The ‘Average’ Customer Fallacy

One of many wonderful services we offer at McQueen is market research. This is an incredibly ambiguous item, and therefore required at almost every stage of the business cycle:

You want to understand your competitors? You need market research.

You want to develop a product-to-market strategy? You need market research.

You want to understand who your customers are? You need market research.

This list can continue in perpetuity, but today we’d like to briefly consider an issue we often see in the marketing world. We have dubbed it, ‘The Average Customer Fallacy’.

This is best explained with a classic statistician joke (less boring than it sounds). Bill Gates walks into a bar, and orders a beer among 130 other patrons. The average net worth of each person is now over $1 billion USD.

As soon as Gates enters the data set (worth $130 billion), the average rises exceptionally. Gates is an outlier. Would you consider this an accurate measure of the average patrons net worth? Likely not.

The statistical name for this phenomenon is ‘the flaw of averages’. This absolutely applies to any market research that you conduct. It’s important to observe more than who your “average” customer is. You need to consider the most common demographic information (median), and the outliers to get a complete picture of who your customers are.

If you want to discuss this in terms of statistics, when dealing with skewed data, the median is a much better indicator of who you’re dealing with.

There are certainly other considerations, numbers can’t tell the entire story. Author Tim Ferriss often asks his readers to find their die-hard fans. 100 die-hard fans will ultimately spend more money on your business, and contribute to your marketing than 10,000 one-time consumers. The issue is finding them. Look how much each individual is spending – look who is frequently interacting with your brand – who is connecting with your values? These are the people that will grow your business. These are the relationships to develop.

Don’t focus on the average consumer, find the die-hard one. That’s the relationship you need to cultivate. Making this “average” mistake can be a death blow to your marketing. Imagine catering an entire campaign to the wrong demographic?

Don’t make that mistake, let us give you a hand.


Image Credit: The Economist