During a recent Marketing Roundtable presentation I moderated, one of the presenters touched on the idea of bad customers. His argument was that not only do bad customers consume valuable resources, they ultimately are significantly less profitable than good ones.
This premise set me wondering – are you chasing the GOOD customers? Or are you just running demand generation programs to drive numbers. In my experience, very few customers are doing the former. Do you even know the profile of a good customer? Few businesses seem to take the time, especially during an economic downturn, to find out. It seems to me that a few simple analyses would identify the good ones – total lifetime value, tenure, average sale, purchasing of multiple products or services, or even the classic Recency, Frequency, Monetary Value (RFM) model from direct mail modeling.
The presenter at this roundtable did say that in his past experiences he found some direct correlations between acquisition strategies and outcome. For example, customers acquired through pricing discounts had a high propensity to become bad customers. Was nice to see some data to support my long-held belief that price discounting as an outbound marketing strategy is a bad plan.
So, are you just generating demand? Or are you generating the demand from the customers your business most needs to be profitable?