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Most valuable customers is a marketing term referring to the customers who are the most profitable for a company. These customers buy more or higher-value products as the average customer. The company provide these customers with advice and guidance to establish a more personal relationship.
Usually, most valuable customers are rewarded with discount or membership cards that give them specific privileges. These rewards help the business to generate more revenue as the customers will purchase more of products/services due to given benefits. [1] Different companies have different ways to reward their loyal customers, for example Vodafone are rewarding their loyal customers with extra data on their plans; [2] or Barclays are lowering the interest rate on loans for customers that have been with them for more than 6 months. [3]
Every business has a list of customers who are buying more products from them, comparing to an average buyer (usually referred to as Loyal Customers). [4]
In order to identify the most valuable customers, the business will have to evaluate the customer's value in seven areas:
1. Sales minus cost: Generally, companies rank their customers by judging from the number of sales that the customer does with the company, however this does not always have a positive outcome for the company. Sometimes when a customer purchases a lot of company's products/services, the cost of doing those sales may exceed its value because that cost of sales has to be added to the overall equation. [5]
2. Revenue Timing: not all revenue is created equal. Companies make different revenues at different times. For example, customers are shopping more in the fourth quarter for the holidays due to the bigger sales in shops. Sales that are made in off-peak seasons may be more profitable because they fill unused production capacity or may be done at a slightly higher price. [6]
3. Referrals and buzz: nowadays, consumers tend to trust peer reviews, posts in social networks and tweets more than corporate advertising. If a customer is willing to buzz about a company's products/services, it can be a powerful endorsement. [6]
4. Retention: It is usually cheaper to retain an old customer rather than seeking new ones. A lot of businesses are not bothered that much about the customers that already have purchased its products/services, and they mainly focus on attracting new ones, however a customer who has been with a company over a long time, in general is more profitable, mostly because customer buys the product/service on regular basis and can refer to the company when recommending to family/friends. [6]
5. Add on products or services: Customers that buy many items from the company are more profitable because the cost of acquiring that customer is now spread over a larger sales base. [6]
6. The customer's brand: Customer's brand is mostly valuable for smaller businesses. If a customer is a well known public figure and he/she buys a company's product and talks about it, it boosts the company's popularity. [6]
7. Feedback: The majority of the customers will never tell a company what they honestly think about its product. Usually, only the top 10 percent (very satisfied) and bottom 10 percent(very dissatisfied) share their thoughts about a company's service. Any customer who is willing to share his/her opinion is very valuable for the business. [6]
Many businesses use the practice of retaining valuable customers in order to increase financial performance as well as their customer base. The research done by Gartner shows that the 80% of company's profit come from 20% of existing (loyal) customers. [6] This happens because the customers are inclined to come back for a company's product/service if they had a good experience with them before. Also, if the customers were rewarded with discounts for a long-term relationship with a company, they are willing to buy more of the company's products/services. [7] [8]
Valuable customers is also a good marketing aspect for the company. Customers that are staying with a company for long terms are more inclined to share their experience of a business, with their friends, which will work better than expensive advertising because people tend to be more affected by people they are familiar with. This marketing move will strengthen your brand in the minds of people who are unfamiliar with it. [6] [9]
Regular loyal customers can be the key to success aspect in the highly competitive market. If the company builds a strong brand image, which helps to retain valuable customers, then it can make it resistant to competitive forces. [10]
A loyalty program or a rewards program is a marketing strategy designed to encourage customers to continue to shop at or use the services of one or more businesses associated with the program.
Marketing is the act of satisfying and retaining customers. It is one of the primary components of business management and commerce.
Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing communications for a predetermined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates.
Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of product.
Marketing management is the strategic organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of marketing resources and activities. Compare marketology, which Aghazadeh defines in terms of "recognizing, generating and disseminating market insight to ensure better market-related decisions".
Market penetration refers to the successful selling of a good or service in a specific market. It involves using tactics that increase the growth of an existing product in an existing market. It is measured by the amount of sales volume of an existing good or service compared to the total target market for that product or service. Market penetration is the key for a business growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C.. H. Igor Ansoff first devised and published the Ansoff Matrix in the Harvard Business Review in 1957, within an article titled "Strategies for Diversification". The grid/matrix is utilized across businesses to help evaluate and determine the next stages the company must take in order to grow and the risks associated with the chosen strategy. With numerous options available, this matrix helps narrow down the best fit for an organization.
