Finding the Real Low-Hanging Fruit

Finding the Real Low-Hanging Fruit

Sometimes when I walk the aisles of a marketing trade show, I don't know whether to laugh or cry. I see booth after booth of companies telling me they will help me identify my best customers. Of all the customer segments, your best customers are the easiest to find. They buy from you regularly. They spend a lot of money. If you don't know who they are, you're in big trouble.

What these companies should be helping me do is find my low-hanging fruit, the customers from whom I can most easily get the additional sales that will grow my total revenue.

The first step in identifying the customers from whom you can get a revenue lift is to make a plot similar to Figure 1 below:

 Figure 1. Yearly revenue by loyalty rank

This plot shows the revenue from customers at a typical company as a function of their ‘value,' measured along the horizontal scale. You can use your favorite value metric; for example, an RFM score. This plot uses Loyalty Builder's Loyalty Score. Rank the customers by your value metric and then group them into buckets and calculate the average yearly revenue for each bucket.

As expected, the higher-value customers spend a lot more money. But here's an important lesson from calculus: the total revenue is proportional to the area under the curve, shaded in green. To grow total revenue, you need to figuratively grab that curve in the middle, a bit toward the right end, and yank it up and to the left. The top-enders are producing now and will keep on buying. To grow revenue, you need to get more revenue from the middle ranks of your customers, not from the ones on the top end.

Not all of those middle-ranking customers are going to be sources of new revenue. To find out which ones to target, let's look at the customer population from a somewhat different point of view. The heat map in Figure 2 segments the customers by two metrics: their value (the vertical axis) and their risk of defecting (the horizontal axis). Each dot represents an individual customer, and a customer's placement on this heat map—I call it a behavior map because it shows the behavior of the population—depends on their scores on the two metrics. The color of the dot corresponds to their position six months ago, so this map also shows behavior migration.

 Figure 2: Segmentation by risk and value

The customers with revenue growth potential are usually found lurking in that upper middle segment labeled “Underperformers.” As the table below shows, customers in this segment have average order values almost comparable to the best customers. Yes, they are a somewhat off their regular buying pattern (as measured by slightly higher purchase delay), but not so far off that they can't be won back to more frequent purchasing with the proper offers. These are your true low-hanging fruit.

 Loyalists Nurturers Underperformers Faders Winbacks 1 & 2 X Buyers Number of customers 36,300 8.184 27,542 16,236 4,106 23,867 2012 revenue \$29,413,047 \$6,547,986 \$9,781,738 \$1,809,025 \$1,113,294 \$2,375,147 Number of orders 22.9 11.49 9.85 4.96 7.47 1.31 Average order value \$69.76 \$31.93 \$72.92 \$24.22 \$52.15 \$74.88 # of product categories 33.12 19.07 20.87 8.37 14.59 3.04 Purchase Delay 0.94 0.81 2.27 2.77 8.58 3.59 Likely Buyer Score (30 days) 80.52% 70.79% 21.09% 13.63% 6.17% 23.70% Retention (days) 298 249 270 227 298 100 Recency (days) 14 16 67 68 156 76 Interorder time (days) 17.47 26.46 36.04 50.33 56.19 78.16 Spend/customer this period \$82.63 \$32.78 \$1.63 \$1.03 \$0.00 \$11.63 Spend/customer, lifetime \$1,286.38 \$330.45 \$602.33 \$111.94 \$360.70 \$94.90 Figure 3: Key metrics by segment

The case described here, and the corresponding charts and table, represent a typical B2B company. Sometimes, however, the customers to target are at a different point in the loyalty spectrum. The objective is to increase the area under the curve in Figure 1, so wherever there is a concavity in the curve, there is an opportunity to target customers in that range. Use a Figure 1-type plot to choose the loyalty range to target, and use a Figure 2-type map to identify which customers within that range have the best growth potential.

You already know your best customers. Treat them with the thanks and respect they deserve. But these customers are not necessarily your best prospects for increasing your total revenue. Use loyalty by the numbers to identify these targets, and get more revenue from your existing customers.

