Clone Your Customers
By Andrew Shedden
Cloning technology is an area of profound legal, scientific and ethical debate. I am here to tell you I’m absolutely in favour of cloning. If there was a way of cloning a million people I would most happily have it done. Short, tall, fat, skinny, clone them all, the more the merrier. I have absolutely no compunction about cloning – customers that is.
In the mad rush to get new customers we tend to forget there’s a great deal of useful information within our customer databases. We buy huge mailing lists and send out massive quantities of promotional materials and hope for the best. This is inefficient, expensive, and unnecessary.
Your customer database contains readily available information that can be used to dramatically increase your profits. One obvious way to profit by your database is to contact current customers with well-targeted offers. A not so obvious second way is to use your database to clone your customers.
Cloning under performing and marginally profitable customers is a tremendous waste of time. Fortunately your database offers you the opportunity to profile your most profitable customers. This can be done with a wide range of sophistication. Some of the more common ways of analyzing your customer database are by:
Geography
Industry type
Usage patterns
Employee size
Company sales volume
There is a much more powerful way of profiling your customers, use RFM analysis. What you do is divide your customer lists into groups based on their recency, frequency, and monetary value. Once this is done you will be able to establish your most highly profitable customers.
RFM analysis is used for many purposes including customer migration from one group to another. It also can be used to identify clusters of buying behaviour, or as a determinant of segmentation strategies.
RFM analysis allows you to tailor specific offers that will generate higher response rates to individual customers or groups of customers. It also allows you to determine with a high degree of accuracy the type of customers you should attempt to clone. After all, you only want to clone your best customers.
An RFM primer
The following is a simplified example of RFM analysis. Simply take your existing sales records over a fixed period of time and break the customers down into groups based on RFM criteria, and rank them by score.
Recency analysis is the measurement of how long it’s been since a customer has purchased from you. Those customers who’ve most recently bought from your company are most apt to buy from you again. For example, you might look at your sales records and put together a group that have bought from you in the last three months. Those who’ve purchased within three months could get a ranking of one, three to six months could be given a ranking of two, and so on.
Frequency analysis is the measurement of how often customers purchase from you in a given period of time. Frequent buyers are more likely to buy more from you. You may look at your sales records and give customers who purchase monthly a score of one, quarterly a score of two, and so on.
Monetary analysis is the measurement of the size of the average sale. The fact is that big spenders consistently respond better to offers and often spend more. Customers who spend the most on an average size sale would get the highest ranking, those spending least the lowest ranking.
I’ve got the data…now what?
Once you’ve ranked your customers through RFM analysis you need to determine whether you’d like to target or clone customers whose purchasing activities are based on recency, frequency, or monetary value. Alternately you may want a combination of all three. You might want to target customers who’ve recently purchased from you. You may want more customers who make large purchases. It might be more desirable to have more customers who purchase frequently.
What’s the benefit?
There are thousands of mailing lists available to you. If you’re willing to spend some time determining who your ideal customer is by studying your existing customer list you’ll be able to target your best potential customers with pinpoint accuracy. In effect you’ll be cloning your best customers. This will allow you to maximize the cost effectiveness of your lead generation activities. The next time the subject of cloning comes up in conversation smile knowingly and state you’ve ethically and profitably mastered its use.
