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Analysis

Rethinking VIPs: When the 80% Suddenly Count

Traditional VIP programs are all based on the assumption that the 20% who spend the most count the most. But with the shifting sands of digital commerce more companies are discovering that the “low-value” 80% customer is quickly becoming the new VIP

Matt McAllister
June 14 2017

A season of puttering about in his garden led Vilfredo Pareto to the insight that 20 percent of his pea pods produced 80 percent of the peas. Over a century later, the “Pareto Principle” has become the rule of thumb in economics, business and, more specifically, VIP programs.

Traditional VIP programs all tend to have the same input: revenue. Customers who spend highly–the 20 percent–are highly valued in turn. And according to Pareto, this is exactly how businesses should behave.

But today’s businesses are different in one way: modern measurement techniques. Especially in digital marketing, companies can see how a variety of activities lead back to revenue: everything from social media activity to everyday engagement. New ways of assigning value often lead to the discovery that a “low-value” 80 percent customer is the true VIP.

Below are four ideas for how non-traditional measurement can reveal new angles for your VIP program.

The popular kids of social media

Social activity is marketing gold. Customers trust peer reviews and recommendations more than any brand ad, and are 92% more likely to buy products recommended by personalities they follow online. Brands who work with social media influencers see a return of $6.85 for every dollar invested in the partnership.

Influence-based loyalty programs are in early days, but plenty of evidence is available for their power. Scentbird, an online perfume subscription service, saw 100 subscriptions in two days after reaching out to a YouTube influencer whose lifestyle reviews were a good fit with their product. For beauty brands, the current trend is reaching out to “micro-influencers”–people with less than 30,000 followers. These influencers are perceived as more authentic than Kardashian-caliber celebrity promoters.

Your hype squad

A customer doesn’t need to have millions of followers to qualify as a VIP. People who constantly like and share content from the brand or leave detailed reviews are more likely to turn into loyal paying customers if they feel like the brand engages with them on social media. And unlike previous years, when calculating ROI from likes, shares, and comments used to be more sorcery than science, today’s marketers operate with more precise methods, like calculating the cost of running an ad to get the same social interaction.

Bulletproof Coffee’s rewards program even incentivizes social interaction. Unlike programs that award points on a dollars and cents basis, the online coffee retailer doles out points for social interactions such as shares, likes, content subscriptions, product reviews and referrals. The system allows the brand, which owes much of its popularity to social media, to identify the most engaged customers.

Long-term romances

Your most loyal fans aren’t necessarily your biggest spenders, but they still matter because of the sheer amount of time spent with your brand. Time is a good indicator of spend, as customers spend more over time than they do the first few weeks into a relationship with your business. And while most time-based loyalty programs still reward points on a dollar basis, some of the best use other methods: Starwood Preferred Guest gives out complimentary nights in exchange for nights spent over time, for instance.

Long-term customers are also less expensive to keep compared to acquiring new customers: winning over new customers costs 500% more than it does to retain old ones, saving you countless dollars in acquisition. Businesses can compute the profit from that relationship through predictive customer lifetime value, a metric often used by brands to decide how much budget to allocate for acquisition.

Reward program enthusiasts

Active participation in reward programs can tell you a lot about a customer. Besides being loyal to the brand, customers who buy into loyalty programs are more engaged by your service/product, spending 5 to 20% more than non-members.

Similarly, VIP programs like Amazon Prime and American Express’ Centurion lets brands zero in on customers who are willing to pay a higher price for added services. This gives your marketing team an idea of who to target with premium offers.

The very best VIP programs today tend to offer multiple inputs for customers: if your business knows the value of a social share or year of loyalty, why not assign it a value? Expanding the definition of a “VIP” not only acknowledges the strength of modern measurement tools — it allows you to reward other valuable types of engagement beyond just revenue, whether that’s social reach, evangelism, longevity or something else altogether.

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Matt McAllister

Matt McAllister is the CEO of Fluid PR, Inc. and twenty-year marketing veteran. Matt most recently ran marketing for Tapjoy, a mobile ad-tech platform. Matt also served as VP of marketing and content for High Voltage Interactive, an online ad network that was acquired by Aptimus, Inc. He started his career as an account executive for the PR agency Niehaus Ryan Wong.

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