We’ve all heard the term ‘VIP’, but what does it mean when it comes to customer service (CS)? And what exactly are the benefits of creating an elite customer list?
VIP customers are pretty much what you would expect – those select few that receive that extra special treatment. They get the special offers, the star attention, and the VIP products and services. By splitting your customers into different groups (known as segmentation), you’re able to pay close attention to some, reward others, and incentivise the rest. And the best part? Services like Google Analytics can do the hard work for you.
Here’s why you really ought to be segmenting your customer base and how exactly to go about doing it.
Why you need a VIP customer base
Customer Lifetime Value (CLV)
Increasing the lifetime value of your customers is the most important reason to create an elite customer list. And, quite honestly, all other reasons stem from this. Not only does a customer’s lifetime value dictate how much they’re worth to the company, it also indicates how much the company should spend on acquiring and – especially in this instance – retaining them. So it’s always important to be aware of the figures, especially since higher CLV’s equal more money for the company.
But how does segmenting your customers aid in that? Segmentation alone allows you to put your customers into more appropriate groups. If you calculate your CLV for your entire customer base, you’re crunching numbers that contradict one another. Some customers make less-frequent, high-value purchases, whilst some are the other way around, and others bring in more referrals. At its most simple, CLV only tells you how much money a customer is making you, based on their purchases from you. So, unless you segment your customer base, you’re not taking any of these extraneous factors into account.
That’s where a VIP customer list comes in. Existing customers make 65% of the purchases from your company. These are the customers that are most loyal to your brand and bring in the most money for you. Their CLV is already high but rewarding them for their loyalty can increase it further. By offering them VIP treatments, you can show them you recognise their custom, you appreciate them, and, most importantly, you want them to come back again and again. As many as 49% of customers have made an impulse purchase after receiving special or personalised services from a brand.
And that’s just one example of how a reward program can increase CLV. If you find that you have a lot of customers who have purchased from you once but have never come back, you can re-target them with incentives or set up a points program specifically for this type of customer. The options are truly limitless.
Customer Acquisition
We all know that customer loyalty is integral to creating a stable customer base. And we know that acquiring new customers is costly. That’s where your advocates come in. Brand ambassadors want to shout about your brand from the rooftops. They’re the kind of customers who will recommend you to their friends, write about you on social media, and leave fantastic reviews time and time again. Understanding who these people are is vital because they can help you win new customers.
We all know that customer loyalty is integral to creating a stable customer base. And we know that acquiring new customers is costly. That’s where your advocates come in. Brand ambassadors want to shout about your brand from the rooftops. They’re the kind of customers who will recommend you to their friends, write about you on social media, and leave fantastic reviews time and time again. Understanding who these people are is vital because they can help you win new customers.
But these customers already love your brand so why do they need a loyalty program? Because now they love you more. Providing them with apps, rewards, or discounts can be the icing on the cake for these kinds of customers. And that can further increase their willingness to recommend you to others. Not only that, but if you identify your brand ambassadors, you can also identify your potential brand ambassadors and you can use your rewards programs to convince them that you’re the business for them.
Retention Rates
So your brand ambassadors help you acquire new customers and they themselves are incredibly loyal to your brand. But what about everyone else? A VIP customer list is only elite if it includes a select few, right? That is true. But it doesn’t mean you can’t incentivise other segments of your customer base to become a part of that list.
How to Segment Your Own Customer Base
Customer segmentation has few rules – you can group your customers into quite a few categories, as long as you have a program that can track the subject chosen. Here are a few customer segmentation techniques for creating an elite customer list.
Money Spent with the Brand
The most obvious way is basing it on the amount of money customers have spent with your company.
You can base this on a few different things, such as the average order value or even the lifetime order value of each customer. And where you mark the cut-off point is also up to you. You could segment the top 10%, 5%, or even the top 1% if you wanted to. It all depends on how many customers you have and how much money they’re spending.
However you choose to segment this exclusive group, it’s important that they’re made to feel like the VIP’s they are. Exclusive offers or discounts, one-of-a-kind gifts, or even specially organised events are just some of the ways you can reward those who spend the most with you.
One of the best things about segmenting based on order values is that any customer has the potential to get to these echelons. By rewarding your top customers, you can also incentivise others to spend more with you so that they can be VIP’s too.
Brand Ambassadors
Okay, we know we already talked about this. But it’s important. We’ve focused on sales – and money – quite a bit, but your brand ambassadors can be customers who aren’t buying as much as your top spenders but still bring just as much money in through customer acquisition. They’re just as important to identify as your top spenders.
