Focusing on the top 20 percent of your customers

By segmenting customer lifetime value and differentiating the top 20 percent, an ecommerce business may develop a focused marketing campaign to increase earnings with limited additional spend.

As online merchants we always evaluate our marketing activities. The ability to monitor and feature value makes online marketing look like a perfect world. We’ve got a new advertisement or a new key word for our cost-per-click effort and we can, now more then ever, see whether it is profitable or not by monitoring and measuring our conversions.

The above paragraph is introduced by many tech vendors promising lots of earnings and eternal bliss. But reality is quite different. The measurements aren’t perfect, and it is not clear what’s the value of conversion aids, long words words in many instances don’t have sufficient traffic, and there are quite a few other aspects that in the messy real world don’t pan out quite as well as in the demonstration.

Our world isn’t linear, and once we deal with earnings and the performance of advertising campaigns we have to contend with the responses we get from clients and the way they perceive our brand.

The Long View

In this guide, I will propose a new method of studying the performance of your brand by focusing on a wider view of your company. The method I am proposing isn’t perfect and doesn’t answer all the questions. However, it’s grounded in fact and focuses on the long-term view of your enterprise and it’s most important asset, your clients.

In ecommerce it’s customary to check out the return on investment (ROI) of a marketing effort. But, I propose considering the customer acquisition cost and compare it to customer lifetime value (LTV). Additionally, segment customers based on their actual purchasing behaviour. Not all customers are equal and we don’t always have to look at them that way.

Where to start? The natural approach is to have an comprehensive look at your client file and examine some particular customer behaviors. Use that information to segment your customers into classes. The real groups to use will differ from business to business. For overstockArt.com, our average purchase is high and our product doesn’t lend itself to many purchases annually — i.e. we don’t deal in a consumable or a subscription kind buy.

Segment into 4 Groups

We segmented clients into four classes based on purchase volume and repeat purchases.

We discovered that the following statistics about our client behaviour.

  1. We’ve got about 54 percent repeat purchases total.
  2. The top 20 percent of our clients are responsible for 60 percent of our earnings — not to mention profits, which we didn’t compute, but could just estimate to be higher than 60 percent.
  3. The typical customer buys from us 1.6 times
  4. Just 15 percent of consumers from 1 year make a purchase the next year.
  5. The lifetime customer value is $227.59

The aforementioned are overall generalization of this information. These figures may have some significance for a merchant. But they are much too general. The next step we took is dividing our client file into multiple groups so as to see how client behaviors detract from the typical and what can it mean to our firm. The four classes we looked at are:

  1. Top 20 percent of clients
  2. Top 10 percent of clients
  3. Top 2 percent of clients
  4. Top 1 percent of clients

After assessing these groups we came up with the table below regarding the value that they represent:

As you can see from the above matrix, there’s far more value in the very best customers then there’s overall. The purchasing patterns are different and the amount we can put money into acquisition is greater. But what do we do with this info?

Contacting Top Clients

Our first action was straightforward. We looked at the top clients and went down the list. We analyzed their orders. We looked them up online, on Facebook, LinkedIn, and Google+. Eventually we called them. Do not misunderstand, we didn’t do this for the whole list, we randomly chosen customers. We asked each client five questions. The questions altered slightly but all were applicable to the clients and were very revealing.

  1. Why did you purchase art for us? Was it to your home, your office, gift, or other?
  2. Why did you get it from us and not somebody else? Was it price, service, or something different?
  3. Where did you discover us?
  4. Is it effortless for you to discover the artwork and frame that you enjoy in our online gallery?
  5. What would enable you to purchase art from us? Have we provided an wonderful experience for you?

(Note: Every company is different and therefore these queries might not assist you.)

We were armed with the wisdom of life value of our clients and a coordinated approach to life value, we could predict performance of our marketing activities to a higher degree. It enabled us to invest in lead generation activities understanding how our clients will act and what to expect as life ROI from the clients we just acquired.

Last but not least, we began focusing on the top 20 percent of consumers. We made a new project called”Top 20,” that isn’t a very creative title, I understand. The project has two aims.

  1. Increase purchases from the top 20 club.
  2. Locate new members for top 20.

What Motivates Top Clients?

How can we accomplish those goals? After collecting more information from this group we identified exactly what they are searching for. By way of instance, they aren’t price motivated. Instead, they’re motivated by the following three aspects.

  1. Spectacular art. Uncommon artwork that takes over a room and creates an environment around it which is unique.
  2. New and exciting. These are volume buyers. So for them it is essential to see new art which they can pick from. It is not enough that this is something they have never seen before; it needs to also look and feel unique.
  3. Personal attention. They would like to feel that the experience with various senses. They want someone who’s responsible for care for them and helping them pick and always shares with them great opportunities to buy art.

So now we began building programs around what assists our best customers make more regular purchases to try to increase their lifetime value. We also found lots of verticals that will permit us to attract customers who are very similar to our top 20 list. Additionally, we are now able to identify advertising channels where we could justify the costs from a long-term outlook.

Many companies just try to appeal to a kind of general customer and we’ve done the same for several years. Now, with this new information, we’re finally able to focus on particular segments rather than only approach all clients as one segment.

Pricing Lead Generation

Studying our customer lifetime value and segmenting the listing allows us to price our lead generation activities since we now know just how much we can spend in getting a customer. More importantly from our potential we no longer have to check at our marketing efforts as just blasting a huge section of the populace. We’re now able to hone our restricted funds towards the sort of people and companies who can become a part of our top 20 club.

This way is merely the hint of what can be accomplished by focusing on your top 20 percent of consumers. As online retailers, we’re young pups from the retail world — we have been in business for twelve years — compared to Sears. But we can begin looking back into our past and assign life values for our clients.

What would any of you, as online marketers, do to your top 20 list? What do you want to know? What are the frequency patterns and can these purchasing patterns be shortened?