In business, companies should be able to analyze whether they are making investments in the right customer groups or not. Because there is a misconception that acquiring as many customers as possible brings more revenue to the company.
Not all customers, not even all loyal customers, are good investments. Surprisingly, some loyal customers can be more unprofitable compared to disloyal customers.
This may ponder you which customers should the company acquire and retain? In this case, the Customer Relationship Groups model comes out and helps the company classify its customer groups.
It’s based on a customer’s profitability and their longevity. The model is pretty simple.
- Low Profitability, Short term Customers: Strangers
- Low Profitability, Long term Customers: Barnacles
- High Profitability, Short term Customers: Butterflies
- High Profitability, Long term Customers: Strong Friends
The trick is how you treat them.
- Strangers: Make money every transaction, don’t invest.
- Barnacles: If wallet-share is small, upsell. Otherwise, control costs.
- Butterflies: Deliver well. When they move on, you need to too.
- Strong Friends: Communicate consistently, delight them
The companies that have been able to build the right relationships with the right customers are ones that already understand the customer value of each customer and adapted their marketing strategy according to them.
In regards to the Customer Relationship Groups model, it helps the company classify customers according to their potential profitability and manage its relationships with them accordingly. And this requires that companies need to build a different relationship management strategy for each group of customers
There are four groups of customers in the Customer Relationship Groups model: Butterflies, True Friends, Strangers, and Barnacles. We will take a look at 4 different types of customers, and how to approach them, along with how not to approach them.
Strangers: Strangers are the customers with low potential profitability and little projected loyalty. Because the fit between the company’s offerings and customers‘ needs is so little.
Recommended relationship management strategy for these customers is not investing in them and continuing to make money on every transaction. It is best to leave them be.
Butterflies: Butterflies are the customers with potentially profitable but not loyal. They are such customers who are always looking for a lower price, or a different shopping experience.
If they do not find a better deal or a new promotion in one store or from supplier, they just move to another one.
There is a good fit between the company’s offerings and their needs but it can be for a short while and they will be gone.
Chasing butterflies who have no sign or inclination of being loyal to your brand is waste of money. So do not throw money ( or rewards and incentives) down the drain.
Focus should be on creating satisfying and profitable transactions with them to capture as much value from them as possible in a short time.Then the company should move on when they become unprofitable.
True Friends: In terms of true friends, they are both profitable and loyal. The fit between their needs and the company’s offerings is very strong.
Therefore, the company attempts are directed to acquire true friends and to make continuous relationship investments to delight these customers.
True friends are the customers that not only gather a profit but also tell others about their good experience and satisfaction with the company.
The Apple fanatic fans can be an example of true friends. They anticipate new apple products are coming out and queue up for hours to purchase regardless of the cost.
Barnacles: Barnacles are highly loyal but not very profitable customers. The fit between their needs and the company’s offerings is limited.
They do small amount of transactions but they do it regularly over a long period of time.
Small bank customers are an example who bank regularly but do not generate enough returns to covers the costs of maintaining their accounts.
Barnacles are perhaps the most problematic customers of the business. They are loyal customers but not profitable.
The company might be able to improve their profitability by selling them more, raising their fees, or reducing service to them. However if the company can not generate profits, they should be dropped.
Final thoughts
This model should not have an effect on the quality of the company customer service like poor service towards the customers with low value.
The point here is that different types of customers require different engagement and relationship management strategies.
The model brings clarity of where to invest first. The goal is to build the right relationships with the right customers
