Tip the balance to loyal patrons

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Grant  Johnson, Pegasystems
Grant Johnson, Pegasystems

Every year, on the heels of tax day, many of us contemplate why we didn't get the income tax returns we were hoping for. Unfortunately, this same type of analysis occurs too often to marketers as they evaluate the returns of marketing budget allocations.

Marketing heads, especially those at companies with broad product portfolios, are being far too egalitarian in how they divide the marketing budget. By treating every budget center, customer or prospect opportunity the same, they are wasting money. All customers are not created equal. Your best customers buy more of your products, are more loyal, are less price-sensitive and are willing to recommend you more often to others. Why aren't we tipping the balance to the “20” in the “80/20” rule? After all, it's that segment that cannot only generate more revenue per invested dollar, but also more profit.

This often happens due to the curse of entitlements, and how established businesses generally approach budgets by assuming the prior year is the baseline, without accounting for needs that have increased. This old-fashioned approach typically reinforces a business-as-usual mentality, not only in terms of how budgets are allocated, but also regarding what market share gains are actually possible. Geoffrey Moore addresses this in his book, Escape Velocity: Free Your Company's Future from the Pull of the Past. He says: “When organizations begin their strategic planning effort by circulating last year's operating plan, they reinforce the inertial properties of the resources as currently allocated.” Moore argues that companies need to concentrate maximum resources on strategies giving them an edge.

If one accepts that all investments will not have the same impact and return, it's not a big leap to see all customers and prospects should not receive equal shares of a marketing budget. The target segments and existing customers that have the highest revenue and profit potential should receive more.

V. Kumar makes a similar point in Managing Customers for Profit. The quote from David Aaker on the back cover sums up Kumar's approach: “This book shows how a focus on Customer Lifetime Value (CLV) can change management toward long-term results by providing a fresh perspective on customer targeting, retention, and loyalty ... it shows you the way toward strategic customer thinking.”

Kumar discusses how to transition from a product-centric to a customer-centric approach in marketing. So, what's the takeaway? If you haven't already locked in the second half of your 2012 budget, and have the latitude to make adjustments, consider a more radical approach that can drive increased revenues and profitability. Even if you're already entrenched in the old way of doing things, it's never too late to shake things up a little.

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