“Knowing that 60% of your loyal customers are profitable is useless if you don’t know which ones to court with what level of service.”- Werner Reinartz and V Kumar
Segmentation is invaluable but even more critical is to know and identify each customer individually. Not knowing or having a limited understanding of each customer comes with a price penalty. Customers are not equal and your company could be paying attention to the ‘wrong ones’ – the ones who could have been ignored and actually ignored the ones who could prove to ‘right’ and profitable in the long haul. This leads to expenses in the wrong direction that would lead no results and profitability and hence prove to be expensive for your company
Based on the analysis of each customer for the kind of profitability expected and the possible duration of their journey, customers can be segmented into categories. It is vital for companies to first ‘weed’ out the customers that do not have loyalty, do not invest and hence lead to cost but no profits. Such customers are a load to carry and must be kept at bay. For others who do invest, the kind of strategy used to target them will differ based on the amount of profitability. This segmentation also clearly lets companies know that all customers are not equal and merit different management.
Not strangely, given today’s ever changing market and new enterprises, there are a number of customers who are definitely profitable but their loyalty is highly questionable. The management of such floating customers is tricky and the key is to gain as much profitability from them as possible in the limited period of time that they remain customers. You never know when they will leave, despite your best efforts. The other segment or ‘class of customers’ is the ones who are profitable and loyal – the ideal combination. These customers must be treated gently and with a lot of respect and attention. They have the potential to be brand ambassadors and attract more business for you. The possible final segment is of customers who hold on to their purse strings therefore not very profitable but have been with your company for long. The reason for their loyalty may be unknown or could be for all the benefits and ‘freebies’ your company gives out to ‘loyal’ customers. For such customers it is vital to understand whether they can invest more and the reasons they don’t and yet are with your company.
The best segment of loyal and profitable customers is usually happy customers. For them the processes of the company make it easier to do business, their effort is significantly reduced and they get the attention they want. They may not make huge purchases all the time, but their buying trend is steady and continues over a period of time. These customers must not be ignored simply because they are making you profitable. The key is to engage with them regularly without being overbearing. Too much ‘pressure’ in the form of mailers and communication could easily irritate them, driving them away. It is never about ‘drowning’ your loyal customers with information and mailers – it is about sending them material relevant to them and which they can use to further the cause of their own success.
Companies must figure out ways to harness the strength of the ‘loyalty feelings’ in customers to their own advantage. All customers are not equal and therefore loyal customers who are profitable and willing to speak well of your company at every opportunity are the most valuable and ‘retainable’ customers. It is important that companies recognize these ‘qualities’ and make such customers feel special and also reward them for their loyalty and business. Allowing them special discounts, or pre-launch peeks into products and or services, preferential treatment to company sponsored events, sending complimentary goodies to celebrate your company’s anniversary are just some of the way to have a high impact on the buying trends and frequency of these profitable and loyal customers.
The other segment of ‘floating’ customers who are profitable but at their own whims and fancies and would engage in buying from others simultaneously and hence not really loyal. They are ones who ‘float’ around looking for the best deals and base their buying decision on this. They do not want to tied down or be seen as in a ‘continuous relationship’ with any one company or service provider. The key to keeping these floaters engaged is to invest in a relationship with them during their buying activity. Investing in them when they are floating elsewhere is most certainly a huge waste of time, money and effort. Efforts in trying to get these floaters back when they are engaged elsewhere hardly ever prove successful. They must be ‘savored’ while they are still with your company through very pointed and focused promotional activity and be treated to special offers such that your company gains maximum mileage during the ‘staying period of the floaters’. The tricky part for companies is that their loyal and profitable customers might not take this very kindly. It is a challenge but not an insurmountable one.
The final segment of loyal and yet not too profitable customers are perhaps the trickiest and amply justify that all customers are not equal. The returns and profitability is not as great as the investment required to market and promote to them. Most of the time they are just adding ‘dead weight’ to a company and drag along for reasons that are useful to them. Companies must find a way to manage them in a way that they remain loyal and become more profitable. The basic step is to understand whether these customers actually have small budgets, in which case engaging with them in an effort to retain them is futile. The other part could be that their budgets are large but they are spending only a miniscule portion with your company. In such a scenario, turn the heat up and get them to loosen those purse strings! Fortunately knowing the spending and buying patterns of customers is a lot easier now, given that there is so much technology available in the market. Retail stores for example could view a customer’s buying pattern that reveals that every purchase has a baby product. This gives them an insight into where the customer is likely to spend and could send on promotional communication related to baby products and other related categories like mild detergents, sanitizers, floor cleaners and the likes. This makes the customers think about these products and even end up buying them at the store. Another example could be where a customer has just bought a smart device. Companies could send them lists of smart applications that can be of use to them or even lists of accessories that would be great matches to the smart device.
The fact is that all customers are not equal irrespective of how customers wish to be treated. From the company’s perspective, even though profitability might mean the same as loyalty in a number of cases, it is pristinely clear that every customer or at least customer segment must be managed differently.
Even while accepting that all customers are not equal, there is probably no ‘correct’ way to make customers both loyal and profitable. The approach would depend on the business the company is in, the customer profiles and the communication channels being actively used to interact with customers. It must be remembered that loyalty is not the same as profitability and vice versa and companies must never take either of these attributes for granted. Instead the approach must be to conjoin these to ensure that their customer base consists largely of loyal and profitable customers. Investing in technology and skilled staff would help identify customers at an early stage, allow segmentation and thus be able to use the ‘right amount’ of coercion and chasing depending on the customer’s profile. All customers are not equal and probably might never be, and so clearly understanding which customer fits where and how to get them to the side that companies want is an ongoing process.
However in saying that all customers are not equal, companies must remember that even then all customers must be shown a minimum level of courteousness, respect and customer service. This is a vital fact for any company since even if customers decide to deflect they would not have anything averse to say about your company. You would rather not deal with negative publicity but rather focus on retaining your ‘best and brightest’ customers who will work with you to get more of their ‘kind’.