Is your brand on the brink of customer concentration risk?

25 Mar Is your brand on the brink of customer concentration risk?

Posted at 08:59h in News & Insights by admin

We’ve referenced the stat ‘80% of your future profits will come from just 20% of your existing customers’ many times. Every brand has a group of high value customers, we refer to them as ‘superstars’. These customers spend the most, most often with your brand. Many brands are relying on these customers to survive – this places an enormous customer concentration risk on these brands….and they may not even know it.

If you don’t know exactly who these customers are in your brand, then this is your first priority. Find out exactly which of your customers are superstars and then assess how you are recognising and rewarding them. Because if even just a small percentage of these customers were to leave, it would have a huge impact on your bottom line. Consider this a wake-up call, and don’t wait until it’s too late – find out who your superstars are and show them how valued they are.

Leveraging customer insight to understanding how your customers are behaving

Having superstar customers is fantastic, but your brand shouldn’t be relying on them. You’ve heard the phrase ‘don’t put all your eggs in one basket’, well that’s very much the situation here. You’re putting your brand at great risk. Plus, it’s not a sustainable growth strategy. Ideally, you need a large base of smaller customers, so that if any were to leave, it won’t have a drastic impact on your revenue.

The diagram below showcases an example of customer group impact on total revenue. Here, 10% of customers are superstars, yet account for 45% of the brand’s entire revenue.

So, your second priority is to understand the position of all of your customers across the entire lifecycle. Look at the bigger picture, segment your customers into groups based on their actual behaviour, not where they live or their gender. Use RFM segmentation to understand how much your customers are spending, how often they are spending and then they last purchased. You’ll soon realise which customers you are at risk of losing.

Getting more out of your customers

Once you have a clear picture of how your customers are behaving and the impact of these customer groups on your revenue, you can put effective communication strategies in place. You should be having very different conversations with each of these customer groups. So here comes your third priority, assess your existing customer communications, determine what messages you should be sharing with each of these customer groups to keep them engaged and purchasing from your brand. This will help to increase purchase frequency and average transaction value (ATV) – which are vital to customer growth.

A more effective return on your marketing investment

Your database truly is a goldmine. There’s so much opportunity for your brand to grow, simply by leveraging the data you have already captured (such as your point of sale transactional data). When you have a clear understanding of your customers, you can market much more effectively to them.

In addition, you’ll also get a good indication of the customers who are continuously unresponsive, no matter how many times you have tried to market to them. These customers are actually costing you money and won’t help you grow your brand. Don’t waste your time on these customers.

Remember, customer acquisition is not the answer to revenue growth. Consider the entire lifecycle and impact on your marketing campaigns and initiatives. Continue the conversation with each of your customers, don’t have the same conversation with all of them. Our recent report ‘The Unspoken Customer’ revealed that 45% of customers don’t believe brands are targeting them in a relevant way.

Rather than relying on your superstar customers or focusing your efforts (and budget) on acquisition strategies, take the time to learn more about your existing customers. There’s so many opportunities for you to grow your brand, in a more scalable, sustainable way.

If you’re unsure where to start, contact us on 1300 264 549 or hi@customology.com.au to discuss our Customer Growth Analysis. We can help you leverage your customer insight and segment your customers into various groups, revealing just how much of your revenue is at risk. We can help you to continue the conversation with each of your customers, based on their position across the customer lifecycle.