Your Most Valuable Customers Are More Important Than Ever. But Who Exactly Are They?


By: The CDPa Team

In 2021, retailers and other customer-facing organizations had one metric on the brain: CLV.

Customer lifetime value (CLV) seeks to quantify the total worth of a customer to a business over the course of their relationship. CLV can consist of one single purchase, or it can reflect a decades-long relationship with dozens or even hundreds of transactions.

When a company chooses to use CLV to guide its overall business strategy, it commits to focusing on its highest-value customers. Catering to these important customers helps to maximize their long-term value to the company, building an unshakeable foundation for growth and expansion.

But how should an organization define high-value customers? Should they base it on the total amount spent in a year, the number of transactions, or increased spending over a certain period? For a company to reorganize its operations around CLV, it must be sure that the key information they’re working from — the profile of their high-value customer — is precise and backed by data.

When $1,000 isn’t exactly $1,000

Let’s start with the most important word in CLV: value. For many organizations, defining a high-value customer is as simple as calculating their total spend. A menswear retailer might define their high-value customers as those who spend at least $1,000 in a single year. A local drug store would set their figure lower, possibly around $250 or higher. In theory, finding this threshold should be simple.

However, that $250 or $1,000 figure isn’t as simple as it seems. Take the menswear example: if a new customer visited a store in February, bought a single suit for $1,100, and then didn’t walk into a store again for the rest of the year, should they be considered the type of high-value customer that is essential for long-term strategy? How does their behavior compare to a customer who hasn’t purchased a big-ticket item but instead bought several ties, dress shirts and trousers over multiple visits throughout the year?

You have to start somewhere when defining your high-value customers, and a concrete figure can serve as a good starting point. However, that figure should only be one piece of a larger puzzle.

Your best customers may not be who you thought they were, but once you’ve identified them you can reap the rewards of customer-centricity.

The trouble with demographics

Historically, organizations have taken the approach of developing marketing personas and applying specific traits to a customer profile when trying to define their most valuable customers. 

Beyond just the amount they spend in a year, these characteristics could include their age, product preferences, location, and even their career. For example, our menswear retailer might define their best customers as men who work in professional services like law or accounting, between the ages of 35 and 50, with an annual income of more than $100,000. 

As organizations transition to a customer-centric approach, they may believe that combining a spending threshold with their customer persona is all they need to do. The problem here is that what we’ve described above is an aspirational persona, rather than an informational persona. Instead of being informed by the company’s data, this persona was developed using guesswork and assumptions. That menswear retailer’s sales and marketing leaders may want their ideal customer to make $100,000 a year or more, but the reality could be that they collect most of their revenue from those making between $50,000 and $75,000. The takeaway? Let the data do the talking.

Finding your correct definition

It should be clear by now that there is no one-size-fits-all solution to defining your most valuable customers. To find the right answer, organizations must let go of their preconceived notions and let their customer data guide them. Your best customers may not be who you thought they were, but once you’ve identified them you can reap the rewards of customer-centricity.

A company’s “high-value customers” may also change over time. As you modify your operations, and as you integrate more and more customer data, the contours of your top customers may shift slightly. Customer-centricity is a journey with no fixed endpoint, and embracing that mindset will ensure that you’re always moving forward.

Want to learn more about defining your best customers, and what strategies to use once you’ve defined them? Download our new Playbook, “Putting High Value Customers at the Center,” and stay tuned for more content in the weeks to come.

Leave a Reply

Your email address will not be published.

About the Author

The CDPa Team

The CDPa exists as a forum for people who believe in responsibly using customer insights and data to drive customer-centric growth. Together we elevate the best practices and tools in a space for collaboration to drive personal development and commercial success.

Leave a Reply

Your email address will not be published.