Relationship marketing is a form of marketing developed from direct response marketing campaigns that emphasizes customer retention and satisfaction rather than sales transactions. It differentiates from other forms of marketing in that it recognises the long-term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. With the growth of the Internet and mobile platforms, relationship marketing has continued to evolve as technology opens more collaborative and social communication channels such as tools for managing relationships with customers that go beyond demographics and customer service data collection. Relationship marketing extends to include inbound marketing, a combination of search optimization and strategic content, public relations, social media and application development.
The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.
Business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset, like a building, is rent. An example of value derived from an intangible asset, like an idea, is a royalty. The effort involved in "harvesting" this value is what constitutes business operations cycles.
An advertising campaign is a series of advertisement messages that share a single idea and theme which make up an integrated marketing communication (IMC). An IMC is a platform in which a group of people can group their ideas, beliefs, and concepts into one large media base. Advertising campaigns utilize diverse media channels over a particular time frame and target identified audiences.
In marketing and consumer behaviour, brand loyalty describes a consumer's persistent positive feelings towards a familiar brand and their dedication to purchasing the brand's products and/or services repeatedly regardless of deficiencies, a competitor's actions, or changes in the market environment. It can also be demonstrated with other behaviors such as positive word-of-mouth advocacy. Corporate brand loyalty is where an individual buys products from the same manufacturer repeatedly and without wavering, rather than from other suppliers. Loyalty implies dedication and should not be confused with habit, its less-than-emotional engagement and commitment. Businesses whose financial and ethical values rest in large part on their brand loyalty are said to use the loyalty business model.
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.
Referral marketing is a word-of-mouth initiative designed by a company to incentivize existing customers to introduce their family, friends, and contacts to become new customers. It differs from pure word-of-mouth strategies, which are primarily customer directed with the company unable to track, influence and measure message content, referral marketing encourages and rewards the referrer for allowing a company to do so.
Upselling is a sales technique where a seller invites the customer to purchase more expensive items, upgrades, or other add-ons to generate more revenue. While it usually involves marketing more profitable services or products, it can be simply exposing the customer to other options that were perhaps not considered.
Loyalty marketing is a marketing strategy in which a company focuses on growing and retaining existing customers through incentives. Branding, product marketing, and loyalty marketing all form part of the customer proposition – the subjective assessment by the customer of whether to purchase a brand or not based on the integrated combination of the value they receive from each of these marketing disciplines.
Value-based price is a market-driven pricing strategy which sets the price of a good or service according to its perceived or estimated value. The value that a consumer gives to a good or service, can then be defined as their willingness to pay for it or the amount of time and resources they would be willing to give up for it. For example, a painting may be priced at a higher cost than the price of a canvas and paints. If set using the value-based approach, its price will reflect factors such as age, cultural significance, and, most importantly, how much benefit the buyer is deriving. Owning an original Dalí or Picasso painting elevates the self-esteem of the buyer and hence elevates the perceived benefits of ownership.
An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees and in sales to attract and retain customers. Scientific literature also refers to this concept as pay for performance.
Consumer-generated advertising is advertising on consumer generated media. This term is generally used to refer to sponsored content on blogs, wikis, forums, social networking services, and individual websites. This sponsored content is also known as sponsored posts, paid posts, or sponsored reviews. The content includes links that point to the home page or specific product pages of the website of the sponsor. Examples include Diet Coke and Mentos videos, the "Crush on Obama" video, and Star Wars fan films. Companies that have employed consumer-generated ads include Subaru North America, McDonald's, Rose Parade, and Toyota North America.
Customer retention refers to the ability of a company or product to retain its customers over some specified period. High customer retention means customers of the product or business tend to return to, continue to buy or in some other way not defect to another product or business, or to non-use entirely. Selling organizations generally attempt to reduce customer defections. Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship and successful retention efforts take this entire lifecycle into account. A company's ability to attract and retain new customers is related not only to its product or services, but also to the way it services its existing customers, the value the customers actually perceive as a result of utilizing the solutions, and the reputation it creates within and across the marketplace.
Customer Profitability Analysis is a management accounting and a credit underwriting method, allowing businesses and lenders to determine the profitability of each customer or segments of customers, by attributing profits and costs to each customer separately. CPA can be applied at the individual customer level or at the level of customer aggregates / groups.
