While this 80/20 Rule is by no means absolute, there’s still an excellent chance that as much as 80% of your business’s sales and profits come from 20% or fewer of your customers. Business Schools for quite some time have been preaching the gospel of “taking care of that top 20%” (indeed, we’ve written about that here) and have sold the idea of allocating more resources to these customers, many times at the expense of the “chattel” of the other 80%.
While it is absolutely true that “customers aren’t created equal” and that rewarding loyal customers is key to retaining your most profitable customer segments, catering exclusively to the top of the food chain offers its own specific set of dangers. For one, the most profitable customers are also the ones most coveted by your competitors. So you may find yourself spending heavily just to retain them. And by having way too many eggs in such a tiny basket, you may find yourself extremely vulnerable to the loss of a key customer or key segment.
In reality, the other 80% of customers are more than one rung up on the loyalty ladder. They know who you are, have a fairly good idea of what your value proposition is, and have given your offerings consideration. You at least want to create a path by which your more casual customers can work their way up to more profitable status. Think in terms of developing tactics to increase the frequency of visits, the average spend and the share of wallet of these casual customers. Here are a few considerations for to help you in grooming the 80% to become part of the 20%:
- Try to avoid classifying your customer base in terms of the “haves” and “have nots.” While this may be easy to read on a spreadsheet, it is little more than lazy segmentation. The reasons some customers are not as profitable as others are varied and complex. Create multiple classes and categories of customers, and weight them according to their likelihood of moving up the loyalty ladder.
- Listen. One of the barriers to some customers become “loyal” is that the solutions you’re providing aren’t exactly what they need or want, so they continue to stay in the open marketplace. Get to know the expectations and pain points of your casual customer, and determine if you can alter your offerings to better fit him.
- Be flexible, but stay true to your Brand Vision. While your core value proposition will likely remain consistent, how it is defined by your various markets can change dramatically. For example, “value” means something different to a Baby Boomer a few years from retirement than it does to a married twenty-something who is just starting a family.
- Be inclusive. Part of human nature is the desire to belong. If your attitude is to exclude a class of customer that’s not all that profitable at the present time, you could be missing out on a huge opportunity.
The fact of the matter is that your profitable customer of tomorrow is more than likely your casual customer of today. The more you know about her and the more you include her in your plans, the better your chances of moving her up the loyalty ladder.
