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Back 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 properly segmenting customer data to identify high- and low-value customers. We should be able to predict which customers will be most likely to buy from us again, and whether their purchases will actually be profitable.
So why don’t we? Could it be because…
- Too many marketers think they already know who their best customers are. These people are often surprised to find out differently…proper segmentation can be a humbling experience.
- Too many marketers overcomplicate the process. The wide range of analytics tools and processes at our disposal, coupled with expectations 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—in doing segmentation is starting simple.
It’s an old axiom that 20% of your customers will produce 80% of your sales. The trick is figuring out which 20% is the right 20%. But once you’ve gone through a Customer Value Analysis, you can precisely focus your marketing strategy based on what each data segment tells you. Each segment yields a secret: which customers are worth retaining, which customers to try to win back, which customers to cultivate, who’s actually costing you money.
It starts with segmentation
Want to try the basics yourself?
- Determine your value segments based on whatever criteria drive your business: for example, sales, margin dollar or unit volume.
- 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.
- 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 probably have new customers who had zero value the first year but are now High or Low Value customers. Likewise, you’ll have lost High and Low Value customers from one year over another.
For each segment, ask yourself: what happened? Why? What can I do to move these customers forward? Your goal is to drive customers into higher value segments.
Once you understand what each segment tells you, you’ll have the answers to shape marketing and sales strategies to prioritize marketing spend, drive growth, minimize attrition and churn, and improve ROI.
Want some help? Ask us about doing a Customer Value Analysis to identify your most and least profitable customers. It’s fast, affordable and the ROI is significant.
