Unearthing the Treasure

Just like products, marketing and sales are going through big changes. The Industrial Revolution started the mass production of standard products, prompting the famous saying by Henry Ford, “The customer can have any color he wants so long as it's black.”

Just like standard products, marketing used to have a standard message targeted to the whole world. As production moved to mass customization, so did marketing. Market segmentation—grouping customers based on key attributes—became the catchphrase. It is still a valid and relevant strategy and will remain relevant for the foreseeable future. For the last few years, production has been moving towards individualization and, hence, marketing has too. Behavioral and trigger marketing are gaining momentum. If you are an active reader you must have noticed that so far I have been talking about individual customers, not a group of customers or markets. I showed you how to value a customer using the net promoter score, customer profitability, and customer lifetime value.

When it comes to budgeting an investment to grow your business, it becomes cumbersome to work at the individual customer level unless you have a sophisticated database system like Wal-Mart's, which can tell them to merchandise diapers and beers side-by-side because on the Sunday before a game when dad visits Wal-Mart to buy diapers he also buys beer. Until you acquire that much computing horsepower, let’s live with the most valid and relevant technique: market segmentation.

In order to unearth the treasure and create a laser-sharp focus, we have to step back a little bit and calculate the three parameters—net promoter score, customer profitability, and customer lifetime value—for all the market segments in which you are playing. Don’t worry, if you don’t have proper market segmentation, you will learn about it in the next section. Of course, keep in mind that the protect-and-renew process is a continuous activity that you have to perform on a regular cycle even after implementing integrated multichannel selling models.

Calculating these three parameters is not complex. The net promoter score for a market segment is just the average or weighted average score of all the customers in that market segment. The customer profitability of a market segment is also an average value derived from the individual customer's profitability. Similarly, the customer lifetime value of a market segment is the total number of customers multiplied by the average lifetime value of customers.

Figure 5.4: The hidden opportunity matrix

You can take these three parameters and plot them on our magical 3 x 3 grid as shown in Figure 5.4. The bubbles show market segments and their sizes reflect the customer lifetime value or the possible investment. In just one glance, you can identify which markets are profitable and where you should put your investment dollars. The size of each bubble shows you how much money you should invest in that market. Neat, isn’t it?

As you can see, Market Segment A is the most profitable segment; customers in that segment really love the business’s offering and are ready to buy more and spread the word around the world. Market Segment E, on the other hand, is profitable but since the overall net promoter score is below six (Detractor), the chart recommends selective investment that is less than the investment for Segment A. The magic grid also shows a small circle in block one. This is the market segment that is really costing a company money, and the company should pull out of this market segment as quickly as possible or find a way to serve these customers profitably.

As the magic grid shows, if a company is successful, most of the bubbles will be in or around the center of the chart, hence the term core business, core customer base, etc. Once you plot your data on this magic grid and find that your market segments are spread all over the magic grid, you should become very, very paranoid and very motivated to pull them together.

Once you identify how much you need to spend—no more than the total customer lifetime value for a market segment—and where to spend—market segments with high net promoter scores—you can go back and start targeting individual customers in each of these segments using customer experience mapping. We will see customer experience mapping in action later in the next section. To get an even sharper focus and the best bang for your buck, you can use tools like "wallet share analysis," RFM Modeling, Trigger and Behavioral marketing, etc., which enable a business to decide how and what to up-sell and/or cross-sell in the selected market segments.

Before I show you how to draw a customer experience map, let me complete this chapter with final thoughts here.

Related:

• Table of Content
• Red Queen Effect – An Introduction
  
• The Billionaire Code
  • Secret of World Class Companies
    
  • Impact of Using Secrets of World Class Companies
    
• Cracking the Code
  
  • Customer Experience
    
  • Customer Engagement Channels
    
  • From Multiple Channels to Integrated Multichannel Selling
    
  • Benefits of Integrated Multichannel Selling Models
    
  • Customer Relationship Lifecycle
  • Integrated Multichannel Selling Models
    
    • Reduced Costs
      
    • Improved margins
      
    • Broader market coverage
    • Rapid revenue growth
      
  • In Conclusion
    
• Implementation Plan
  • Renovation or Innovation?
    
  • Implementation Process
  • Baseline current go-to-market activities
    
  • Protect & Renew
    
    • You've Got Customers. Now What?
      
    • Net Promoter Score
      
    • Customer Profitability – A look from inside
      
    • Finding Treasures
      
    • Customer Life Time Value
      
    • Calculating Customer Life Time Value