Why understanding your best customers is vital

Some customers are more important than others. It stands to reason, doesn’t it? And given that most retail brands have a diverse range of customers, if you don’t know which are best for your business then it’s definitely worth some thought.

Understanding your best customers are can provide real focus to your marketing strategy, drive sales and engender loyalty.

But what constitutes a “best customer”? What does the phrase actually mean?

• Are they customers with the highest average order value?
• Or those who buy products with the highest margin?
• Your longest-serving customers? Or members of your loyalty scheme?
• What about the most influential advocates of your brand?

Let’s delve into some of these ideas in a bit more depth …

Their (monetary) value to your business

When thinking about “best customers”, most businesses sensibly start by exploring customers’ purchase history – calculating Average Order Value and total spend as key metrics.

A more detailed approach involves modelling buying patterns and behaviours – often using RFM analysis that interprets the Recency, Frequency and Monetary value of purchases. This is a powerful way to understand who your most active (and least active) customers are, and which customers are spending the most money with you.

However, tracking just the value of customer purchases without taking profit margin into account is a questionable approach – especially for retailers with loss-leading products. After all, if a customer’s spending lots of money with you but it’s not translating to profit, then they’re not such a great customer after all.

Nevertheless, it’s clear that when considering who your best customers are, understanding customers’ monetary value is vital. But what other measures should retail businesses consider?

How important is past loyalty?

Online shopping is eroding brand loyalty. At least that’s what many bloggers, analysts and commentators are suggesting.

With the power of the internet at hand, surely today’s shopper simply researches products, whether in-store or online, then purchases from the cheapest reliable source.

So is it true that we’re becoming less loyal customers? Recent research by Accenture shows that despite membership of loyalty schemes having grown by 40% over the past six years, customers are becoming more promiscuous.

The average Joe or Jane is enrolled in a greater number of loyalty programmes, but this is simply to get access to the best deals. Actual brand loyalty is, however, decreasing. So to assume that membership of your loyalty programme alone is a positive indicator of loyalty is probably missing the mark.

What about past loyalty? Is it a good indicator of loyalty in the future? Instead of reflecting on the past, many businesses use surveys to understand current levels of customer advocacy and future intentions. Questions such as “How likely are you to recommend…?”, or “How likely are you to continue buying products from…?” are more forward-looking as a measure of loyalty.

The power of influence and advocacy…

Value and loyalty are key concepts when thinking about “best customers”. But what about influence? Shouldn’t we also take into account each customer’s potential to be an advocate of your brand?

Positive word-of-mouth can travel a very long way, very quickly, and influential ambassadors can shape public opinion and brand perceptions in a single click. So would it be fair to say that your best customers are those with tens of thousands of social media followers, who feel positively about your brand?

In today’s digitally connected world, social reach and influence are important ingredients in the “best customer” mix. Typical measures may include Klout score, or volumes of followers on social media channels.

Those “best customers”… who are they anyway?

It’s clear that there are a number of different ingredients to the “best customer” mix. And understanding customer value, loyalty and influence are three of the most important.

But if all it provides is a list of names, then this analysis has limited power. Marketers should go one step further. Be inquisitive. What commonalities do these “best customers” share?

• Where do they live?
• What about demographics – their age, gender, etc.?
• What customer persona(s) do they belong to?
• Where are they in the customer lifecycle?

“Best customer” analysis comes into its own when it helps shape marketing strategy to increase sales and grow loyalty. For example, you might find that the majority of your “best customers” fit a particular customer persona.

This insight might help you decide to engage with this segment in a targeted way that appeals to their needs and motivations. Or you could consider adjusting your customer acquisition strategy to attract propsects who fit your “best-customer” mould.

Likewise, analysing whereabouts your “best customers” are within the customer lifecycle can shed further light onto the health of their relationship with you. For example, if you find that a significant proportion of your best customers are at risk of churn, then there’s a problem you’ll want to address.

What next?

Identifying your best customers should involve a range of customer-centric metrics – including their monetary value, loyalty, and the social influence they wield. So pinpointing who our best customers are necessarily involves bringing together data from a range of sources into a single customer view.

It’s when this raw data is transformed into meaningful customer insight about each customer’s level of engagement, loyalty, value, influence and sentiment that marketers can really make a difference.

See how our Horizon platform helps retailers turn customer data into insight. Watch the video >