Customer acquisition and customer retention are two critical focus areas for brands looking to grow their revenue. But not all customers offer the same potential value. By identifying and targeting the highest value customers within a brand audience, businesses can prioritize strategies that will reap the greatest rewards.
It is commonly quoted that for most retail companies, 60-80% of their sales comes from 20% of the customer base. When marketing and consumer outreach ignores this statistic, companies may find that their resources are being inefficiently used. Particularly at a time when marketing budgets may be stretched thin, it is critical that brands cultivate a communications strategy that resonates with their most important ambassadors.
“The mistake that most brands make is building lookalike audiences and personalization strategies based on their entire customer base,” said David Chinn, president of customer data platform Lexer. “This broad strategy drags down the impact of your acquisition campaigns, attracting low-value customers and wasting ad spend on audiences who are unlikely to convert or remain loyal to your brand in the long-term.”
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By contrast, a high-value consumer is likely to make multiple repeat purchases over a longer period of time, providing not just an increase in immediate revenue but better value from the original marketing spend. The first step is for the brand to identify these customers and their shared attributes, in order to inform marketing and broader brand strategy.
Customer data solutions like Lexer can help brands catalog and organize data, but smaller businesses can also do this manually. In order to identify the highest-value shoppers, customer data must be centralized and standardized, so that businesses can make comparisons and identify trends. Then, all purchase histories must be summed, to find a total value for each individual consumer.
“Analyze the distribution of this newly-created Total Spend Per Customer value,” said Chinn. “Sort and segment your customers by this value to understand their relative value. By understanding the maximum, minimum, and mean values or deciles for each customer, you can identify your highest-value customers for impactful targeting, set benchmarks for lifetime value growth, and suppress low-value audiences from prospecting and growth campaigns.”
When equipped with this information, marketers can create tailored messaging that takes into account purchasing trends. For instance, if most high-value customers are found to make a second purchase within 30 days, marketers can offer a 30-day discount or free-shipping code to prospective high-value customers in order to promote that behavior.
High-value customers might also share other identifying behaviors that are not tied to purchasing. One Lexer footwear customer found that its highest spenders were also likely to be those who needed product that accommodated extremes in sizing. By promoting messaging about fit, comfort, and the company’s unique ability to deliver both, the brand was able to improve the lifetime value of those customers.
Brands can also use this data to attract new high-value customers, by creating lookalike audiences and performing outreach to these groups on social media. Each marketing campaign will produce more data, which can then be analyzed and used to improve future campaigns. And ultimately, this insight can be used to fuel future product design and merchandise planning.
“Identifying your highest-value customers is about more than just marketing,” said Chinn. “It’s about optimizing your whole-of-business strategy to drive value and customer-led innovation. Understanding which products high-value customers are most likely to buy, which channels they prefer to engage with, and which messages resonate with them helps stakeholders from every team make data-driven decisions that have a direct and material impact on the customer experience.”