 As CEO of Loyalty Builders Inc., Dr. Mark Klein helps develop marketing strategies for a diverse set of B2B and B2C companies.  Follow him at www.loyaltybuilders.com/blog.

A Little Research Can Bring Big Marketing Gains

 Best of... Weekly Daily Insider Events Weekly Hot List of the Day Sponsored Promotion Whitepaper of the Day DMNTech Roundup DMNTech Sponsored Promotion United States United Kingdom Canada Afghanistan Albania Algeria American Samoa Andorra Angola Anguilla Antarctica Antigua and Barbuda Argentina Armenia Aruba Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bermuda Bhutan Bolivia Bosnia and Herzegovina Botswana Bouvet Island Brazil British Indian Ocean Territory Brunei Darussalam Bulgaria Burkina Faso Burundi Cambodia Cameroon Cape Verde Cayman Islands Central African Republic Chad Chile China Christmas Island Cocos (Keeling) Islands Colombia Comoros Congo Congo (DRC) Cook Islands Costa Rica Côte D'Ivoire Croatia Cuba Cyprus Czech Republic Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Falkland Islands (Malvinas) Faroe Islands Fiji Islands Finland France French Guiana French Polynesia French Southern Territories Gabon Gambia Georgia Germany Ghana Gibraltar Greece Greenland Grenada Guadeloupe Guam Guatemala Guinea Guinea-Bissau Guyana Haiti Heard Island and Mcdonald Islands Honduras Hong Kong Hungary Iceland India Indonesia Iran Iraq Ireland Israel Italy Jamaica Japan Jordan Kazakhstan Kenya Kiribati Korea Kuwait Kyrgyzstan Laos Latvia Lebanon Lesotho Liberia Libya Liechtenstein Lithuania Luxembourg Macao Macedonia Madagascar Malawi Malaysia Maldives Mali Malta Marshall Islands Martinique Mauritania Mauritius Mayotte Mexico Micronesia Moldova Monaco Mongolia Montenegro Montserrat Morocco Mozambique Myanmar Namibia Nauru Nepal Netherlands Netherlands Antilles New Caledonia New Zealand Nicaragua Niger Nigeria Niue Norfolk Island North Korea Northern Mariana Islands Norway Oman Pakistan Palau Panama Papua New Guinea Paraguay Peru Philippines Pitcairn Poland Portugal Puerto Rico Qatar Reunion Romania Russia Rwanda Saint Helena Saint Kitts and Nevis Saint Lucia Saint Martin Saint Pierre and Miquelon Saint Vincent and The Grenadines San Marino Sao Tome & Principe Saudi Arabia Senegal Serbia-Montenegro Seychelles Sierra Leone Singapore Slovakia Slovenia Solomon Islands Somalia South Africa Spain Sri Lanka Sudan Suriname Svalbard and Jan Mayen Swaziland Sweden Switzerland Syria Taiwan Tajikistan Tanzania Thailand Timor-Leste Togo Tokelau Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Turks and Caicos Islands Tuvalu Uganda Ukraine United Arab Emirates Uruguay Uzbekistan Vanuatu Vatican City Venezuela Vietnam Virgin Islands Virgin Islands, British Wallis and Futuna Western Samoa Yemen Yugoslavia Zambia Zimbabwe

Company of the Week

Brightcove is the world's leading video platform. The most innovative and respected brands confidently rely on Brightcove to solve their most demanding communication challenges because of the unmatched performance and flexibility of our platform, our global scale and reliability, and our award-winning service. With thousands of customers and an industry-leading suite of cloud video products, Brightcove enables customers to drive compelling business results.

Find out more here »

Career Center

Check out hundreds of exciting professional opportunities available on DMN's Career Center.
Explore careers in digital marketing, sales, eCommerce, marketing communications, IT, data strategies, and much more. And don't forget to update your resume so employers can contact you privately about job opportunities.