Every Business Has Only 3 Types Of Customers
Which type dominates your business?
I’m sure as a business you have multiple customers who fall under the same revenue bracket. They must be spending similar but, does that make them all equal?
Heavens, No!
So what differentiates them?
You must understand that not all customers are totally impressed by your brand or your service. Some are, many aren’t, in most cases. But the one fact that remains constant is that word of mouth plays a very big and critical role in a business’ growth. According to my research and studies by my organization Engaged Strategy, word of mouth referrals are 4X more powerful than TV advertising in influencing purchase decisions. This means that whether a customer of yours refers you or not to other prospects is a BIG DEAL.
To make the most out of this Big Deal, you need to have the mindset of one who does not merely look at billed revenue, but rather at the more critical business growth measure, which is, Customer Lifetime Value (CLV) economics. This essentially refers to whether an existing customer of your brand is likely to be loyal and repurchase from you, leaves you positive reviews, shows propensity to buy additional products and services from your brand, and also recommends your brand highly to others who may benefit from the products or services you offer; or, does just the opposite and discourages prospective customers from doing business with you.
Imagine a scenario where one of your customers recommends you consistently to their contacts and has brought in six other new clients in the last year. Would you treat this specific customer differently? The bigger question is, do you even know who this Super Promoter is? Alternatively, one of your clients may have stopped six new sales because they bad mouth your brand at every opportunity. Do you know who this is and why he/she is unhappy?
I want you to think of any three products and/or services that you regularly use and peg yourself onto the value chain of their business based on the following:
– Why did I decide to do business with this brand in the first place?
– If given an opportunity, will I quit this brand and move on?
– Have I, or will I, ever recommend them to anyone I know?
For example: Your medical insurance may be part of a group insurance from your organization. That said, if you move jobs, will you consider renewing your membership with this medical insurance provider and move into a personal medical insurance cover? Alternatively, if a friend from another organization asks you to recommend a group medical insurance provider, would you recommend this brand?
The ‘yes’ or ‘no’ to these answers are dependent on which type of customer you are for each of the three brands that you thought about for the above exercise. Essentially, you, just like every other customer for every business in this world, fall under any one of the three types. These are:
Each of these three types of customers are totally different, with different personalities. Let me break them down for you.
AMBASSADORS are customers who love your brand. Your brand’s value proposition resonates with them, they benefit from your products and services, and they buy more from you with absolute faith that you will deliver to their satisfaction as always. They are also the people who will line up to buy any new product or service you are set to offer, and they will also defend your brand from negativity. More importantly, they spread positive word of mouth, leave you great reviews, and refer your brand to everyone that they believe can benefit from your offerings.
AGNOSTICS are those who walk the middle path. They think your brand is good, but definitely not great! These are customers who will stay with you until a better offer comes by. This means that they are pretty mediocre on the loyalty factor and will happily leave your brand. They neither talk good nor bad about you, but rather watch the game as bystanders, looking for a better opportunity. If the opportunity comes from your brand, they take it; if it comes from elsewhere, they move.
DISPARAGERS are essentially customers who are trapped and just don’t find an opportunity to leave. This could possibly be attributed to a brand holding monopoly or the customer being tied to the chair via a contractual agreement. While they continue to look for ways to break the shackles, they do a lot of damage via every conducive opportunity by spreading negative word of mouth and also by not re-purchasing or buying additional products or services from you.
At this stage if you are thinking what if a specific brand has more Ambassadors than Disparagers, how would it have a negative impact, then you are thinking in the right direction. There is, however, an important consideration. Ambassadors definitely spread positive word of mouth, but remember that bad news sells! According to our studies, we have found that one negative recommendation requires 5 positive recommendations before a prospect will consider your brand. Hold onto this thought and remember that every brand, including an Apple or Amazon or even a Microsoft deals with these three types of customers, while I explain to you the economic value that each of them add to your business.
Now that you understand the three types of customers, the key consideration here is that your business is constantly engaged in a tug of war between the Ambassadors and Disparagers. Your business growth totally depends on which end of this rope has more people and which end is stronger. If your engaged customers are stronger, your business will grow well. If your disengaged customers are stronger, then your growth will move in the negative.
Before I explain further, let me share with you the average economic lifetime value of each of these types of customers. When you consider this holistically, you look at current revenue, loyalty, word of mouth and share of wallet. According to our studies, I have found that typically:
Ambassadors – the highly engaged lot of customers – are worth at least 2X your average customer. This means that they buy twice as much as what your average customer buys and also stay with your business for a long time.
Agnostics are worth only an average customer and have an average lifetime value.
Disparagers are worth one negative customer with an average lifetime value.
Of course, the above analysis needs to be tailored for every industry type and brand. Now that you understand the economic aspect of each of these three types of customers, let’s face the BIG Challenge. Answer the following questions:
- How many of each customer type does your business actually have?
- What exactly is creating an Ambassador or Disparager for your business?
