Velvet Rope Marketing
VRM is at the centre of SHUVAM and one of the most important drivers for ProfitXL. It can be called by various names – customer-centricity in Wharton professor Peter Fader’s books, red carpet marketing as some have termed it, or simply loyalty marketing. The big idea behind VRM: that a small fraction of customers account for an outsized chunk of revenues and more than 100% of profits. (The latter happens because the long tail is lossy thanks to acquisition and servicing costs.) And yet, most marketers treat all customers the same. We have all been at the receiving end of such undifferentiated ‘equalising’ experiences! Little wonder then that brand loyalty appears a thing of the past – which in turn pushes marketers back into the embrace of Badtech in the eternal quest for more revenues.
An effective VRM program needs three elements: a customer-base audit to better understand buying behaviour of existing customers with a systematic review of transactions, the twin combo of customer lifetime value (CLV) and Best Customer Genome (BCG) to identify the most valuable customers and their characteristics, and the creation of a separate business unit to provide differentiated experiences for the Best customers.
A customer-base audit helps marketers understand how customers differ in their buying behavior and how their buying behaviour evolves over time. As Peter Fader, Bruce G.S. Hardie and Michael Ross explain: “The starting point is a list of transactions for each customer (date, time, products purchased, total spend, etc.)…Traditional reports will summarize performance by product. Think of an Excel worksheet where the rows correspond to individual products and the columns correspond to time (e.g., quarter). Now, imagine an alternative summary table — again, think of an Excel worksheet — where the rows now correspond to individual customers and the columns correspond to time (e.g., quarter). The entries in the table report each customer’s total spend with the firm in that particular time period. Another table tells us how many transactions each customer made with the firm. (For most firms, these tables will contain lots of zeros.) If you’re lucky, you’ll also have an equivalent table that summarizes the profit associated with each customer in each period.”
The next step is to calculate forward-looking CLV based on data from the audit. This will help in segmenting customers into Best, Rest and Test. The 20% Best customers are the most valuable, while the Test customers are least important. And in the middle are the Rest, who could go into either one of the other segments based on their experiences with the brand. Once the Best customers are identified, the next step is to understand what’s common to them and their buying behaviour (customer journey) – this is the BCG.
Armed with a knowledge of the Best customers at an individual level, marketers need to craft unique experiences for them to ensure they achieve their CLV threshold. An XRT (eXtreme Retention Token) can help identify Best customers when they enter an offline store. Exclusivity, ease and access are three dimensions for enthralling such customers – like airlines do for their first- and business-class customers. An SBU for Best customers is what marketers need to create to ensure that their Best customers are treated like royalty, rather than numbers in a loyalty program.
A good VRM program will go a long way in ensuring consistent revenue growth. Best customers, nurtured through differentiated experiences, can also help get others like them from their network. That’s the next step in the ProfitXL journey.