The Power of One

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\"shutterstock_93965347\"Consumer Insights from MasterCard Advisors

The digital age has brought a shift in power from retailers to consumers unlike anything known before. Each consumer is now a market segment of one. Within the next five years every retailer will learn to win consumer business and sustain loyalty by understanding behavior as it’s reflected in what consumers buy, the experiences they covet, the networks they leverage and their attitudes regarding data usage, price and convenience.

The year is 2020. Isabel, a 35-year-old professional, opens her tablet. First stop is her home screen, from which she controls her universe. She has her favorite brands, her product wish list with the prices she’s prepared to pay (information she has shared with those same favorite brands) and an easy-to-manage dashboard defining what the outside world sees about her. Certain brands she trusts enough to share quite a lot about herself. These favorites, of course, know the most about Isabel, so that she can get exactly what she wants from them.

Others aren’t as fortunate. They know only what Isabel wants to share with them —which isn’t much. If a brand is not on her list you won’t ever find out more, because she’s perfectly able and willing to control the information about herself that’s available online. In her digital life she will “switch on” areas of greatest interest to herself and block out the untargeted, low-value offers and emails she receives all the time.

Isabel, you see, values control and monetizes her personal data by the way she manages it. Isabel is a segment of one.

The Nirvana Fallacy (Rebooted).

Think back to that college course where you heard about the nirvana economists described as “perfect competition.” The attributes of this state were abundant knowledge owned by consumers about prices and products. Producers dynamically adjusted prices and quantities to meet demand. Thanks to the Internet, and increasingly, mobile commerce, we are quite close to that nirvana now— if you’re a consumer.

For retailers it’s another story. They are watching the power recede out of their hands, power that resided in their ability to market, merchandise, price and deliver the goods that mass-market consumers wanted. That power is transferring into the hands of Isabel, who can control who speaks to her, how often and on what subjects.

Where is the shift in the power balance between buyer and seller taking the retail industry? It’s taking retailers and their suppliers to Isabel. Consumer-facing businesses need a much deeper understanding of consumer behavior and preferences than they have now. For many this includes a level of bulk, granularity and timeliness well beyond the information they leverage today. Unless they have access to that information, and learn to apply it, their very survival is threatened.

Connecting with the Segment of One.

Few retailers today have the sophistication, systems and savvy to create a mutually rewarding relationship with Isabel. What they do have is access to anonymous and aggregated category-level data that can allow them to gain her initial loyalty. When they are ready to leverage the technologies instanced above, they can close the circle.

Here are some ideas, strategies, tools and tactics that may help retailers and brands confront this power shift.

Get rid of blunt instruments.

In Isabel’s world, conventional segmentation techniques are too broad to be relevant. They’re blunt instruments. Customers like her can’t be described with static segmentation techniques. In 2013, MasterCard’s Digital Sharing and Trust study made it clear that simple demographics do not describe in meaningful ways how consumers decide to share information about themselves. Based on five online personas identified in the research, Isabel might be characterized as “Open Sharer” or “Simply Interactor.” These consumers are tech-savvy and the ultimate social networkers. They’re comfortable sharing information online if it means there will be a deal or a reward for them if they decide to buy something.

In Isabel’s world, the purchasing behavior, psychographic and social data she’s prepared to share with those retailers which have gained her trust will provide the richness necessary for those brands to deliver customer value and build loyalty. Retailers will understand customers like Isabel by what she buys, the experiences she covets, her social networks and her psychographic attributes—insofar as she’s shared these with the brand. It’s a virtuous circle that other competitors will find it very hard to break.

Master the basics first.

It’s important to draw a distinction between the kind of individual information Isabel is willing to share about herself and the aggregate industry data available today that retailers are only just learning to manage. Here’s a prediction: In the next few years retailers and brands will rapidly retool their conventional methodologies and begin to master Power of One segmentation methods that will help explain Isabel’s world. Right now they are still learning how to take advantage of aggregated data extracted from billions of anonymous transactions reflecting real consumer behavior.

For instance, a retailer may think Isabel is its best customer. What that retailer doesn’t know is that she spends four times in their category what she spends with that retailer alone. But the retailer never sees that. There are ways of building a loyalty segmentation framework that can create visibility into Isabel’s category spend and help a store owner know its share of her purse. That kind of knowledge drives growth.

Don’t underestimate the power of online.

It is an understatement to say that the e-commerce channel is growing rapidly — MasterCard SpendingPulse recently reported a three-month gain of 18.6 percent for the channel. Research also shows that consumers are making purchasing choices under the influence of their social networks.

Online vendors can discover the top affinity categories for their customers using information that would never emerge from its own data alone. Building relationships with these affinity categories can increase the vendor’s relevance to its current customers.

Some online sectors are growing slower than others, either because consumers are less receptive to the channel or because merchants have under-invested in their online presence. Actively monitoring e-Commerce spending in a category lets an online business know if it’s ahead or behind the competition. One retailer, for instance, thought it was executing its e-Commerce strategy well until it discovered it was growing at half the rate of its category.

The most successful companies of the future will be the ones that can segment— and connect with — the fast-approaching new world of Isabel via their channel of preference.

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