November 10, 2008

Multichannel Forensics And The Five Customer Types

By now, you know that I advocate segmenting customers into one of five different segments, as illustrated here.


Because the five segment definitions accurately portray levels of profitability and loyalty. Even more important, you get to see how your business is evolving.

There are several dangerous combinations in this structure.

Advertising and Algorithms interact in a bad way. The cataloger knows this all-too-well, right? The cataloger sends a million catalogs out into the ether, only to drive the customer to Google, where the customer has fifteen choices for nearly identical product at comparable prices.

Honestly, there's nothing Google likes more than traditional advertising, because traditional advertising sends a customer to Google, where the customer clicks on paid search links. One brand spends money, Google intercepts the demand, and benefits financially by re-distributing the demand to paying advertisers.

Advertising and Begging interact in a bad way, unless you are an inventory manager. The marketing executive creates demand by begging via advertising vehicles. Customer loyalty is now shot, as the customer is being paid to buy something --- worse, Advertising and Begging can drive the customer to an Algorithm. Google loves Advertising stuffed with Begging!

Social shopping is something we're only starting to consider. Retailers have known the power of social shopping for centuries --- but online leaders only recently discovered social media. Advertising can interact with Social shopping in a positive way. Begging can interact with Social shopping in a positive way. Algorithms can steer customers to interactions with other customers, benefiting Social shopping. Algorithms can also steer your customers elsewhere. This is why it is so important to know your Net Google Score.

Organic customers buy from you because they are loyal to you. This is the most important customer to cultivate. Zappos and Amazon and Starbucks and Apple are loaded with organic customers, customers who buy from those brands regardless of Begging, Advertising, Algorithms, or Social opportunities.

From a Multichannel Forensics standpoint, we assign customers into one of these five classifications. We then measure the long-term evolution of customers, as the customer flows in and out of each classification, increasing or decreasing profitability.

We especially pay close attention to what happens when we migrate customers into the Begging segment ... do customers transfer into Begging, then stay isolated in Begging, not wanting to shop unless a discount or promotion is available? That's something we must closely monitor in 2009, given the fire sales we are having this fall to move inventory.