Rediscovering Quality in Marketing
- Jul 27, 2014
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It’s a verifiable fact that 20% of customers, more or less, are responsible for 80% of the profits in many businesses. And, of course, the other 80% of customers contribute only 20% of the profits. So much of life is governed by the 80/20 Rule – which is really just another way of thinking about the Law of Diminishing Returns – it’s surprising how often we forget it.
I learned about customer quality at the Columbia House Music Club. If you’re over 30 and grew up in the United States, odds are that you joined the club at least once. We acquired new customers by giving away 8 or 10 CDs for free to each customer who promised to buy five or six more in the next two years. We shipped millions of packages of free CDs every year, and in a typical group of customers, 40% never paid for a single thing.
How could Columbia House make money sending free CDs to millions of people who never fulfilled their side of the bargain? There was a lot to the business model, developed over many years by lots of smart people, but I think the most important factor was the segment of customers we called “super-buyers.” Super-buyers were insatiable. They would rejoin the club over and over again and spend hundreds of dollars each time. They were Columbia House’s quality customers, and the key to keeping us in business.
As direct marketers, we could accurately slice and dice our customer base lots of ways. We had an interesting spin on the 80/20 Rule … call it the 40/40/20 Rule:
- Non-buyers: the 40% who never bought. We lost a lot on these customers, and there were millions of them every year.
- Average buyers: the 40% of our customers bought what they had agreed to, more or less. We made a profit on this group, but not enough to compensate for the non-buyers.
- Super-buyers: the crucial 20%, who were highly profitable and, in fact, kept us in business.
Not every business experiences this wide a range in customer quality, but many do. Can you identify the subsets of your customer base that keep your company in business?
The advent of automated marketing raises the issue of customer quality in a new way. Automation can search big ad networks and help us find clones of our best customers. When it does, it can be a brilliant addition to the marketer’s toolkit.
But then, once you’ve got this giant, tireless robot, why not just turn it loose? Your competitors are using the same tools to bulk up on empty calories, threatening to grow larger and faster than you. That’s scary, and fear is generally not the motivation for quality marketing and quality customer relationship building. The more we bombard consumers, the more they tune out our advertising, forcing us to turn up the volume a little more, resulting in more banner blindness, and so on, in a vicious, downward spiral. This isn’t a secret … it’s just that few have the courage to walk away from this pointless competition. I’m reminded of the great Peter Drucker quote:
“There is nothing quite so useless as doing with great efficiency something that should not be done at all.”
Focus on your ideal customers and turn down the volume. They’ll still listen. And they’ll keep you in business.
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