Prioritizing Customers

Prioritizing Customers

Who are your most important customers? Most executives would probably be able to provide an answer to that question quickly, but the follow up question – Is that answer accurate? – might be more difficult to confidently address. The truth of the matter is that identifying your most important customers should be a more deliberate exercise than simply knowing who currently spends more money than your other customers. In order to accurately identify your most important customers, you should go through a customer prioritization process. This process, when done thoughtfully, can be a catalyst for positive change across many areas within a company.

Before going any further, it is important for us to define customer prioritization. While customer prioritization “segments” your customers, its purpose is very different from traditional customer segmentation.  The purpose of customer segmentation is to understand the different groups your customers can fall into and how you can engage with each group. Customer prioritization’s purpose is to understand how you should divide up your resources and efforts across customers in order to achieve your company’s objectives.

Customer Prioritization Process’ Seven Questions

The customer prioritization process retains plenty of art alongside science, but we have found that asking the following seven questions – in this order – consistently leads to the desired outcomes.

Customer Prioritization Process’ Seven Questions:

  1. Does customer prioritization make sense for my company?
  2. Which customers should I prioritize?
  3. What is the criteria I should use to prioritize?
  4. How should I weight my criteria and create an index?
  5. What should the thresholds be for my customer groups?
  6. How do I get the entire company to use the customer prioritization?
  7. When should I revisit the prioritization process?

The first two questions–which we will respond to in this article–focus on setting the context for customer prioritization. Questions three through five–which we will discuss in a later article–address the methodology of prioritization, and questions six and seven–which also will be discussed in a later article–expound on the application of prioritization.

Question 1: Does customer prioritization make sense for my company?

The goals and benefits of doing a customer prioritization can depend on a number of different factors, but research has shown that customer prioritization “(1) affect[s] relationships with top-tier customers positively but does not affect relationships with bottom-tier customers and (2) reduces marketing and sales costs.”[1]

We believe those are compelling reasons to at least build a hypothesis statement based on the following question:

How likely is it that reallocating my resources disproportionately to specific customers will grow my business and/or significantly reduce overall operational costs?

If you believe the likelihood is high that business will grow and/or costs will be reduced, it makes sense to consider the customer prioritization process. With that said, it would be wise to find examples and analysis that could support that belief. Not only will the examples help to justify going through the customer prioritization process, but they will also give leaders throughout the organization talking points to respond to internal questioning as to why customers are treated differently. You will also be able to clearly articulate the goals and benefits you are trying to achieve which is critical for the rest of the process.

Question 2: Which customers should I prioritize?

After determining the goals and benefits you are trying to accomplish, the next step is to determine which pool of customers you will be prioritizing. Ideally, all of the company’s customers should be prioritized at the same time – providing the greatest benefit. With that said, product differences or geographical constraints may justify selecting only a portion of customers for the initial prioritization. Refer back to the desired goals and benefits to finalize this decision.

Stay Tuned…

At this point you should be able to justify whether or not customer prioritization is appropriate for your circumstances, and you should have decided on a specific population of your customers to prioritize. In later articles we will address how to perform the prioritization and how to use it.

[1] Homburg, C., Droll, M., & Totzek, D. (2008). Customer Prioritization: Does it Pay Off, and How Should It Be Implemented? Journal of Marketing, 110-130.