Your VIP customers are the ones who spend the most money on your products or services…
Right?
Well, sort of.
To be sure, the level of profitability a given customer provides your company certainly factors into whether or not you should consider them a VIP. But depending on your current business goals, profitability may not be the only factor to consider. Whether you use the VIP distinction strictly as an internal means of segmenting your “best” customers, or you use the designation in a customer-facing way, it’s essential that you consider everything your ideal customers bring to the table when defining your VIPs.
Throughout this article, we’ll discuss some of the signs to pay attention to that may be telling you that it’s time to redefine your internal definition of “VIP customer.” Before we dive in though, let’s hammer out all the factors that make up a VIP customer in the first place.
What is a VIP Customer?
Some customers are more important than others. As much as we’d like to pretend that “we treat all of our customers the same” (we don’t) or “the customer is always right” (they aren’t), a customer’s importance to a company is only as high as the level of value they provide. Focusing on the customers who provide the most value to your company is just good business. On the other hand, treating all customers the same – regardless of their value to your company – will put you on the fast track to bankruptcy.
When we look at the value that customers bring to our organizations, there are a number of factors we need to consider.
As mentioned, the most obvious factor is the amount of revenue a customer generates for a company. We can break this down even further by specifying customers who:
- Spend more than your average customers in individual transactions
- Engage in more transactions than your average customers
- Stay on board for a longer period of time than your average customers
(Even better: finding customers who check each of these boxes!)
Looking past the monetary value your customers bring to the table, you also want to consider the ways in which they engage with and act toward your company in determining whether they’re “VIP material.” You’ll want to consider how much effort it took to get a customer to convert in the first place. The quicker an individual moves through the sales funnel, the more valuable they’ll be to your company.
Also worth considering is whether or not a customer provides feedback – be it positive or negative – after using your products or services. Given the choice between a customer who consistently provides your business with revenues and one who consistently provides your business with revenues and gives you advice on how to improve your offering, it’s pretty clear who is more valuable to your company.
Finally, your customers who bring more business to your company via word-of-mouth referrals and similar recommendations are incredibly important to your organization. Given that referred customers are generally more valuable than those acquired through other means, we might even argue that average-LTV customers who habitually make referrals are more valuable to your company than high-LTV customers who don’t do so.
While you’ll likely want to at least consider each of the factors we’ve mentioned thus far, the weight you place on each when determining your company’s definition of a VIP customer depends entirely on where your company currently stands – as well as where you’d like it to be moving forward.
When to Revisit Your Definition of a VIP Customer
There are two ways an organization can approach the concept of a “VIP customer”:
A company might simply use the term “VIP” internally, as a way to segment high-value customers. While the company’s marketing and sales teams may treat these customers differently than they treat their “average” customers, the company doesn’t necessarily distinguish these customers in an overt manner.
Or, a brand might make this distinction clear to its customers in the form of a VIP program. While the company will also use the term “VIP” to segment its high-value customers, it also uses the distinction to incentivize customers to become VIPs, as well. In either case, a company’s definition of a “VIP customer” should never be set in stone.
When Your Company Misses the Mark
Once you’ve designated a segment of your customers as VIPs, you may have high hopes in terms of the future value they’ll bring to your company. With these high hopes in mind, maybe you’ll create campaigns and initiatives focused specifically on individuals who fall into the VIP category. Whether you’re aiming to upsell them to increase their AOV, cross-sell them to introduce them to new products or services, or convince them to refer others to your brand, you’ll certainly have several benchmarks in place that will help you determine whether or not the campaigns were effective.
If you fail to reach these milestones, your initial reaction might be to assume that something went wrong as you rolled out your new initiative. You might want to step back a bit further, however, and reconsider your definition of a VIP customer.
Your definition of a VIP might be a bit too specific. You may not have exposed enough people to your VIP campaign – making it nearly impossible for you to achieve your goals for the campaign.
Along with this, you may have missed out on the value that customers who fell just below your “VIP” threshold may have provided. For example, if you focused a referral campaign on only those who responded with a score of 10 on your recent Net Promoter Score survey – and excluded those who responded with a score of “only” 9 – you’ll have almost certainly missed out on a decent number of potential referrals.
If your definition of a VIP customer is too broad, your expectations for a campaign or initiative might be too high. Again, it would probably be a mistake to assume that those who responded with a score of 8 are “close enough” to be considered Promoters, as this would likely cause you to overestimate the amount of referrals you’d generate from marketing to these individuals.
Also worth noting is that having too broad a scope when defining your VIP customers essentially defeats the purpose of designating customers as VIPs in the first place. The entire purpose of doing so is to create highly-targeted marketing campaigns that attract and engage those infatuated with your brand; grouping “on-the-cusp” customers in with your raving fans just because they’re “close enough” is simply poor practice.
