Using Root Cause Analyses to Customize Marketing Efforts by Location

Using Root Cause Analyses to Customize Marketing Efforts by Location

It’s all about “Location, location, location!” We’re all familiar with this emphasis on location. We’ve heard it in relation to real estate and business location. In real estate, we know that much of the worth of a piece of property is determined by its location. One acre in a highly desirable and growing area can be more valuable than dozens in an undesirable area. When opening or relocating a business we know that the success of that business is largely determined by where it is.

David A. Wiseman, in an article published in Gaming Law Review, stated that many people have aptly noted that location is key to a casino’s success. This is evident in the success of the Foxwoods Casino Resort owned by the Mashantucket Pequots of Connecticut. Foxwoods is the largest casino in the world with over 340,000 square feet of gaming space—and they are still growing. In an article published in Economic Geography, Anne-Marie d’Hauteserre attributes the success of this casino to its location. “The Pequots’ Connecticut location enabled the tribe to open a casino with accessibility to a large market and limited competition” stated d’Hauteserre.

The location of a business is important for many obvious reasons including accessibility and amount of competition as pointed out by d’Hauteserre. However, there are also factors that are not so obvious such as the way location influences customer perceptions. Psychologists have found that the location of something, whether it is the placement of an item on a table or the location of a business, influences the way we perceive it. In a study published in the Journal of Business and Psychology, Richard A. Feinberg and his colleagues found that people’s perceptions of retail stores varied depending on their location. For example, a store was perceived as more of a social place if it was located in a mall than if it was located in a downtown business district.

These differences in customer perceptions influence customer behavior although customers may not always be cognizant of this influence. Everyone has causal theories, theories about what influences their feelings and behaviors. Causal theories are just that—theories—we don’t always know what influences our behavior. Psychologists Dick Nisbett and Tim Wilson have conducted extensive research on causal theories. In one classic study, people evaluated the quality of items of clothing, such as pantyhose, in a shopping mall. Nisbett and Wilson found that the position of the items on the display table had a large impact on how people perceived and rated the items. The farther to the right an item was on the table, the more favorably people rated it. The researchers knew that it was the location of the pantyhose that influenced the ratings because all the pairs were actually identical. When asked about the reasons for their ratings, respondents had no idea that the location of the item had influenced their choices. In fact, when asked if the item’s location on the table had influenced their ratings, the respondents replied that the item’s position on the table had not influenced their ratings at all.

This has important implications for business owners. When you own or operate a business, it is vital to keep apprised of the continuously changing attitudes and perceptions of your customers. Successful businesses keep informed about their customers’ attitudes by surveying them regularly. Although customer surveys typically contain numerous questions, there are two pivotal items of interest. These two items inquire about the customer’s overall satisfaction and intent to return to the business. You hope to find that customers are highly satisfied and intend to return because that is good for business. It also lets you know you are doing something right. But what is it?  How do you know what you are doing right so that you can continue doing it? Or, if customer satisfaction and intent to return were not as high as you hoped, how do you know what to change if customers themselves are not always aware of the factors influencing their perceptions?

Rely on the “magic” of science.

Science can tell you what the client cannot always tell you directly—the variables that influence overall satisfaction and intent to return. Organizational psychologists specialize in applying scientific principles to business. They can design surveys that will enable you to measure customer perceptions on important variables so that you can “read the minds” of your customers. Although each individual customer may not be fully aware of the factors influencing his or her overall satisfaction and intent to return, organizational psychologists can identify these factors. How is this done?

It is done through a series of statistical procedures. Organizational psychologists at the National Business Research Institute (NBRI) have developed a proprietary statistical procedure called the Root Cause Analysis. It involves a series of statistical analyses that reveal the hidden factors driving customer behavior. When conducting a Root Cause Analysis the psychologist begins by running correlational analyses on all the customer data. These analyses will identify which of the variables measured have a relationship with each other. This step is important because it enables the psychologist to begin to get a picture of what is going on in the minds of the customers. However, at this point it is an incomplete picture. While correlational analyses tell us which variables have some relationship with each other, they cannot tell us which variables cause changes in other variables.

