It goes without saying that the customer is king. However, we believe that the time has come to rethink and recognize that certain customers are true royalty, while others are less worthy of the crown. It is time to revisit the traditional models of customer value and focus on Customer Influence Value (CIV) to reflect a customers true value to the enterprise.
Background: Current Customer Value Models
Proactively managing the relationship with these VIP-to-be would result in their increased spend, pushing them across the threshold to VIP and increasing their value /profitability to the company
General practice holds that a companys most profitable customers should be the most valued, or VIP customers. That thinking eventually gave way to customer value models that consider not only the company’s revenue from the customer, but also other relevant parameters, giving each its own weight, according to the business needs and characteristics.
The basic objective of segmenting customers according to customer value is to establish a company policy and levels of service, as well as customer retention and sales policy per segment, in order to focus on that small group of customers found to be most valuable for the company.
Model evolvement – Future Lifetime Customer Value:
When an Influencer of a certain product purchases that product, other customers from his social network follow suit. Alternatively, when an Influencer terminates his relations with the company, members of his social network churn soon after.
However, segmenting customers solely on the current customer value model leaves out customers who are not currently VIPs but have the highest potential of becoming VIP customers in the future.
Proactively managing the relationship with these VIPs-to-be would result in their increased spending, pushing them across the threshold to reach VIP level and increasing their value/profitability to the company. Sophisticated data-mining models may be used to define the VIP-to-be segments, while simpler business analyses, based on the organization’s business experience and on best practice tactics, may also do the job.
A better approach: Customer Influence Value (CIV)
Our recent research has determined that recommendations of a customer’s close social environment are a key factor in most purchasing decisions and are much more effective than brand advertising or marketing campaigns.
Innovative analyses and advanced algorithms enable detection of social connections between customers, identification of the type of connections (family, close friends, acquaintances, colleagues, etc.), and location of the Influencers at the heart of these social networks to generate certain purchase decisions.
Influencers of social networks are not necessarily those customers with the most direct connections to other customers, but are the people who have the strongest cumulative influence within their social network. Influence can refer to the purchase of a certain product line or a specific product, or to loyalty level and churn.
When an Influencer of a certain product purchases that product, other customers from his social network follow suit. Alternatively, when an Influencer terminates his relations with the company, members of his social network churn soon after. The importance of understanding the customers influence on his social network was recently highlighted in the Harvard Business Review article How Valuable Is Word Of Mouth? (www.hbr.org).
An Influencer may not be individually profitable to the organization, but has a great influence on his social network, thus his overall social-network cumulative value is high. Consequently, this high cumulative value should be reflected in the Influencers score and he should be treated as a VIP customer.
Pursway has seen this phenomenon in a number of recent client engagements. The diagram below is based on an EU mobile operator and shows that traditional customer value approaches dont capture the full value or the real potential of the influential customers. While some Solitary-spenders
traditional customer value approaches dont capture the full value or the real potential of the influential customers
spend significant amounts of money, more often, they dont generate a great deal of purchasing influence among their social network. As a result, their cumulative value to the company is relatively low, while other Everyday Purswayers’ may not spend as much, but at the same time influence their social sphere to make purchase decisions, hence increasing the total spending of their network and their value to the company.
Pursways analysis of over 250 million subscriber records in the telco, retail, and banking sectors worldwide has revealed that Influencers represent 5-10% of a typical consumer base. Our analysis also shows that there are different types of Influencers. Calculating each customers CIV needs to proportionally reflect the customers influence on each of his followers and the types of products and actions that he is actually influencing on, as illustrated in the formula below:
Calculating each customers CIV needs to proportionally reflect the customers influence on each of his followers and the types of products and actions that he is actually influencing on.
Once the influence value of a customer base is mapped, what should you do with this data and knowledge about these new high value influencers? The table below shows some examples of the recommended actions for building a long term relationship with the influencers:
A recent financial services engagement led to the launch of an annual loyalty program for Influencers aimed at providing the segment with personalized offers to increase the penetration rate of certain products proven to act as loyalty products’, which we call Anchors.
A recent financial services engagement led to the launch of an annual loyalty program for Influencers aimed at providing influencers with personalized offers to increase the penetration rate of certain products proven to act as loyalty products, which we call Anchors
Within one year of operating the program, the company experienced an increase of 240% in the anchor products penetration for the Influencers, which also drove their followers to increase anchors penetration by 82%, compared to a natural increase of the rest of the customer base by only 23%. At the same time, the program also decreased the churn rate of the influencers and their followers by 13%.
More on the anchors strategy will be shared in an upcoming article.
Customer value calculation should be based not only on the customer’s spending history and his current status, but also on his potential to become a customer of higher value to the company. It should also reflect the customers position within his social network, his level of influence on the purchasing decisions that are made by members of that network, and the cumulative value of his social sphere.
Once we identify the customers influence value we should then treat these customers appropriately to increase their loyalty and maximize their social affect.
To learn more about Influencer Marketing and how it can help your organization increase marketing effectiveness and profitability, please visit our website www.pursway.com