Data-Driven Marketing by Mark Jeffery

Author:Mark Jeffery
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-05-11T04:00:00+00:00

The spectrum of CLTV for wireless customer is shown in Figure 6.3. We see the 80/20 rule in play—in this case, 18 percent of the customers are 55 percent of value. These high-value customers are incredibly important. The acquisition cost for a high-value customer is very high, and the revenue and profitability impact to the business is very significant if they leave.

What are the characteristics of high-value customer? This is an important question to ask of your business, and focus groups and analysis may be necessary to answer this question. In banking, a high-value customer has a portfolio of services: significant cash deposits, credit cards, auto loans, and perhaps a mortgage. The strategy for managing this type of customer is to ensure, first and foremost, that they do not leave; and, second, the strategy is to up-sell and cross-sell additional products and services. That is, sell deeply to high-value customers. In banking, for example, selling retirement and investing services can broaden the pie of high-value products.

In the wireless industry, a high-value customer may have multiple cell phones, a family plan, a data plan, and perhaps fixed-line service at home with the same company. One could sell deeper by targeting marketing for high-speed Internet and TV services. If they bite on the TV services, then there is an up-sell opportunity for high definition, premium channel packages, and a digital video recorder (DVR) rental.

The sale of bundles of products to high-value customers has the advantage of creating lock-in; there becomes a significant switching cost to the customer if they want to change to a competitor. However, beware of customer lock-in backlash; poor service can result in negative customer satisfaction (CSAT) that results in mass defections as a competitor enters with a low-switching cost alternative. Therefore, customer service and service recovery become much more important to retain high-value customers.

The next component of the value-based marketing strategy is to focus on customers who are one cross-sell away from becoming a high-value customer. There are a group of customers in the middle of Figure 6.3, and the customers who are close to the 18 percent of high-value customers are particularly important. The goal is to up-sell and cross-sell to these customers to move them up the customer value chain.

At the other end of the spectrum, in Figure 6.3, note that 5.2 percent of customers actually have negative profitability. Negative-profitability customers are just as important as high-CLTV customers: these customers are sucking the lifeblood out of the firm. A few examples illustrate the importance of managing negative profitability.

Best Buy analyzed the profitability of stores and found that a certain segment of customers were purchasing products, often on sale, then returning the products for a full refund. These customers then came back to the store shortly thereafter and purchased the exact same product, which was now “open box,” at a 20 percent discount. These customers had a negative CLTV. Note that without value-based analysis, negative-profitability behavior often goes unnoticed. So what is the best way to deal

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