (CAC). It's easier to sell your solution to people who already familiar with the problem and it's even easier if your target customer is already in the market looking for a solution. We will come back to this point when we discuss how you analyze your customers’ pains.

Additionally, a go-to-market strategy that targets the right customers positively impacts customer lifetime value (CLV) and churn. Low customer lifetime value (CLV) and high churn is the result of selling to the wrong people -- those who aren't experiencing the problem you are solving or aren’t feeling enough pain to warrant spending whatever your product or service costs. 

The goal of this article is to show how to create a 360-view of your customer and what characteristics you should consider when selecting your ideal customer profile and persona. Learning about your broad target audiences is the key to defining your ideal customer profile but it can be separated from the ICP creation process.

The ICP is the cornerstone of your brand story, strategic messaging, customer acquisition process, and content strategy. Therefore, every marketing playbook and every go-to-market strategy plan should start with a careful analysis of your market, defining your ICP, and deeply understanding your ideal customer from every angle imaginable.

A quick definition of an ideal customer profile is a customer:

1. Experiencing the most pain (severity)
2. Frequently experiences the pain (frequency)
3. Actively looking for a solution (urgency)
4. With a budget to pay for a solution (fit)
5. For which your Customer Acquisition Cost (CAC) is lower than the Customer Lifetime Value (CLV) | CAC < CLV

As David Cancel, founder and CEO of Drift, said, “Today you are not going to win on product features -- you have to win on brand." In order to build a strong brand, you need to get attention from your target audience. To get the attention you need to make people care by showing them the vision and promised land. And to do that you must have a customer-experience-centric organization -- a company that closely understands its customers, their feelings, beliefs, and attitudes in addition to pains and concerns.

Your customer's feelings and emotions are an important part of their decision-making process. As Daniel Kahneman, a Nobel Prize winner in economics highlighted in his book "Thinking, Fast and Slow," we often make decisions based on our emotions and then find a way to rationalize our decision. In the B2B market, not all buying decisions are made based on a rational analysis of how a product or service will help the company. Far from it. Since people buy products and services for their organizations, their individual needs must be addressed as well. Buying on behalf of your organization can be stressful and anxiety-provoking. Research shows that second-guessing occurs in more than 40% of completed B2B purchases (Harvard Business Review). 

In part two, we cover the nine elements of an ideal customer profile. In part three, we describe how to structure your customer knowledge and use it to create an effective marketing playbook and go-to-market strategy. In part four, we explain how to get this information from customer interviews and surveys, and by shadowing sales calls and monitoring how customers use your product or service.

Continue reading the full article that outlines a step-by-step process of creating an ICP.