Today, brands generate most of their revenue from a tiny percentage of their users. By identifying and nurturing these valuable customers, brands can increase their profits and also improve the overall shopping experience.
Executives at a major media brand were shocked after receiving an engagement test from our product team: only two percent of their users generated 50 percent of the total website page views! At another billion dollar retail company, we carried out a comprehensive analysis of the current situation at the start of the project. It showed that only one percent of customers generate 67 percent of annual sales.
These findings raise important questions for marketers: Shouldn’t we focus our efforts more on the customers who matter? Shouldn’t we identify which customers bring us the greatest profit, woo this group more intensively and retain them to our brand?
Use marketing resources correctly
One problem is that new customer acquisition often comes first in the minds of marketers. We spend so much of our resources looking for ways to get new customers instead of focusing on improving the experience of our most valuable existing customers.
The following five metrics will help you identify your most valuable customers:
1. Average order value
What is the Average Order Value (AOV) on your website and which customers have a higher than average AOV? Although we do not consider the source of the order when determining the AOV (i.e. only sales per order, not sales per consumer), the customers who spend the most money belong to a particularly important customer segment. Keep in mind that acquiring customers with a high AOV can be more costly than other customers. However, they could have a greater customer lifetime value. Which brings us to the next point.
2. Customer Lifetime Value
How much revenue will your top customers generate over the course of their relationship with your brand? An effective way to identify a valuable customer versus an average customer is to segment different audiences and calculate Customer Lifetime Value (CLV) based on total purchases made over an extended period (six months to a year). The calculation of the CLV essentially follows this formula:
To illustrate, if a gym member pays $ 45 every month for five years, that customer’s Customer Lifetime Value would be 45 x 12 x 5 = $ 2700, or $ 540 per year. This way, not only can you set a base LTV for comparison with new customers, but you can also differentiate your finest customers from those who have made only a small percentage of large purchases.
3. Purchase frequency
Your most valuable customers are the ones who shop a lot and often. This may sound trivial, but it is impressive how much the purchase probability increases with the first repeat purchases. Alex McEachern, Head of Marketing at e-commerce consultant Smile.io, found that the chance of a repeat purchase from a new customer is 27 percent. But after the third purchase, the chances for another purchase are already 54 percent. These numbers underline how valuable your existing customers are to your brand and that marketers should do everything possible to optimize their shopping experience.
In addition, customers with a high purchase frequency can be an important and cost-saving instrument in acquiring new customers. Through word-of-mouth or positive online reviews, these customers will boost your marketing tremendously. According to Study by Bain and Company Refer existing customers on average three people after their first positive shopping experience and seven people after their tenth purchase to the respective online shop.
4. Price sensitivity
Customers who often only buy after being incentivized by a discount should not be considered your “most valuable” customers. In an ideal world, your promise of quality, product features and the positive shopping experience on your website would be enough for existing customers to complete a purchase at full price. However, it cannot be denied that loyal customers are also happy about discounts. You should be able to distinguish who is a pure bargain hunter and who is a loyal customer who occasionally uses discount codes. Marketers should use this data to create different customer segments and apply different discount strategies for them.
Here I have listed ten important categories and their criteria, according to which you can create customer segments:
You can find more inspiration in our list with 50 categories for your ecommerce segmentation. This can help you quickly prioritize segmentation and optimize your UX for the most valuable customers.
5. Pain points
Even frustrated customers are among your most valuable customers, because there is great learning potential hidden here. Therefore, you should identify those customers who wrote negative reviews or who contacted your support team and were unhappy with the result. In a dialogue with this group, you can learn something about the pain points in your customer journey and possibly encounter previously unknown weaknesses. If you manage to eliminate these pain points, you can prevent frustrating customer experiences and possibly win back dissatisfied customers.
How to reach your most valuable customers
Now that you’ve identified your most valuable customers based on the five metrics, the next step is to keep them loyal to your brand.
1. Approach them, question them and learn from them
When it comes to your most valuable customers, ask yourself: Why are these people generating the most revenue? What makes them shop more often and spend more on their orders? Which traffic sources or marketing campaigns do they come from in my shop? What products are you looking for? What story does your clickstream data tell? Which pain points have been fixed? Do these customers have other needs that are not (yet) met?
Gut feeling, guesswork, and guesswork won’t get you very far. Here a manager or one of the senior executives should contact them directly by phone or email and hear what these customers have to say. In addition, survey tools can be useful for creating a quick survey for valuable customers who have recently purchased (six months or less). Ask your customers to share their experiences in the online shop and with the products in order to find out what should be improved.
The following questions are a good place to start when creating your custom survey:
- How do you go about finding and selecting products on our website?
- Is there a product you were looking for but couldn’t find?
- Which aspects of our website / products do you like best?
- How did our product / website help you in your everyday life / in your work?
- If there was one thing we could do better, what would it be?
The better you know your most valuable customers, the better you can address them and personalize their shopping experiences.
2. Address different people and target groups with relevant experiences
Marketing experts now know that personalization can increase the return on investment (ROI) of marketing spend by five to eight times and increase sales by ten percent or more. With the help of omnichannel personalization platforms, marketing experts can leverage the user-based data and apply microsegmentation and machine learning algorithms to personalize the buying experiences of their most valuable customers.
Here is a nice example from a large US fashion retailer who sells six sub-brands in its shop: The marketing experts achieved each of the six sub-brand homepage components into a dynamic element and put them together individually for their different target groups that all visitor segments viewed significantly more products than before.
Marketers live and operate in times when the vast majority of revenue is generated by a tiny percentage of users. By identifying and caring for your most valuable customers, you will not only get a sharper perspective on how to improve their shopping experience, but you will also improve the entire customer journey on your website for all customers.