Garrison Keillor's radio show, A Prarie Home Companion, originates from the mythical Minnesota town of Lake Wobegone, where “the women are strong, the men are good looking, and all the children are above average.”
Like the parents of Lake Wobegon, a lot of marketing managers seem to live in a place that's a little disconnected from reality. In that place, every customer is profitable. In the real world, they're not, and there's an important issue in all this for marketers.
Marketing, particularly direct and online, is typically focused on two activities—acquiring new customers, and retaining existing ones. In both cases, the metrics are typically pretty cut-and-dried. But as Einstein is said to have said, “Make everything as simple as possible, but not simpler.”
The classic metrics many marketers rely on may, in fact, be too simplistic: How many customers did we acquire? What did they spend? How much revenue did they bring in? Often, that is as far as the analysis goes. A new customer is a new customer is a new customer. Revenue is revenue. It's all good.
Not quite. In fact, there are many customers you would be better off without. Let's repeat that: there are customers you have now that you don't want, and there are new customers you don't want to go near.
Why? Because they are costing, rather than making, you money. This happens in every business, selling every sort of product, in every market.
Black-belt marketing, then, is not simply going out and bringing in customers. It also requires understanding both what kind of customers you want and, perhaps more importantly, what kind you don't. Or, if you will, identifying the kids in Lake Wobegone who are a little… slow.
Here's an example. One company, contending with an erosion of its profits, determined that an astonishing 15% of customers were actually costing them money. Although these people exhibited all the traditional signs of being good-paying, high-value customers, and they spent a lot of money, it turned out that down the road they had a tendency to get behind, sooner or later, on their bills. This led to a long series of extremely expensive collection actions the company was obliged to take, including customer visits, repeated communications, and so on. The cost of these steps guaranteed that these customers, even if they paid up, would remain unprofitable, on average, for at least 18 months.