Who are your most important customers?
March 10, 2021 at 10:15 am
Have you ever thought about this question? Most marketers are not properly prioritizing the audiences that are most relevant to their bottom line. Your customers can be segmented by profitability using a Lifetime Value formula. Customer Lifetime Value (CLV) can be calculated as the average value of a transaction X the frequency of the transaction per year X the average duration of the relationship with your customer (in a number of years). CLV is an important statistic but it is lacking something. Because it is a number based on averages, it is a measure of central tendency, therefore it does not show you how your outliers can be targeted, A.K.A the groups that buy from you the most.
Within your existing customers there exists a minority of people that are loyal to your brand, and a minority of people who are one time buyers. Focusing solely on ROI that is driven by broad advertising indifferent to selective targeting can erode your brand's equity, and it is inefficient. In terms of brand loyalty, and for the purposes of simplicity, we can differentiate between ´´transients´´ and ´´loyalists´´. Although both of these customers made a purchase from your company, the loyalists have a much higher chance of becoming repeat customers, thereby increasing the frequency of purchases they make throughout the year. This means that if we were to create an A/B testing campaign to determine which of these existing customer segments generate more Returns on Ad Spend, we would expect to generate more revenue by focusing on our loyalists. In essence, we have to personalize our engagement to become more efficient from a marketing perspective.