Partitioning
Attention is a two-way street. Just as brands want customers to pay attention to their marketing messages, customers also want brands to make them feel special. While tech can help with personalisation to create unique experiences for every customer on the website or app, there is much more that brands can do. This is where the idea of Velvet Rope Marketing (VRM) comes in. It has 4 key foundational ideas:
- All customers are not equal; some customers are more equal than others. In most non-subscription brands, an analysis will show that typically 20% customers will account for 60% of revenue. (In fact, if brands can measure profitability, they will find that these Best customers account for more than 100% of profits – because the long tail of other customers do not have enough revenues to cover their cost of acquisition and servicing.) This 20-60 rule can be considered as the Power Law of Marketing.
- Calculating Customer Lifetime Value (CLV) is the way to segment customers and identify the Best customers. CLV needs to be a forward-looking measure and done right; there are many ways to calculate it incorrectly, and this will lead to improper identification.
- Brands need to create differentiated experiences for these Best customers in order to ensure they never churn, maximise their spend, and can bring in their family and friends via word-of-mouth spread. For this, brands need to think “royalty” and not just ”loyalty”. Ease, access and exclusivity are three dimensions for creating memorable experiences for the Best customers.
- Finally, decoding the Best Customer Genome (BCG) can provide a template for nudging other customers along the same path, and also providing the input for “lookalike” acquisition campaigns.
Implementing VRM right entails creating a separate SBU for Best Customers. This is akin to how airlines have separate teams for Business Class customers.
The next two partitions based on CLV are for Rest and Test customers. Test customers are easy to identify – they are the ones who are inactive. They came, engaged, perhaps did a purchase or two, but have now gone dormant. In most brands, these will account for at least a third of the total customer base. The goal must be to reactivate these customers; the alternative track of retargeting and reacquisition via Big Tech can be very expensive. A Progency is ideally suited for this.
That leaves us with the middle 50% or so customers – the Rest customers. The long-term goal must be to get them to become Best customers; the short-term goal is to nudge them along in their customer journey to the next best action, which can be identified by matching genomes against the Best customers.
So, a brand needs 2 internal teams to manage customers – one for the Best customer, and one for the Rest. (A smaller group can handle the outsourcing of Test customers to a Progency.) Martech 2.0 is what these internal teams need – an AI-powered full-stack martech platform that replaces various point solutions and provides a unified customer view. Retention, growth, and cross-sell must become the organisation’s mantra – replacing the attractiveness of showcasing just the number of new customers acquired. This is a CEO-level mindset change which then needs to permeate through the rest of the organisation. Enriching the lives of existing customers rather than enticing new customers is the surest path to success.
