Predictive Marketing

Chapter 8Play Four: Predict Customer Value and Value-Based Marketing

The days of one-size-fits-all customer service are long gone. Not all customers are going to be as valuable to you as others. For instance, the costs incurred from customers who frequently return things they purchase could outweigh the revenue from those customers. In Chapter 4 we defined customer lifetime value in detail. In this chapter we look at strategies to segment and target customers by their lifetime values, a practice called value-based marketing.

Value-Based Marketing

Any business will have those low-value customers, as well as medium and high-value customers. The trick is identifying which customers fit into which value buckets and crafting differentiated marketing and service strategies based on the value of each customer. That means keeping perks like unlimited free shipping and returns for high-value customers, rather than the low-value heavy returners.

Figure 8.1 summarizes the three key strategies depending on customer value:

• High-value customers: Spend money to appreciate and retain these customers. Pay close attention to retention metrics here.
• Medium-value customers: Upsell to migrate these customers to maximize their potential. Pay close attention to upside potential of these customers.
• Low-value customers: Reduce your costs of servicing unprofitable customers.

Figure 8.1 Value-Based ...