The first answer may be not too difficult to wild guess. However, the answers to the second question have always encouraged my clients to look at their business with a whole new lens. And, why? Well, that’s because knowing what aspect of your business is creating Ambassadors or Disparagers impacts your business growth curve. Finding chinks in your business operations such as broken processes, poor delivery at a key customer touchpoint, is it a specific product or service that does not appeal to your customers any more, or is it specific frontline staff that are creating disparagers via bad experiences?
On a positive note, understanding what elements of your business delivery are most appreciated by your customers, especially your Ambassadors, will also benefit you in scaling up that offering and enhancing your customers’ experience with your brand. Imagine knowing exactly which sales and service staff are creating Ambassadors and exactly how they do it? This can enable you to share best practice. e Essentially, understanding exactly what is working and what is not working for your brand will help you manage your growth strategically.
Growth Insights
So how do you identify such critical data and draw insights that can be strategically actioned? I conduct two critical surveys to enable this:
1. Strategic Relationship Surveys
In this survey, we customize and craft response-evoking questions and statements that help to measure key touchpoints, critical brand attributes and value proposition elements. In addition to this, it is important to measure their engagement indicators that can identify Ambassadors, Agnostics. These include:
- Extent of customer loyalty towards the brand Customers’ likelihood to recommend the brand to others
- Actual recommendations made
- The brand’s share of wallet. This means what percentage does a customer spend on products or services offered by a particular brand vis-à-vis its competitors
- Competitor rating
The above can be achieved via a customer survey or a competitive benchmarking study that includes comparative scores. Insights from this survey help a brand understand if and how they stand apart from competition in the market they operate in, and the extent of impact their competitors have. These responses also determine the extent of a customer’s engagement or disengagement from the brand.
2. Key Touchpoint Survey
Every point of a customer’s interaction with your business is a critical juncture to deliver great customer experience. For instance, let us assume you are looking for a life insurance cover. In your process of identifying one that suits your requirements, you contact multiple providers. Based on your interaction with them, you shortlist a select few.
At this stage, you begin to lean towards a particular brand, but you find their interaction lukewarm. On the other hand, another brand on your shortlist not only shows proactive interest in your requirement, but also offers you a host of ancillary products, thus, winning you over as a customer.
Furthermore, after acquiring you as a customer, the brand communicates with you regularly, providing you with important information about your investment, tips to enhance your cover, and general enquiries to ensure you are constantly engaged with your fund. The brand also ensures that the customer support connects with its customers in quick time and takes the required amount of time to answer every query to the customer’s satisfaction.
In order to identify these key touchpoints that are critical for the customer, be it the ease of using a mobile app, information available on the website, functional interactions, etc., I advise my clients to conduct comprehensive Key Touchpoint Surveys after every interaction. This is especially critical for businesses that have high volumes of customer interactions, where action can be initiated as soon as a response comes in, thus discouraging the further creation of Disparagers who can negatively impact your brand.
While surveys are the best way to find strategic insights, there are two other practices that I encourage my clients to practice to ensure a healthy growth of their brand:
3. Critical Alerts
The crux of these alerts lies in the holy task of –If your customer is unhappy, contact them and find a resolution, communicate regularly with status updates, and make them HAPPY.
But this is not just about identifying the chinks. It is also a great way to find insights from your Ambassadors. Armed with this data, if your brand can thank them for their feedback, it instantly enhances the emotional connect with them that you took the time to read their survey response and reach out.
4. Customer Forums
If you look at an Adidas or a Nike, or even a business leader such as Anand Mahindra or Kiran Mazumdar Shaw, you will find one thing in common with all of them – they constantly engage with the people via multiple channels and forums. These people include their existing, past and prospective customers, constantly building on the recall of their brand and connecting with them at an emotional level.
While this may not be the case with many brands, what you as an organization can do is probably form a customer advisory group and encourage informal discussions with small clusters of your customers to obtain critical, strategic feedback.
But what do you do with all this feedback and insights?
Now that you have all the data and have drawn critical insights from them, it is time to take strategic action. Let us say for instance, after a key touchpoint survey, you find that of your 50 salespersons, five of them have been rated extremely high by your customers for the services they offer. What are they doing right? What are their best practices? Bringing them onto a platform where they can share their practices with the rest of the team can help your sales team upskill and perform better.
What if your business has a high number of Agnostics? Here, it is critical that you identify those two or three things you need to do to engage them better and win them over to your Ambassador pool. This segment is great to understand what you need to do to go from good to great.
When it comes to Disparagers, once you identify the chinks and what is forcing them to detract, go ahead and find a fix for whichever elements you can. Remember the statistic I mentioned earlier in the article that negative word of mouth spreads much faster than a positive comment. Even if you can convert them into an Agnostic, it would still benefit you largely by reducing customer churn, reducing negative word of mouth, and improving their customer lifetime value.
If you treat this like strategic conversations with each of these three customer types and then take action, it can become a powerful growth engine for your brand.
Christopher Roberts
Managing Director, Engaged Strategy
Contact us at enquiry@engagedstrategy.com.au
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