4 Customer Relationship Groups & How to Deal with Them
Not all customers are created equal. There are strangers, barnacles, butterflies, and true friends - that's why it's important to understand the value of each customer and how you should adapt your marketing strategy to approach them. Different types of customers should be dealt with differently. Not only because they have different interests, purchasing habits, customer journeys, and customer experiences, but more so because they have varying values for your business.
While many articles focus on customer groups like impulse customers, bargain hunters, discount customers, and beyond, this article looks to categorize customers into more manageable and easily definable groups. We'll take a look at 4 different types of customers, how to approach them, along with how not to approach them.
So, What are the 4 Types of Customer?
Strangers: low loyalty and profitability.
Barnacles: high loyalty, low profitability.
Butterflies: low loyalty, high profitability.
True Friends: high loyalty, high profitability.
Before deciding how you want to deal with or approach certain customer types, it's important to understand that your approach to customers as a whole should be as if each relationship is an investment. Achieving loyalty is no easy feat, so you need to invest in your customer relationships and tailor your relationship management strategy for each customer group or segment. Deciding whether or not that's an equitable pursuit is what this article is all about.
Stranger doesn’t necessarily mean danger here, so don’t run just yet. Generally, these “strangers” are customers that don’t shop particularly regularly or have a particularly high customer lifetime value. Why? Great question. In reality, it’s hard to tell when they’re a stranger.
What can you do about it? That all depends on the type of stranger they are. If a customer is a stranger, it’s often because they don’t want to be anything more than that. In that case, it’s best to leave them be. We get it - you love your brand and products, and you believe you can sell to anyone. And that’s a great way to be! But it’s also best to choose your battles wisely.
If a customer falls into the stranger category, they may be a long-time customer that isn’t engaged with your brand, or they may simply be a new customer. If it’s a new customer - this is the least you should be able to tell, even if they’re a stranger - then your best bet is to offer them something with a bit of a wow factor. Looking for inspiration? Fast-forward to the section on ‘True Friends’ to get some tips on how you can convert the strangers in your customer base.
Regardless of what you decide to do, remember not to dig yourself into a hole. Long-term customers that haven’t yet engaged will have a very low probability of becoming a butterfly or true friend, so be wary of what you give up in the process of trying.
Stranger danger just became barnacle danger. Avoid these guys at all costs - with “costs” being the operative word in that sentence. Barnacles are customers that have a low overall spend and customer lifetime value, yet remain in your customer base for longer than most customers. Their projected loyalty is high, but their projected profitability is on the floor.
Imagine your business as a ship. I’m sure you can imagine what advice comes next. That’s right - wash the barnacles off your ship, or at least clean things up a bit. That’s not to say that you should banish customers and never again serve them, but rather a warning against investing in customers that don’t invest in you.
The reason for this analogy is that barnacles cannot be turned into decoration for your boat or somehow become advantageous. That’s why your best bet is either getting rid of as many barnacles as possible or not wasting resources on attempting to turn them into your most loyal customers.
Things are finally starting to look up. In many peoples’ opinions - particularly people involved in the world of finance - butterflies are the best customers you could ask for. Why? They require very little effort and, while not necessarily brand ambassadors, spend a large amount of money on your products in comparison to other customers.
Are they really your best customers, though? Almost. While they present very high revenues and very low retention costs because of their paucity of purchases, these customers are missing a valuable aspect - arguably the most valuable characteristic that a customer could have. Loyalty and customer-based brand equity.
Don’t get us wrong, butterflies are great. But they’re so close yet so far from becoming true friends and advocating for your brand on a level that generates more customers.
Can you twist their arm? We hope so. This all comes down to approach - how well you can approach them, how much you can personalize your approach to them, and how approachable they are as a customer. Hopefully, you have some data on these customers. Anything at all will be helpful here - simply look at what products they’ve purchased most frequently, or when they have celebrations such as loyalty anniversaries, birthdays, or generic celebrations such as public holidays or valentines day.
While butterflies certainly show more promise, the same word of warning prevails - their projected loyalty is still low, so don’t throw money (or rewards and incentives) down the drain. Thanks to the revenue and profitability they represent, butterflies might be worth a bit more effort than strangers, but don’t go chasing fools' gold.
You’ve managed it - the holy grail of customer loyalty. You made somebody love and appreciate your brand as much as you do. So, that means you’re done, right? Not quite. These guys are where you should get your inspiration.
The very first thing you should do is take every customer that you consider to be in this category and then analyze all the commonalities that are visible between these customers. What attributes do they have in common? What campaigns were most successful with these customers? What rewards or products have these customers been exposed to that your butterflies, barnacles, or strangers haven’t been exposed to?
You’re still not done. Sure, these customers are the most loyal that you have. So, you must have peaked in terms of these customers then, right? Not exactly. This is where you have to ask how customers can create the most possible value for your business.
You’re thinking of more sales and extra revenue now, right? Us too. We’re just thinking about making those sales and revenue differently. You can continue selling to your true friends - we’d never suggest otherwise - but don’t forget that they’re more than just customers now. Your true friends aren’t valuable for their purchases. They’re as valuable as they are because of their loyalty. The difference between purchases and loyalty? You can rely on these customers for referrals, increased positive word of mouth, and brand ambassadorship.
But don’t just rely on it, incentivize it. Reward these customers for referrals, social engagements, and more to grow your brand without any marketing campaigns.
A Final Word
This model should not be used as an excuse for poor customer service towards "low value" customers, nor should it be used to justify focusing only on the cash cows of the customer world. Rather, this perspective of customer relationship management looks at how to prioritize investments in customer relationships, marketing activities, and beyond. This should serve as a guide for how to segment customers on a broad basis. Breaking customers into these 4 customer relationship groups and then segmenting further within these groups is far wiser than immediately segmenting regardless of customer lifetime value or potential profitability.