That customers vary in value is not a new idea. When businesses discuss profitability, they commonly cite the 80/20 rule – the belief that 80% of sales come from 20% of the customer base. In recent years it’s been reported that 7% of Best Buy’s customers account for 43% of sales. And Advertising Age claims that 2.5% of consumers account for 80% of sales for the average package-goods brand, citing a Catalina Marketing study of 1,300 brands and 54 million shoppers.
Some profitability studies go so far as to suggest that the Top 20% of customers generate 150% of profits while the bottom 20% drain an amount equal to 100%. Regardless of specific statistics, the point is that customer value is highly variable. And since the purpose of business is to create a customer, marketers need to understand where best to apply their limited resources to obtain maximum return.
The problem is that ad agencies and other mar-com organizations yada yada over the complex dynamics of a brand’s buying base. As Ad Age alludes, and as I’ve experienced first hand, marketers typically create (and name) a singular target profile for a brand.
Common sense suggests that a person in a brand’s top sales quintile must be different then the person in the bottom fifth of sales. And while it may be argued that a target description reflects a bulls-eye ideal rather than stand for a brand’s customer base overall, the reality is that millions of dollars are wasted in mass media when less than 10% of a brand’s franchise accounts for 80% or more of its sales.
Just as the media universe fragmented from few to myriad, so must consumer targeting move beyond a singular customer persona and reflect the more complex nature of a brand’s overall base. Targeting must be aligned with customer value rather than remain untethered from meaningful marketplace metrics. Demographics, psychographics, ethnography and secondary research may give form to what starts as a faceless consumer, but these profiling tools pale badly in comparison to the very real customer information available to marketers today.