Profits Flywheel
Shalini’s experiences with the sports brand can be replicated by every brand in every industry. And yet, very few do it – as we ourselves have experienced. Our experiences with brands and businesses with whom we spend the maximum are for the most part ordinary and not extraordinary. It is little surprise then that we tend to switch – and the brands don’t even notice. When has any brand called us saying, “We miss you. Why haven’t you shopped with us?” Mind you, its not an automated email – that can go to everyone else. Why would brands not call up their Best Customers who may be on the precipice of churn?
Even as Best Customers contribute 60-80% of revenue, their profitability is likely to be 200% since many of the Rest Customers (the long tail) will likely be negative in their contribution if acquisition and servicing costs are factored in. That is why businesses need to create two SBUs (strategic business units) – one for Best Customers, and one for everyone else. Only then will the focus be sharp on retention and experience differentiation for the Best Customers.
VRM should be the lifeblood of the Best Customer SBU. It is just like airlines who have a separate ground and inflight staff – the best and most experienced – to service Business Class customers. There is no request which is too small to service – as I found out on a Delta flight a year ago. I was flying Business Class from Atlanta to La Guardia. Given my dietary restrictions, I could not eat the in-flight meal. (I had changed my flight at the last minute to an earlier one since my previous flight had landed early and hence they could not process my special meal request.) I asked the hostess if they had a banana and if I could get a hot chocolate. Both were non-standard requests. When I did not get anything immediately, I thought my request had been forgotten. About 20 minutes later, I was served both. The hostess apologised that it took time, but she had got it from the economy class crew. A seemingly small request from a Best Customer (she may have known I had been flying Delta for more than 20 years) to create an experience that the customer (me) will remember. That is how extreme loyalty gets built – one great experience after another.
It is the tragedy of modern marketing that one only gets these experiences 35,000 feet above Earth! This is the opportunity for brands. Most industries are not focused on Velvet Rope Marketing – preferring the “all customers are equal” mindset to “some customers are more equal”. In the omnichannel world that is upon us with its deluge of customer data, VRM can be the key to building loyal customers who are they key to future profits. VRM is the big idea that needs to be a must-do for CEOs because it can provide lasting differentiation in a world getting increasingly commoditised. Marketing’s power law can be the CEO’s profit lever – a 10% increase in revenue from the top 20% customers can increase total revenues by 5% and profits by 33%. Done right, VRM can actually do much more – not just drive higher spends from Best Customers, but also help identify tomorrow’s Best Customers early, ensure the right New Customers are acquired, and get better referrals from Best Customers. Taken together, the compounding effect of all this can be a profit doubler.
