Aligning marketing investment and campaigns with customer segments

Following on from the previous post ‘How many customers do you have? Really.’ which discussed basic customer count and group segmentation; this post explores some ideas for analyzing the segmentation for more effectively aligning marketing investment and campaigns. This diagram depicts the previously discussed basic customer count segments:

Customer Segments

The fundamental customer objectives for any business are straightforward – acquire new customers, retain existing customers and grow revenues from existing customers. The challenge for marketing is how to effectively do this within budget and resource constraints.

Given this simplistic overall view, the next step is to categorize customers by value. One measure of customer value is how much revenue you have generated from a customer versus the total potential revenue for that customer. Let’s call this Realized Value – the percentage of the potential revenue already realized. We can now categorize customers by realized value:
  • Most Valuable – customers with 75%* or greater Realized Value. These are the customers you most want to retain and keep active.
  • Most Potential – customers with 25-75%* Realized Value. These are the customers you most want to grow, keep active and increase buying frequency.
  • Marginal – customers with less than 25%* Realized Value. Although these customers may have lots of Realized Value upside, it’s a more difficult group to develop.
  • Least Valuable – these are the customers from hell – the one’s that cause more problems, are never satisfied and cost more to manage than the revenue they produce. They could fall anywhere on Realized Value scale.
*suggested percentage – use appropriate measures relative to your business specifics.

These four categories should provide a good indication which marketing approaches would be most appropriate for each within the context of your business and market.

Now overlay these four Realized Value categories with the customer count segmentation discussed in the previous post and you’ll have an interesting matrix of customer insights to make objective marketing decisions:
Customer Segments vs Realized Value matrix

For each intersection in the above matrix you would define specific marketing objectives, engagements, campaigns and execution programs. That should provide targeted alignment to most effectively align your marketing investment to produce better results from your existing customer base.

The concept of Realized Value is related to Lifetime Customer Value (LCV) which was previously covered in several posts; How to determine Lifetime Customer Value, Strategic Insights from Calculating Lifetime Customer Value and Impact of Customer Retention on Lifetime Customer Value.

I have more ideas to share on the customer analysis topic in upcoming posts. How does this approach relate to what you’re currently doing? Do you think this approach could improve your marketing results? Do you use a Relative Value type of analysis? Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC.

How many customers do you have? Really.

For many B2B and Information Technology companies the number of customers is a common and often cited measure of success and implied market share. We’ve all heard claims of “we have 50,000 customers” or “we have 300,000 customers” or whatever the number. While this gross number may provide some intuitive measure of market presence and size to the casual outside observer it does raise questions. More astute observers such as Industry Analysts will want further clarification and breakdown of the number. Marketing needs to segment this number to align investment and campaigns with the reality of various segments in the customer base.

Although most B2B companies are generally reticent to disclose these segmentation numbers to outsiders, they are critical internally for targeted and relevant marketing to existing customers. However, many B2B companies struggle to produce accurate and dependable customer segmentation numbers. The data may be in different databases, variable record-keeping over the years, acquisitions, divestitures, product life cycles, time, staff turnover, etc. all contribute to the difficulty for producing more granular customer counts. Here’s a basic segmentation breakout that all B2B marketing groups should know:

Customer Segments
  • Customers who bought – this is the most frequently quoted external number of customers who ever bought a product/service/solution from the company. A mostly irrelevant number as actionable marketing data.
  • Customers don’t exist – the customer company no longer exists for various reasons. Identify and flag these records accordingly in your database. Never delete any customer records, just use appropriate status flags.
  • Customers not using – those customers no longer using the product/service/solution bought from the company. These are ex-customers and should be flagged and counted as such.
  • Customers currently using – those customers actively using the product/service/solution they bought. Although this may seem like an obvious number to know, it requires a continuing customer contact program to keep track of active customers.
  • Customers in continuity relationship – these are customers that send you money on a regular basis for license/maintenance/service/support/hosting/etc. It should be straightforward to identify this subset from billing records.
  • Customers who bought recently – there are two subsets to track in this group; those who recently bought for the first time and those who recently bought again. The qualification of ‘recent’ depends on the cost and scope of the product/service/solution – anything from 12-24 months.
  • Customers who bought multiple times recently – these are customers that have made multiple independent purchases during the ‘recent’ period. Although this group could be a third subset of the previous group of customers who bought recently, the frequency attribute is important and should be of particular interest for marketing.
  • Customers with unknown status – take all the customers who ever bought and subtract all the other subsets leaving a group of customers with unknown status (the remaining yellow area in the diagram). For companies that are large, or have diverse products lines, or done acquisitions, or been around a long time, this could be a sizable group of customers.
Customer records must contain product/service/solution line item data to provide more relevant analysis. For example, a customer may no longer use one product line but they could have purchased another product line within the past year.

The obvious observation from this relatively straightforward list of customer segments is that we should be marketing to each group differently to be most effective.

I’ll continue discussing some ideas for analyzing and using this information in next week’s post. In the meantime, it would be interesting to hear how you approach this customer count challenge or other comments on this topic.
Copyright © 2009 The Marketing Mélange and Ingistics LLC.

The Marketing Mélange blog now available in Chinese

I am pleased to announce that Phiona Li will be translating the posts in this blog for our Chinese readers. Several of the posts have been translated, more will be done over time and new blog posts will be translated as timely and accurately as possible. If you have any questions or comments about the Chinese version or posts on that blog, please post them on the Chinese blog.
Please click on either of the two links below for The Marketing Mélange in Chinese.
Chinese text

Is Marketing becoming a numbers game?

