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All Customers are not Created Equal

There is a misconception in the world that online businesses should treat their customers equally. However, I’ll suggest that’s not entirely the case. When you look at customer value, for example, you have to admit there is a strong case for treating high value customers in unique ways that you wouldn’t offer your low value customers.

Your first step in this valuation process is to categorise your customers into three groups:

  1. The few who are highly profitable and contribute the most to your business
  2. The larger group who might move up into the highly profitable section and who have a high lifetime value
  3. The largest group that are unprofitable and show little hope of increasing that value

The first group have to be considered in terms of retaining their business – build on their customer loyalty, value-add and offer special deals and consider offering some level of personal support. The happier and more satisfied your highly profitable customers the less likely that you’ll see a migration over to a competitive service.

The second group is going to be larger and your emphasis has to be on growing their value to push them into the first group. Individually these customers could provide less value for the business but they are profitable spanning their lifetime value. Lifetime value includes their sales but also the new business they bring in through advocacy. You would address this group with strategies to up-sell, cross-sell, offer recommendations and try to incentivise buying behaviour and develop customer loyalty.

The third group are simply unprofitable and you may need to consider whether you want them on your books. You have to weigh the cost of possibly moving them up to the second group, but for a whole bunch of these guys it’s not going to happen. They’ll drag your business chain like a sea anchor. Keeping or losing them is a judgement call… but unprofitable customers ultimately cost you money and you have zero hope of developing customer loyalty.

Once you’ve segmented your customers into these three groups the information can also be used to assess responses to requests and complaints. Obviously a request or complaint from a high value customer is going to warrant some effort. Whereas the same request or complaint from the unprofitable customer could lead you to recommend a competitor who is willing and able to serve them.

Because when you think about the idea that we should treat all customers equally in an online business it can be naive and ridiculous. You only have X amount of capital, Y amount of resources and Z amount of time.

And even if you’re trying to maximise your market share and feel that you need the bottom tier as customers be aware that you still need to address the top tier in a separate way. One size rarely fits all and a good place to start is assessing the customers’ value.

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About the Author

Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark (aka nortypig) and I live in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a photographer making pictures with film. A web developer for money. A business consultant for fun. A journalist on paper. Dreams of owning the World. Idea champion. Paradox. Life partner to Megan.

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