If we’re looking at a company that has created a customer-facing VIP program (in which customers become VIPs by taking specific actions as defined by the company, in exchange for discounts, freebies, etc.), the same ideas apply – but the perspective is a bit different.
Perhaps you’ve set your standards too high – causing fewer customers to want to do what it takes to become VIPs in the first place. Typically, one of the goals of a VIP program is to get those “on-the-cusp” customers to provide just a bit more value to your company – but if reaching “VIP level” entails drastically increasing their level of engagement with your brand to the point of discomfort, it’s just not going to happen.
(As a quick side note, a 2016 study of customer loyalty programs found that “on-the-cusp” customers who deem companies’ VIP programs too stringent sometimes become resentful, and end up doing less business with the company moving forward.)
An especially lax approach in granting customers VIP status defeats the purpose of having a VIP program in the first place. However, in addition to potentially being too broad with your marketing campaigns and initiatives, having a low threshold for VIP membership also means you’ll be providing discounts and whatnot to customers who don’t necessarily “deserve” it, and you can end up losing your company money in the long run.
When Your Company’s Goals Change
As your company grows – the way in which you generate an increase in revenues will almost certainly change. At any given time, your company may be focusing on one (or more) of the following:
- Increasing your retention rate
- Increasing your average order value
- Introducing new products or services to your current customer base
- Gathering feedback and making improvements accordingly
- Generating new business via referrals
As we touched on earlier, finding customers that check all of these boxes is quite a rare occurrence. More than likely, you’ll have customers who provide sufficient value in two or three of these areas (e.g. a long-time customer with a high AOV, and an increased propensity to try new products), but may need a bit of prodding in another area (e.g., giving feedback and making referrals).
While your ultimate goal is to eventually enhance each of these areas across the board, the way to do so is to focus on enhancing one at a time.
This means your definition of a VIP may change depending on your current focus. And, as your definition of a VIP customer changes, you’ll also change:
- The way in which you engage with your customers
- What your customers need to do to be considered VIPs
- What you offer your customers to incentivize their increased participation/engagement
For example, back in 2016, Starbucks tweaked its VIP program, choosing to focus on incentivizing an increase in average order value – not just repeat purchases. The company’s initial VIP program awarded a set amount of points per transaction – whether the customer spent $3 on a plain ol’ black coffee or $25 on a family-sized order. As of April 2016, Starbucks now awards customers points based on the amount of money they spend (per transaction, as well as on an ongoing basis).
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While there was admittedly a bit of backlash during Starbucks’ rollout of the revamped system, the outrage has subsided: in terms of brand value of fast food chains, Starbucks currently ranks second only to Mcdonald’s.
Of course, you could try to tackle more than one of your goals at a single time, as Run Everything Labs does here:
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The fitness-focused company allows customers to “choose their own adventure,” so to speak, as to how they become VIP members. Still, it’s worth noting that some actions (e.g., making referrals) are incentivized more so than others – which means that REL sees referring customers as its largest asset as far as VIP customers go.
If you don’t have a loyalty or VIP program and are just using the “VIP” term to designate a highly-valuable segment of customers, you could create multiple VIP segments based on whichever goal you’re focusing on at the current moment. For example, you might have “high AOV VIPs,” “referring VIPs,” or “reviewer VIPs.”
By identifying which of your customers are more likely to take a specific (and preferred) action, you can focus on keeping them engaged with your brand on the whole and continuing to do what they do best.
A “Meta” Approach to Defining Your VIPs
Looking at things from a different perspective, the ways your customers engage with your brand – and the way this behavior changes over time – may also play into how you define your VIP customers.
You don’t necessarily want to “disqualify” a customer from your internally-created VIP segment(s) because they haven’t recently taken a desired action – or even if they haven’t yet taken the action in the first place.
Your top referrers aren’t going to make referrals all the time; your high-AOV repeat customers might go through seasons of inactivity for one reason or another; your loyal reviewers, of course are only going to create reviews after purchasing a new product.
Define your VIP customers based on their propensity to take a specific action – not whether or not they frequently take this action. For example, rather than defining a VIP as “a customer who makes x number of referrals over z amount of time,” you’d consider a VIP to be “a customer who has shown a likelihood of making referrals.” Yes, it’s a bit more broad – and a bit more subjective – but it’s a more realistic approach than boiling people down to quantitative figures.
Now for the “meta” part:
Since you’ll be defining your VIP customers as those whose characteristics match that of your “ideal customer,” you’ll be more capable of identifying future VIP customers right from the start.
You can use what you know about your current VIPs in order to cater to the needs of these up-and-coming brand loyalists. In turn, you pave the way for potential VIPs to fulfill their destiny in becoming some of your most valuable customers.
In the same way that Neo from The Matrix was “The One” all along (without even knowing it), your VIP customers are already VIPs when they first come to you-you just need to get them to prove it.
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