Precision Marketing Identifies High Value Customers

Customer segmentation, or market segmentation, is the practice of dividing customers into groups of individuals with common characteristics. These segments help companies gain a better understanding of customers, then grouping them into categories to better optimize marketing programs and spend.

Many companies will also divide these groups into high, medium and low value brackets, measuring the customer’s gross or net contribution margin. The reason behind this value based segmentationis the goal of attracting and retaining the highest value customers which would logically drive a higher ROI.

But, in the Routes to Revenue research, over 50% of the marketers polled say they do not have good insights into retention rates, customer profitability and lifetime value of their customers; leaving half of the marketers targeting all customers in a group regardless if they are high value, low value  or no value. This type of strategy dilutes customer equity since the dollars spent are averaged, and the cost of acquiring, retaining and recovering customers becomes equal. Remember Liz saying, “What good is marketing and creating loyalty on a customer that does not pay their bills?” Targeting an entire group which would include “no value” customers in attempt to up sell or cross would be just silly.

The definition of Customer Equity differs, but in general it means the propensity for new or existing customers to continue to do business with you now and in the future. (Think Apple)  Some estimate the customer equity value by revenues minus the cost of acquiring, retaining or recovering a customer. In fact, Roland T. Rust stated that a number of studies indicated customer equity is closely tied to the company’s market capitalization.  (Again think Apple)

If marketers were to identify and target spend on profitable, high value customers and then create loyalty by driving messaging that is personal and relevant and grow customer equity.In fact, the Routes to Revenue research reported that personalized messaging that is more relevant and precise is the top strategy for 60% of marketers polled.  Growing customer equity is a key strategy for 2009-2010.

The place to start is creating relevant conversations that drive  drive loyalty and increase long term customer equity.

Related posts:

1. Data Analytics is Critical for Precision Marketing
2. Relevancy Drives Response