The 80/20 Rule of Customer Profitability is now Dead
Part One of a Multi-Part Series

We have all heard of the 80/20 rule (Pareto).  While the rule is true, it can also be factored even further relative to customer profitability. Studies have shown that 20% of that 20% provide 80% of that 80% profit.  

Say that again?  

What this means is 64% of profits can be attributed to 4% of customers (Delivering Customer Value through Procurement and Strategic Sourcing – 2015).  These are the loyal customers that drive the profits of your brand.  But they remain the hardest to identify, grow, and, perhaps most importantly, retain.    

What has typically been the answer to identifying, attracting, and maximizing lifetime value from these customers is a Loyalty Program, according to a recent Maritz/Brand Bond loyalty report. Yes, we know them all too well.  They’re great and make perfect sense, yet Loyalty Programs experience significant churn and a lack of participation every year.   

Why is this true, when both parties (company and consumer) are so vested and interested in the benefits?  Well it isn’t hard to understand when you look at two driving forces:

Communication:

1) 94% of loyalty members want to receive communications from their programs. 

Yet...

2) Only 53% of members view the communication they recieve as relevant to them. 

Plain and simple, brands offering these programs just don’t know their members well enough.  

But that’s all beginning to change.

What if you had a way to truly understand the 4% driving the majority of your profit—at the individual member level, based on their actual interests and affinities?  To be able to boldly ask and know:

• How they live their everyday lives?
• What they most love to do?
• What places they frequently visit and what events and activities they attend?
• What drives their behaviors?
• When are they at risk of going to your competitor?

What if you could get access to these vital insights to personalize communications and anticipate loyal customer wants and needs to insure they stay with your brand for the long haul?  

Let’s start with answering to the lowest hanging fruit for now…

When are loyal customers at risk of going to your competitors?

Well, one answer and possibly the scariest, is they already are. 

So you have some information tied to your loyalty card or app, but it provides virtually no intelligence to predict customer defection.  In addition, there are ways to acquire credit card transaction information and understand lost sales as one way to predict churn, but many factors can render insights from this data inaccurate or ineffective. Problems with latency, transaction attribution, and unknown visits to competitor locations makes it difficult to use this data to flag at-risk loyalty customers.

Now, there are new ways to know - not just predict - which loyalty customers actually visit your competitors’ locations.  And not just when they visit, but how long they stay, how frequently they return, and even where they go before and after.  Like an MRI can give you insights about things going on inside your body before symptoms start to show, it is now possible to understand all the early warning signs of your most loyal customers leaving you for your competitors. You can even learn when they go to a competitor’s location for the first time so you can act before loyalty is formed with your competition.  

So the best answer is to simply know…and with new mobile-based local behavior analytics solutions you can do just that. You can understand when your customers become a flight risk and, more importantly, why - with definitive insights that arm you to retain your most important asset, your current loyal customers.

Stay tuned for future installments where we will examine harnessing the power of understanding how your best customers live their lives to not only to retain them, but also how to find more customers like them.