This is accomplished in the second step when the psychologist performs stepwise, linear regression analyses. Regression analyses determine how much influence each survey item has on each of the other items in the survey. The final step of a Root Cause Analysis involves a Psychological Path Analysis. In this step the organizational psychologist analyzes the results of the correlation and regression analyses and then identifies all of the drivers and the survey items they drive. This analysis enables the psychologist to identify a limited number of drivers of customer satisfaction and intent to return to your business. This takes the guesswork out of trying to decide which survey items to address. Another approach is to simply work on the lowest scoring items on your survey. This approach is limited in effectiveness since some of the low-scoring items may be of little importance to your customers and may have no impact on their future behavior

Now that we have explored how we can uncover the mystery of what is going on in the minds of customers let’s return to the importance of location. We know that customer attitudes and perceptions are influenced by the location of an item or a business. Many successful businesses have multiple locations to serve the needs of their customers. Now we can look at the importance of location from another perspective. Let’s say we have a business that is divided into four geographical markets, an East Coast market, West Coast Market, Midwest market, and a Southwest Market. To save money we decide to conduct customer surveys only with our Midwest customers. We then extrapolate (apply) those results to our three other markets. How successful will this approach be?

It will fail.

Why? Because common sense tells us that people living in different parts of the country, or for that matter, even different parts of a metropolitan area, are impacted by different cultural influences. Because of cultural differences, customers in these various markets will not all perceive our business in the same way. To have valid and meaningful survey results, a customer survey must include customers from all target markets. This will provide you with meaningful data with which you can examine overall trends in your total customer population as well as trends within specific markets.

Recently the National Business Research Institute utilized their Root Cause Analysis procedure to identify the different drivers of customer satisfaction and intent to return for a large gaming company with numerous casinos in and outside Nevada. NBRI was able to identify how this company’s Nevada customers compared with their customers outside of Nevada. While there were some similarities these customers were not identical in the drivers of their behavior.

When examining the perceptions of customers at the Nevada locations, NBRI found that overall satisfaction was driven by the customers’ perceptions of the casino having a lot of action and excitement. The gaming rewards card program was also important. Customer behavior was driven by the perceived value of the program benefits as well as by the perception that the program was simple and easy to understand. Both overall satisfaction and intent to return for Nevada customers was influenced by the friendliness and helpfulness of the restaurant staff. Intent to return was also driven by how appealing the casino restaurants were to the customers and their perceptions regarding the quality of the food and beverages at the casino restaurants. In addition, intent to return was influenced by how lucky the customers felt in the Nevada casinos.

For customers patronizing the casinos in locations outside Nevada, both overall satisfaction and intent to return were influenced by the customers’ perceptions of those casinos as fun. Several other variables were drivers of overall satisfaction for customers outside Nevada including their perceptions that the casino restaurants were appealing; that the casinos had lots of action and excitement; and their perceptions regarding the value of the rewards card program benefits. Other drivers of intent to return for customers outside Nevada included their perceptions that the casinos had a good mix of slot machine themes and their perceptions regarding the direct mail cash bonus rewards and offers through the rewards card program. Intent to return was also driven by how safe customers felt in and around the parking areas.

This gaming company can utilize this information to customize its marketing efforts by location to ensure the continued success of all its casinos. The same Root Cause Analysis used in this study can be used to reveal what is going on in the minds of your customers at all your business locations. Businesses that do not have multiple locations can also benefit from this analysis because it can be used to reveal drivers of customer behavior in each and every segment of a target market. To obtain more information on how NBRI can use the Root Cause Analysis to help you read the minds of your customers contact them at 800-756-6168.

Cynthia K. S. Reed, Ph.D., Ph.D.
Organizational Psychologist & Sociologist
National Business Research Institute, Inc.