Your SlideShare is downloading. ×

Do You Really Know Who Your Best Customers Are?

506

Published on

It’s an old axiom that 20% of your customers will produce 80% of your sales. Turns out, it’s true. The trick is figuring out which 20% is the right 20%. But once you’ve gone through the exercise, you …

It’s an old axiom that 20% of your customers will produce 80% of your sales. Turns out, it’s true. The trick is figuring out which 20% is the right 20%. But once you’ve gone through the exercise, you can precisely focus your marketing strategy based
on what each data segment is telling you. Each segment will yield a secret that tells you which customers are worth retaining, which ones you should try to win back, which customers are worth cultivating, where to prioritize your marketing spend, and who’s actually costing you money to keep.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
506
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
12
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Do You Really Know Who Your Best Customers Are? A simple, highly effective way to generate higher ROI through the magic of the 80/20 rule By Steve Khederian, Director of Analytics, CatalystPage 1 Copyright ©2011 Catalyst. All rights reserved.
  • 2. Do you really know who your best customers are? B ack in 1945, George Orwell wrote in Animal Farm, “All animals are equal but some animals are more equal than others.” As marketers, we know that all customers are not created equal. We should be able to generate higher ROI by segmenting customers properly so we can target higher-value propositions to higher-value segments and improve our communications strategy. So why don’t we? I’m frequently amazed by the number of relatively sophisticated marketers who haven’t properly segmented their customers. I’m convinced this occurs for two reasons: 1. Many marketers believe they already know who their best customers are. This group is usually quite surprised to find out otherwise. Proper segmentation can be a humbling experience. 2. Many marketers overcomplicate the process. The wide range of analytics tools and processes at our disposal, coupled with the expectation to come up with new and better solutions, often drives the temptation to create complexity. As a result, one of the biggest challenges—and opportunities—with segmentation is starting simple. Let me introduce you to a reliable, effective way to start simple: the 80/20 rule. The 80/20 rule: how to measure and determine customer value by segment It’s an old axiom that 20% of your customers will produce 80% of your sales. Turns out, it’s true. The trick is figuring out which 20% is the right 20%. But once you’ve gone through the exercise, you can precisely focus your marketing strategy based on what each data segment is telling you. Each segment will yield a secret that tells you which customers are worth retaining, which ones you should try to win back, which customers are worth cultivating, where to prioritize your marketing spend, and who’s actually costing you money to keep.< PREVIOUS PAGE NEXT PAGE >Page 2 Copyright ©2011 Catalyst. All rights reserved.
  • 3. Do you really know who your best customers are? Here’s how to start. 1. First, determine your value segments based on whatever criteria drive your business: for example, sales, margin dollars or unit volume. 2. Now, rank your customers from highest value to lowest value for the most recent 12-month period.* The customers who produced 80% of total value are your High Value segment. The balance is Low Value. 3. Now, do the same thing for the previous 12-month period and you will have High and Low Value segments from last year and this year. You’ll also have new customers who had zero value in the first year but are now on the books as High or Low Value customers. Likewise, you’ll have lost High and Low Value customers from the first year who had zero sales in the most recent year. A simple cross-tab of these dimensions is likely to show significant movement from one segment to another for each year. Here’s a typical distribution of the 24-month customer snapshot. Segmentation—Current Value and Retention Trends Year over Year Year 1 Value Year 2 Value Segment Values Total Segment High Low None Dealer Customer IDs Count 800 500 200 1,500 High Total Year 1 Sales $4,600,000 $900,000 $700,000 $6,200,000 For each of Total Year 2 Sales $5,400,000 $500,000 $0 $5,900,000 these segments, Dealer Customer IDs Count 300 2,700 1,800 4,800 ask yourself: Low Total Year 1 Sales $300,000 $1,000,000 $500,000 $1,800,000 Total Year 2 Sales $1,000,000 $900,000 $0 $1,900,000 What happened? Dealer Customer IDs Count 300 1,400 1,700 Why? None Total Year 1 Sales $0 $0 $0 Total Year 2 Sales $1,600,000 $600,000 $2,200,000 Total Dealer Customer IDs Count 1,400 4,600 2,000 8,000 Total Year 1 Sales $4,900,000 $1,900,000 $1,200,000 $8,000,000 Total Year 2 Sales $8,000,000 $2,000,000 $0 $10,000,000 *This same approach can be taken using the last 90 days vs. the previous 90 days, or any other time frame that makes sense for your customers’ buying cycle.< PREVIOUS PAGE NEXT PAGE >Page 3 Copyright ©2011 Catalyst. All rights reserved.
  • 4. Do you really know who your best customers are? Tracking movement across value segments from one time period to the next defines specific targeting opportunities and prioritization of value. Each of these segments presents opportunities to impact customer behavior and grow ROI if you understand what happened and why, if only broadly. For each segment, what you’re looking to learn is, “what can I do to move you forward?” Your goal is to drive customers into higher value segments. For example, what can you learn about the customers who moved from Low to High to better determine marketing spend for those who remained Low? Looking at the customers who moved from High to Low, how might you proactively avoid value loss next year among High Value customers? Once you understand what each segment tells you (the data), your job is to ask “what happened?” and “why?” (the analysis). Each intersection in the matrix begs important but often overlooked questions—the answers to which should shape marketing and sales strategies to prioritize marketing spend, drive growth, minimize attrition and churn, and improve ROI. What other secrets can you find hidden in your data? How about customers who should be marketed to less frequently, customers who shouldn’t be marketed to at all, lost customers to target for win-back, and clues to develop a more effective acquisition strategy. And the good news is, you don’t have to choose between these objectives. You can do them all, and you should. But the 80/20 segmentation matrix will clearly illuminate your “red flags” so you know where to focus first. We’d be happy to talk to you further about doing a segmentation analysis of your data. For more information contact Diane Quinlisk at 585.453.8313 or email dquinlisk@catalystinc.com.< PREVIOUS PAGE NEXT PAGE >Page 4 Copyright ©2011 Catalyst. All rights reserved.
  • 5. Do you really know who your best customers are? About the author Steve Khederian is director of analytics at Catalyst, a Rochester, NY-based direct and digital marketing agency, where he specializes in applying data to develop and implement integrated, multichannel sales and marketing programs. He is the former CMO of Modern Marketing Concepts and VP of client services at Concentrix. He holds an MBA from the Simon School of Business at the University of Rochester. 110 Marina Drive Rochester, NY 14626 800.836.7720 www.catalystinc.com Facebook Twitter LinkedInPage 5 Copyright ©2011 Catalyst. All rights reserved.

×