Last fall, I posted a piece, titled “Good Customers vs. Bad Customers: How CRM Can Help You Understand the Difference and Do Something About It,” in which I discussed the importance of treating “good” customers differently than “bad” customers and the ways that leading brands approach these challenges. As I wrote then:
Leading companies take a comprehensive view of managing customer relationships, create the capabilities needed to quickly understand the difference between “good” customers and “bad” ones and design connected programs that anticipate customer behaviors and offer treatments that are appropriate for each.
And we provided a quick, four-question assessment so that readers could easily contrast themselves and their organizations against this standard.
Here we will dig a little bit deeper into the topic covered in question 1 and highlight some of the ways that customer value can be defined and used, both as a tool to move closer to the best-in-class approach mentioned above and as a language to embrace internally so that the entire organization can share a common view of exactly how good “good” is and how bad “bad” is.
Since most organizations in the business world are focused on financial performance and most business leaders are measured on some form of financial metric, the most basic measure of customer value should be financial in nature. But value also has non-financial forms, or at least forms that are harder to translate directly into financial terms, and these components of customer value must also be taken into account. And in the same way that securities advertisements caution that past and future performance are not inextricably linked, so too are past and future customer “performance.” Both financial and non-financial customer value can be viewed historically or prospectively, or both can be rolled into a “lifetime” view. More sophisticated measures of customer value also account for different financial metrics, such as revenue, contribution or profit and different levels of aggregation, such as individual, household or for the most sophisticated few, network.
Viewed in these terms, “good” customers are those who score high on your organization’s customer value metric, including those who have a high financial value and those who contribute value in non-financial ways. “Bad” customers are those that occupy the opposite end of the spectrum in either one or both of these dimensions.
“Good” customers typically are regular users and buyers of a product or service and have indicated that they are highly likely to continue that pattern in the future — or even to increase their usage or step up to a higher tier of product or service within the brand/company. As a result, they have high financial value in many cases. They also may be active on social media, promoting the product, service or your brand and expressing strong positive and supportive opinions, reviews, etc. And many of the best “good” customers are also active in influencing their networks of friends and family to join them as users and buyers of your brand. In rare cases, low financial value can be outweighed by very high non-financial value, and these “brand vanguards,” or evangelists, should be treated as a separate and unique group.
On the other hand, “bad” customers are those whose usage and buying patterns result in low financial value, such as those who discontinue use of a product or service or indicate the intent not to renew or to even terminate their relationship with your company. They may also have low non-financial value, either because they are not active on social media or because they do not engage in activities relative to your brand. In some cases, negative non-financial value can result from critical comments, posts, reviews, etc. and the active redirection of others away from your company and toward the competitor’s brands.
Indicators of Customer Value
|"Good" Customer||"Bad" Customer|
|The financial value (in $) of:||
|The non-financial value:||
Whether you and your organization have a sophisticated definition for customer value or are just starting down the path of measuring the value of individual customers, having a definition of customer value that is current, common and actionable is a key first step. If you and your organization can answer yes to this question, then you are starting down the path toward telling “good” customers from “bad” customers, and taking action on that differentiation. In subsequent posts, we’ll discuss the remaining questions about this topic and help you define a path forward for you and your brand.