I spoke to Al Lalani, CEO of Annex Cloud, for their Market Movers show.
The chat is “about changing from a push for acquisition to a retention-driven loyalty program. Rajesh offers advice to marketers on what areas should be focused on to aid in a company’s success in these unsure times. He also shares his approach to building a continually profitable machine through his “Next, Best, Rest” system.
The framework that I like to use is really the best customers, that’s the top 20%. And then we have the other 80%, the long tail of customers, and then the next customer. So best, rest, and next.
Now the first step in this is really to collect all of the customer data, especially the transaction data, offline, online, whatever it is. And the other information about the customers that you can get through the app, on the website, et cetera. The first step is really how do we calculate CLV right as we spoke about.
Once you do the CLV calculation, then we are able to do the customer segmentation. So typically, businesses will find that the top 10, 20% of customers are generating disproportionate value, maybe 50, 60, 70% of revenue. And if they actually get down to calculating profitability, they may find that the profitability of these customers actually could exceed 100%, because there are many other customers in the long tail, who will be negative contribution because of the cost of acquisition and the cost of servicing.
So these customers, the best customers are very, very important for a business. Identifying these customers, retaining them, and then looking for the next customers who are like these customers, that becomes very, very important. So that’s really the core of this idea around Velvet Rope Marketing, think of it like Red Carpet Marketing. Basically, how do you create an amazing experience for the best customers so they never want to leave your brand?
That’s the key to growth and profitability, especially in these times. In a way we think about it, retention now is the new acquisition, given that it’s harder to acquire new customers because marketing budgets are getting slashed. And your excellent point which you made in one of your recent presentations, that in 2008, a lot of customers actually joined or changed their brands. And that’s even, therefore, more important that companies focus on their best customers at this point in time.