Marketing has largely been targeted to the median customer – not much differentiation being done in targeting different customers. Median Targeting (or Marketing) works very well in politics – where every voter has the same power (a single vote). But in marketing, the same approach does not necessarily deliver the right returns – since the Best Customers can deliver many times the value of the median customer.
The table below highlights the differences between customer segments and shows the importance in revenue (and consequently, profits) of the top 20% – the Best Customers. Loyalty is the keyword and Velvet Rope Marketing fosters exactly that.
Customer Lifetime Value (CLV) helps separate customers into the three buckets. As should be obvious by now, CLV distribution is not a bell curve (normal distribution) but one with an exponential decay, as this image from a Zodiac and Infotrust Webinar shows:
Best Customers constitute the “head”, with the bottom 50% constituting the “long tail.” Yet, most marketers are obsessed with the Median Marketing approach. For one, it is easy to do. Offers for all, campaigns for all, same website for all, same app experience for all, churn reduction for all, and so on. It is communism applied to marketing!
What smart marketers do is to think capitalism. There is inequality – and that’s a good thing. In an economy, what matters is not the quantum of inequality but the income of the poorest. Being poor in a rich country can still deliver a decent lifestyle. In marketing, what matters is the spends and profits from the Best Customers. Their CLV is what should be maximised. This is what Velvet Rope Marketing does. It is capitalism applied to marketing.
Tomorrow: Velvet Rope Marketing (Part 5)