How do we allocate the scarce marketing resources to each customer?

by V. Kumar* | Georgia State University

The Wheel of Fortune Strategy@ identifies a dozen ways to maximize CLV (Customer Lifetime Value) where a firm can choose any one or more of the suggested strategies at any given time and realize the benefits of improving the bottom-line. In this column, we will focus on resource allocation strategies to customers in each of the four segments we described last time.

As discussed before, firms need to manage the loyalty and profitability of their customers simultaneously. Typically, managers segmented customers based on their loyalty (e.g., short or long term/tenure) to the firm. We suggest that customers be segmented based on their loyalty as well as their profitability potential (e.g., low or high). We therefore created a 4-cell segmentation — Strangers, Butterflies, True Friends and Barnacles. The resource allocation strategy should be such that the Barnacles get less marketing resources, profit from every transaction from the Strangers, maintain or increase the marketing contacts with the True Friends, and intelligently allocated the resources to certain Butterflies who are likely to give more business to the firm. This is the way the reallocation of resources happens. The savings from the cost control measures on the “BARNACLES” can be re-allocated to convert some “BUTTERFLIES” to become “TRUE-FRIENDS”. However, not all “BUTTERFLIES” may be worthy candidates for this re-allocation. Firms should identify those “BUTTERFLIES” who have – a higher level of spending, a high degree of purchases from multiple product categories, a low level of purchase limited to a single product category, an intermediate level of time between two purchases, an intermediate level of product returns, a membership to the firm’s loyalty program (for a B2C company) or a premium service member status (for a B2B company), been exposed to an intermediate level of marketing contacts between two purchases, and a higher degree of bi-directional communication with the firm – to be targeted for such re-allocation programs. These resource allocation approaches will cultivate and reward profitable loyalty, which will in turn maximize profitability of the firm and convert more customers to be True Friends of the firm.

*V. Kumar (VK) is the Richard and Susan Lenny Distinguished Chair Professor in Marketing, Executive Director of the Center for Excellence in Brand & Customer Management, and the Director of the Ph.D. program, J. Mack Robinson College of Business, Georgia State University, Atlanta, GA. HYPERLINK “mailto:vk@gsu.edu”vk@gsu.edu

@ Managing Customers For Profit (Wharton School Publishing) – V. Kumar

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