Over the next year or two, companies are going to see profits under pressure, marketing budgets getting minimised and capital being constrained. At the same time, business needs to continue. What can enterprises do to strengthen their market positions given these limitations? The answer: Velvet Rope Marketing.
I recently read Sunil Gupta’s book, “Driving Digital Strategy.” There was one idea that stood out (among the many excellent ones in the book): the 200-20 Rule. Here is what he writes: “According to the familiar 80-20 rule, 20 percent of the customers provide 80 percent of the revenue. However, research shows that if we focus on profitability instead of revenues, the rule would be 200-20, where 20 percent of the customers provide almost 200 percent of the profit! How is that possible? Because the remaining 80 percent of customers actually destroy profitability.”
I have also been thinking about another related idea outlined by Peter Fader in his two books on customer centricity – that of focusing on best customers to maximise profits. A few quotes from his books:
- “The Customer” does not exist because every customer is different.
- The customer is not always right. The right customers are always right.
- In the world of customer-centricity, there are good customers…And then there is everybody else.
Building on the concepts outlined and through conversations with marketers, I came up with the idea of “Velvet Rope Marketing” (VRM) – focus on creating a differentiated experience for the Best Customers as identified by customer lifetime value (CLV) to maximise profits. Best Customers sign-up early, stay longer, spend more, spread wider and are serviced easier.
For these customers, companies need to roll out the “velvet rope” experience to treat them like royalty. We have seen the velvet rope (with the red carpet) at airline first class and business class check-in counters, and at the exclusive entrances at Disneyland. It creates exclusivity, envy and a feeling of being special. VRM can help generate additional revenues, higher profits, loyalty and word-of-mouth.
Tomorrow: Velvet Rope Marketing (Part 2)
