Customer Lifetime Value And The Mistake of Marketing to Everyone
Every business has many "types" of customers, and they should be classified based on how they impact the business.
In fact, the majority of a company's customers make little impact and can even be a drain of company resources. These are the passing customers - ones that have tried out your product or service but don't return. Perhaps they were attracted by a special offer that was designed as a loss-leader. Others may be repeat customers but are very infrequent purchasers.
"Everyone is NOT your customer." - Seth Godin.
A smaller group, typically around 20% of a company's customer base, represents its most loyal and profitable customers. They love the company's products and services and purchase frequently. They share their great company experiences with their family, friends, and co-workers, resulting in quality customer referrals. We call these customers - Most Valuable Customers, or MVCs.
One of the defining attributes of an MVC is a high customer lifetime value (CLV). A customer's CLV is a measure of how much money they contribute to a business over a period of time they remain a customer. In its simplest form, if a customer makes purchases averaging $200 every quarter and remain a customer on average for 5 years, their CLV is $4,000 ($800/yr * 5 years).
The primary goal of our marketing and advertising efforts must be to:
Retain high CLV MVCs, and
Target and capture new customers that represent a strong probability of a high CLV.
Logically, if you know the characteristics of your MVCs, targeting prospects that "look" most similar to them will provide the best chance of capturing long-term, impactful new customers.
Conversely, targeting (or more accurately, mistargeting) customers that are very dissimilar to your MVCs will result in a high probability of very low CLVs.
It should go without saying that a "shotgun" or "market to everyone" approach will attract largely low CLV customers. This is a waste of company resources.
Spend time getting to know your high CLV, Most Valuable Customers. Identify, understand, and engage with them to gain insights into not just their geographic and demographic characteristics but their interests, attitudes, values, lifestyles, purchasing behaviors, and media preferences. Use these powerful insights to focus your efforts on attracting new customers that are most likely to move the needle for your business.