In my last blog post, I pointed out that Low Value Customers are Not a Problem to be Solved. I stated that “Any time your salesperson or customer service rep spends time making a low rCLV [residual customer lifetime value] customer feel great, it is at the cost of additional value from a higher rCLV customer.” In theory, this is true. Spending a dollar on someone that will never return at least that in value is a negative business proposition.
Does that mean businesses should go completely dark on anyone that it determines will be a net negative value customer? Should we keep them away from our stores and hang up if they call us on the phone in order to avoid any possible wasted resource allocation? In terms of absolute customer centricity, this logic has merit.
However, the world we market in is not nearly so transparent. How do we know a particular prospect is not an influencer in any number of non-transactional ways? Here are three reasons why implementing such an unforgiving version of customer centricity will get you in trouble:
- We do not have perfect information on our customers. Our brand will come up in conversations on social media, through offline marketing, or even over coffee in ways that our most sophisticated tracking systems will never see. We’ll never predict it. These exchanges will have positive and negative effects on customer equity that will go unattributed.
- Predictive models are not absolute. When we calculate customer lifetime value ([r]CLV), we are modeling transactions in order to make predictions about future behavior. These models are based on probability, and as such, there is intrinsic uncertainty built in. Even if we had all the right data, we may not make the right assessment of an individual’s future value.
- It is operationally challenging. Let’s say #1 and #2 were solved. Imagine we have every interaction that may impact a customer’s (or potential customer’s) lifetime value with us properly recorded, attributed to the right person, and then incorporated into a perfect prediction about residual CLV. In order to operationally refuse service to those that represent no positive or potential negative value (including if they were to tell someone about their presumably negative experience). If you could manage it somehow, the cost would probably be higher than providing at least some level of service in the first place.
The key to an effective implementation of customer centricity is not to deliver a completely “bare bones” experience to low-value customers, but instead to establish a minimum viable brand experience (MVBX). After all, low-value customers are very important to a business, because they typically outnumber high-value customers by a landslide. The bar will be different for each organization. It is not so much about being minimal as it is about being viable for the brand. Set the level of investment at the most basic level of service that is worthy of your brand association. The bar will be higher for aspirational brands compared to value brands. This is not throw-away money, but an investment in your brand reputation. Think of it as your brand insurance policy or safety net intended to compensate for the three shortcomings of absolute customer centricity described above.
This illustration shows a hypothetical “benchmark” for MVBX at $100 per customer. You may really only know this figure in hindsight, but you may still set targets. The illustration is still useful for explaining the concept. The blue dots represent customers, plotted according to each’s rCLV. Highest value customers are at the top left, while lowest value customers are in the bottom right. The area under the blue dots and above the MVBX line (green area) represents surplus and margin opportunity. This is also an amount that offers room to play in terms of investing in super-serving your highest value customers while staying profitable. The area above the blue dots and below the MVBX line (yellow area) represents potential over-spending according to strict customer centricity but is still smart spending as a safety net to balance out the flaws of absolute customer centricity listed above. This spending brings all customers (and prospects) up to a minimal viable brand experience representative of the business.
If this were a luxury brand, the MVBX may be set higher, allowing for a larger area of brand insurance. Presumably this would also be offset by a greater number of high-value customers paying premium prices on goods and services. A value brand may set the MVBX lower, which would have the effect of extending the green area further right under a more dense area of the customer curve. Getting this right is an important part of effectively implementing customer centricity.