Customers want their brands to interact with them – they want to feel like you’re a part of their daily lives. And businesses are capitalising on this by creating programs that improve the sales process and soothe any pain points in their customer experience. This goes beyond a simple summer sale – it’s all about making the customer feel special, like a true VIP. According to Howard Schneider, the Senior Consultant at Kobie Marketing, “customers will remember their experience with a brand long after they’ve forgotten a discount. Companies cultivate true customer loyalty by making customers’ lives easier and making sure each engagement – whether in-person or in-app – is valuable for them…”
Re-targeting
Re-targeting may seem like an odd way to segment your customers but, honestly, it works. Putting customers who have abandoned carts into one group means you can focus solely on them.
The average abandonment rate for 2020 was is 84%, according to a SaleCycle survey of 500 leading global brands. That’s up by nearly 9% since their 2017 survey, meaning the rate is only getting worse.
A program that rewards customers every time they shop with you could be difference between yourself and your competitor. Or you could use a tiered system that allows your customers to make their way up to VIP status.
Either way, by segmenting your customers you begin to understand the needs and desires of every group. That allows you to improve on both your customer service and your customer experience for these customers, thereby increasing your retention rates. And a 5% increase in retention can lead to a minimum increase in profit of 25%.
It’s critical you don’t miss out on a chance to make those conversions. Once a customer shops with you once, they’re 27% more likely to return. That goes up to 54% after three purchases.
Remember how we were just talking about pain points? That goes for this group as well. People who are abandoning sales have a reason for it.
Perhaps your website isn’t working as it should? Maybe you’re not providing enough information with your products? Segmenting this group can allow you to pinpoint patterns and begin to see just what’s going wrong.
So what does that have to do with VIP customers? At the end of the day, some of your cart abandonment may come down to something very simple: money. If customers feel like they can’t afford an item, or can convince themselves that they don’t need it, there isn’t all that much you can do. Although you can introduce sales, they’re not the best solution. But, reward programs can encourage your customers to spend that extra bit of money. If they have enough points to get some money off that shirt that they really want, they’re suddenly much more likely to complete that purchase than they were before.
Examples of VIP Treatment
So now we know why you need to segment your customers and we also know what kind of segmentations you could make. But we’ve only touched upon the kinds of reward programs you could offer. So here are a few popular examples to get you started.
Buying In
This one is perfect for your customers that spend the most with you because it requires your customers to spend money becoming your VIP’s. It works best for companies that rely on repeat business and frequent purchases so that the rewards of spending with you can be reaped. Simply put, this system asks a customer to buy their VIP status in return for rewards such as free shipping, discounts, exclusive orders or pre-orders, and much more.
A “prime” example of this system is Amazon (see what we did there?). Amazon asks its customers to purchase their VIP status through Amazon Prime in return for free, one-day deliveries, video streaming, faster payment options, and even more. And Amazon may even lose money doing this. In fact, spent $9.6 billion on shipping alone in Q3 of 2019. But they make that money back in more frequent purchases. By making the life of customers easier, Amazon encourages their customers to spend more, resulting in a $125.5 billion revenue in Q4 of 2020.
Tier Systems
Tier systems are better suited to your brand ambassadors because they mostly reward loyalty. A tiered system encourages your customers to work their way up through the tiers to become a top-tier VIP. They’re designed to give immediate rewards for signing up – such as offers or discounts – and then work up to much more exclusive ones. They are better suited to businesses that rely on bigger and less frequent purchases simply because they take longer to work.
The best reward programs for tiered systems are within airline companies. Virgin Atlantic is the perfect example. They offer a “flying club” that is free and simple to join and rewards customers the more they fly. When they join, customers can immediately see what rewards they get in their tier and – more importantly – what they will get in higher tiers.
Points Systems
Lastly, points systems work great for all your customers. They’re simple to set up and very effective. They give customers a certain amount of points for money spent, e.g. £1 = 10 points. Those points can later be used to buy items or redeem vouchers of some kind. Points systems are probably the most common reward programs and you’re probably signed up to one yourself. From coffee chains to grocery stores, points systems are king.
But they’re most often used in retail and a great example is Asos. Asos give customers 5 points for every £1 that they spend. For every 500 points, customers receive a £5 voucher to spend on items of their choice. Pretty simple, right? But Asos take it further and combine their points system with a tier system. They allow customers to move through ‘levels’ by gaining points. The more points they have, the higher their level, and the more points they can gain in return (plus some extra rewards on the side). Pretty ingenious really.
There’s really no excuse for not implementing some form of customer loyalty program. It’s the kind of thing that customers look for in a company and the benefits are undeniable. From making your business more revenue, to bringing in new customers, reward programs can do it all.
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