Becoming Chief Profitability Officer (Part 3)

Velvet Rope Marketing is about identifying and marketing to the Best Customers of a business. (For some businesses, it could be adapted to doing the same to incoming leads.) Let’s begin with the process of identifying Best Customers:

The first step is to collect data at every touchpoint. In the online world, this is easier since access is via a website or an app. In both cases, all customer actions can be captured. If a customer is logged in, then it becomes possible to link to a unique personal identifier (email ID or mobile number). If not, then it has to be tied to a cookie (on a browser) or a device ID (on the mobile). In the offline world, this is a much harder problem to address since a customer may not be identified until the point-of-sale. In the future, face recognition systems may allow tracking of customers from entry to exit, thus providing better insights into the customer’s interests. In the near-term, stores could use smart cards or mobile apps to identify repeat customers at entry to create an assisted or personalised experience.

The second step is to store all the data in a customer data platform (CDP). A CDP thus becomes the repository of all of the customer’s demographic data (name, gender, location), behavioural data (app and web interactions) and transactions. It thus becomes possible to create a unique profile for every customer.

The third step is to calculate customer lifetime value based on the transaction data. My earlier post on CLV explains this process. It is important to note that the CLV described here is a forward-looking, predictive measurement.

The fourth step is to segment the customers based on their CLV. A possible approach can be to consider three segments: Best (top 20%), Rest (middle 30%) and Test (bottom 50%). This 20-30-50 split may vary based on actual numbers for different companies but is quite indicative of the 60-20-20 revenue contribution.  If companies measure profitability, they will find that the biggest contribution comes from their Best Customers, followed by some from the Rest Customers.

The Test Customers are likely to result in losses if one factors in the cost of acquisition and servicing. (I call them Test Customers because they are ‘testing’ the brand and are not likely to do repeat transactions. They came in once, ‘tested’ the brand and then went away. We will discuss more about them in the section on Long Tail Marketing.)

The next two steps involve calculating the Customer Genome and from there decoding the Best Customer Genome (BCG), followed by the final step of using AI-ML to create a continuously evolving and learning process for analysing customer data.

Tomorrow: Becoming Chief Profitability Officer (Part 4)

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.