With Customers, Quality Is Job One

    “With customers like these, who needs enemies?”
    — William Gates III, small business owner

One of marketing’s primary goals is customer acquisition. However, a disciplined marketer knows that such a job description is actually incomplete. A marketer’s real goal is to acquire high-quality customers, and the devil (or your competition) take the rest.

Collecting customers without regard to quality is like collecting rubber bands to create a rubber-band ball: You end up with a bouncy ball that seems full of potential energy, but in the end it doesn’t help you make money. During the dot-com craze for “eyeballs,” companies were throwing billions of dollars into promiscuous customer acquisition, trying to build a customer asset. In reality, they were simply building their own rubber-band balls — good for the collector’s ego, but useless for her wallet.

If I had a dollar for every time that I heard or read a company state, “We’re aggregating a desirable demographic, which we will then monetize,” I would have enough money to retire to my own remote tropical island, where, as king, I would have had any fool who dared use the word “monetize” in my presence drawn and quartered.

What these rubber-band collectors failed to realize is that if an audience of 10 cheapskates and yak herders is worthless, an audience of 10 million cheapskates and yak herders is still worthless. Owning the world’s largest rubber-band ball may get you invited to the state fair, but it won’t make you rich.

I once spoke with the folks at MyPoints. Nice folks, but clearly in over their heads. They were losing a dollar each quarter for every one of their 18 million cheapskate, freebie-loving, I-have-no-life-so-I’m-willing-to-spend-30-minutes-looking-at-advertising-to-make-a-buck customers. When I asked them how they intended to become profitable, they said, with straight faces, “Once we double our customer base to 36 million, we’ll have the leverage with advertisers to become profitable.”

Here’s what flashed before my eyes when I heard MyPoints’ strategy: In the “Saturday Night Live” commercial for “Citywide Change Bank,” the voiceover asks the banker, “How do you make money on making change?” Replies Kevin Nealon, “We make it up in volume.”

Fortunately for MyPoints, even successful companies can fall prey to the misguided notion of acquiring low-quality customers, and United Airlines bought MyPoints to gain access to 18 million yak herders.

Unfortunately, most of us can’t rely on that level of luck and stupidity. We have to create profitable businesses, and that means finding and acquiring quality customers.

Quality customers have three key characteristics: They value your products more than your competitors’ products; they’re willing to pay a fair price for your products; and they’re easily distinguishable from the yak-herding masses.

A classic example is the airline industry’s relationship with business travelers. Using their frequent-flier programs, the airlines were able to identify their most valuable customers (pretty much no one who isn’t a business traveler flies more than 25,000 miles per year), cement their loyalty (just try getting a Premier Executive or Gold Member to switch airlines, and you’ll see what I mean), and sell access to them (just take a look at all the offers you receive in your frequent-flier statement each month).

An online example is internet.com (the owner and publisher of ClickZ), which has made itself profitable by focusing on Internet professionals with spending authority. Internet.com uses self-selection; no one but an Internet or IT executive would want to read the vast majority of internet.com’s content (present column excepted, of course!). Armed, in part, with this valuable pool of customers, internet.com has been able to resist the downward pricing pressures of the online advertising market.

In both cases, the key is not gathering the largest possible number of customers, but gathering the largest possible number of valuable customers. Forget that fact, and you’ll find yourself saddled with your own rubber-band ball of customers.

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