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:
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.
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:
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. http://marketing.infocat.com
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I am fortunate to have worked in a number of roles in marketing and other areas of businesses. I have done, run and led marketing. I have worked in other functions that are impacted by marketing.
I'm a keen observer on how marketing is positioned and perceived within companies and what is expected in return for the marketing budget. The Internet, Web and technology innovations continue to change and
expand marketing approaches and possibilities. Hopefully this blog will in some small way contribute to making marketing more effective for all areas.