Based on conversations with fellow marketers over the past couple of years, seems to me that our conversations have shifted significantly to discussing marketing data and metrics. Marketing has been under pressure to produce more measurable and visible metrics about their activities and contribution to the business results. Marketers have responded very well to collect and produce more data and metrics about almost every facet of marketing activities. CEOs, Sales, Finance and other areas of a company now have much better insight into what marketing is doing and the results produced. Marketing has more insights into what they’re doing and tracking their activities and results as never before.

This is all good and great progress over the past several years, but it seems to me that many of our conversations and the preponderance of article and blog topics these past couple of years are mainly about marketing data and metrics. This raises two concerns for me about where our focus in marketing is heading;

First concern is that we’re mostly talking about volumetric data and basic metrics such as percentages, ratios or trends derived from the data. We also keep adding more data and metrics because it’s becoming relatively easier and less costly to acquire the data and produce the metrics. While this may be a significant leap forward from not having good data and metrics previously, it’s only the beginning. The part of the conversation that still needs attention is the next step of generating information and intelligence. The data and metrics tell you what happened and while there may be some intuitive feel for whether it was good or bad, it doesn’t tell you why or how it happened, or how to improve the results, or whether to continue a particular marketing campaign, or answer a myriad of possible questions. We need to generate actionable insights and intelligence from the data to provide real guidance for improving marketing’s effectiveness and contribution to the business. The metrics may be interesting, but it’s the analysis, insights and intelligence that will really make a difference.

“Data is not information, information is not knowledge, knowledge is not understanding, understanding is not wisdom.” – Clifford Stoll

The second concern is that the customer and value proposition appear to be somewhat overlooked in our attention to metrics. Who specifically are the target customers for this campaign – what industry, market segment, psychographic, persona, etc? Is there a clear picture and understanding of the target buyer and their buying cycle? Does the value proposition really resonate with these buyers? Is the price correct for this target audience? There are so many fundamental marketing questions that determine the outcome of a campaign and the eventual metrics. The story is not in the metrics, it’s in the marketing decisions that went into a campaign that caused the metrics. While everyone initially pays attention to the marketing fundamentals that go into developing a campaign, we need to do causal analysis to revisit these decisions based on the metrics produced from executing the campaign. And most importantly, there is no sale without a buyer – don’t lose sight of the customer and their motivation for buying amongst the captivating metrics.

What’s your opinion about Marketing becoming more of a numbers game? Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC.

Relationship vs. Transactional Marketing

During heady boom periods companies focus a lot of marketing activity on traditional transactional marketing processes to find and close individual deals or transactions. Demand is good, buyers have budgets, vendors are busy and there are lots of potential deals to pursue. Transactional marketing as the name implies is about each party maximizing the return on individual transactions. It’s about immediate value delivery and short-term revenue generation. For IT companies, transactional marketing typically focuses on acquiring new customers and gaining market share.

But as we all painfully know, economic cycles go up and down with boom periods giving way to slow periods. Transactional marketing doesn’t work well during slow periods because demand decreases significantly, spending is restrained and there are fewer new transactions to be had. Some companies continue pursuing a transactional marketing approach during slow times by using special promotions, discounting, and other tactics to keep new transactions flowing. Besides being ineffective, these short-term tactics create longer-term detrimental consequences.

Relationship marketing on the other hand focuses on long-term customer loyalty, retention and satisfaction to generate a continuing revenue stream from existing customers. The “relationship” is not about some cozy, kumbaya intimate friendship with a customer. Relationship Marketing is about a continuing mutually beneficial business relationship process that encompasses the entire customer life-cycle.

Relationship marketing continues whether or not a customer intends to buy this quarter or whenever. Although relationship marketing should be a cornerstone of B2B marketing strategy, many companies have recently found new religion in relationship marketing during the economic slowdown.

Relationship marketing is ultimately about generating additional revenue from existing customers using appropriate retention and loyalty methods. The key to successful relationship marketing is to tune your retention, loyalty and marketing activities to relevant and prevailing circumstances:

  • Listening to customers or market segments of customers – they’ll communicate their circumstances, needs and buying intentions.
  • Customer life cycle – what’s going on in their business, when last did they buy, what did they buy? Either individually for large customers or in groups with similar characteristics.
  • Customer events – capitalize on major events such as acquisitions, management changes, new product introduction, etc.
  • Customer demographics – such as larger versus smaller companies, owner operated versus corporate management, etc.
  • Industry – yours and your customer’s. Each industry has its own economic cycle and specific conditions.
  • Monitor customer service / support activities for trends in issues and complaints to identify threats and opportunities.
  • Improve your Net Promoter Score
  • Even though your focus is on retention and loyalty, always provide meaningful value that customers appreciate during the process.

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” – Peter Drucker

I’ve seen several recent articles positing that the current slower market conditions for IT vendors may continue long after the recession is over due to a fundamental shift in the market, demand and buying motivations. Relationship marketing is the best approach to combat the vagaries of the economy and business cycles over the long term.

The basic premise of relationship marketing is to stay engaged with customers and keep them long enough to buy more stuff from you.

How does your company use relationship marketing? Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC.