Marketing Alchemy: Turning Lead into Platinum

Graduated cylinders and beaker filled with chemical compounds

Alchemy.

For many of us, this word brings to mind images of crazy madmen in the Middle Ages in dingy basements trying to turn base metals into gold. While this may not be too far from the truth, marketers can learn a lesson from the alchemists of old.

In marketing, there is a common rule that says 20% of a company’s customers contribute 80% of the company’s revenue. Marketers often refer to these individuals as “platinum customers.” Platinum customers have a high lifetime value for a company and are relatively cheap to retain. Not only do these customers contribute a significant sum of money to a company, but they also tend to serve as brand advocates. In other words, they are the type of customers that a company wants to attract and multiply. The most profitable 20% of customers can contribute anywhere between 150-300% of a company’s profits! Alas, not everyone can be platinum, despite what their mothers tell them. Marketers also categorize consumers into “gold,” “iron,” and “lead” groups. Customers in the least profitable 10-20% (primarily lead and some iron) can actually reduce profits somewhere between 50-200%! One of the primary jobs of marketers is to convert as many customers as possible into gold and platinum while “firing” the majority of lead customers. So, how can a marketer do this? Below are just a few ways:

  1. Identify metallic propertiesPlatinum has different physical and chemical properties than iron. By identifying the different properties of different minerals, alchemists were able to attempt the transformation of one rock into a more valuable one. Marketers are not much different: they look for customer values and characteristics that consistently appear in platinum and gold customers. Once these have been identified the company can customize products, services, and messages to facilitate interactions between the customer and company. Knowing what the majority of the top customers for a company value will enable that company to find more customers like that, increasing the overall value of the customer base.
  2. Extract the metal from the ore– Gold doesn’t come out of the ground in bars or medallions. It and other metals usually come encased in what is called an ore, which is typically composed of other rocks and minerals. To get to “the good stuff,” the ore has to be removed by fire, water, or electricity. Once a company has identified what its best customers look like, they need to extract them from the mass market. This is best done by carefully designing a marketing mix that captures the attention of platinum and gold customers, is heard by iron customers, and, dare I say, causes lead customers to tune out. For example, when I see a commercial for a law firm or medicinal drug, I automatically tune out. Why? Because, not only do I not need the product, but I have no potential interest in them at this time in my life. However, those commercials are designed to reach the people that are interested and give them all the details and information they need to make an informed decision.
  3. Be magnetic–  Just like magnets help attract and hold a metal, a marketer needs to do the same with consumers. In the “new era” of marketing,  creating and maintaining relationships with customers is essential for any company. Depending on the size of the company, this could look very different. For small companies, it is much easier for the employees to learn the desires and preferences of their customers. For example, there are two restaurants in Siloam Springs (where JBU is) that know what I typically order and the waitress will ask me if I want “the usual” when she comes to take my order. This personal touch not only makes me want to go back to the restaurant, but makes me want to tell others so that they can have the same experience. For larger companies, relationships can be built by leveraging the power of social media in addition to having good CRM (customer relationship management) practices such as loyalty programs and customer databases. Social media enables large companies to create the illusion that they are much smaller than they really are. In a previous post, I wrote about how Taco Bell has been doing this well by utilizing Twitter and Facebook to talk with their customers, respond to customers, and thwart controversy. Though Taco Bell is one of the largest fast food chains in the United States, it can maintain the “small business feel” by connecting with consumers online. As a general rule, the more connected a person feels with a company, the more likely they will be to continue purchasing from them and even begin to be a brand evangelist. Once a customer reaches this point, very little resources need to be spent retaining the individual.
  4. Release the residue- Once the platinum and gold have been extracted and attracted, the residue needs to be dealt with. In terms of customers, iron customers do not necessarily need to be discarded because, thought they have a low level of profitablility, they are desirable to increase sales volume. The tricky segment is the lead group. Depending on a company’s needs in terms of volume, it may need to retain some of it’s lead customers. For most companies, it is best to “fire” the lead customers if they cannot be converted into gold or platinum with the techniques above. They can be terminated by charging them higher fees for services, removing their contact information from distribution lists for special offers, or withhold certain services unless they have surpassed a certain sales threshold. Companies obviously need to use tact when doing this so as not to create ill-will towards the company or create a firestorm on Twitter. It is almost impossible to remove all of the unprofitable customers, but the more that a company can release, the more profitable it will be in the long-run.

Consumer alchemy is an important, sometimes overlooked, portion of any company’s operations and marketer’s job. By taking the time to study and “mine” the customer base, a company can take the necessary steps to develop more satisfied and profitable customers that will ultimately lead to a very shiny bottom line.

-Lawson
Learn It. Love It. Live It.

[image credit: Horia Varlan on Flickr]

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About Lawson Hembree
Lawson is an entrepreneur, ministry leader, and outdoors enthusiast who also enjoys blogging about business, ideas, and theology. Want to continue the discussion or write a guest post? Let's Connect!

One Response to Marketing Alchemy: Turning Lead into Platinum

  1. Pingback: Learn It. Love It. Live It. [Post #100] | Lawson Hembree's Blog

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