Businesses crave customers, and the thought of losing customers can send shivers down the spines of marketers who work tirelessly to acquire them. While customers are important to a business, are all of them the same in terms of their importance? The answer is a resounding "no." Some customers are more important than others because they value your product or service more than other customers and are often willing to pay a price premium because of the value you deliver.
Segmenting your customer base can allow you to tailor promotions that can solidify customers' relationships with your company. A great example is a loyalty program that rewards regular customers with discounts, free products, or gifts. Identifying valuable customers can also be a way to inrease revenues. For example, Southwest Airlines recently implemented two new ticket tiers, Business and Business Select. In particular, the Business Select fare includes double frequent flyer credits, priority boarding, and a drink voucher. The move is an effort by Southwest to appeal to the large business traveler market.
The effects of a move such as the one made by Southwest has potential benefits and dangers. The main benefit is revenue creation. If Southwest sells 10 Business Select tickets on each of its 3,300 daily flights at a premium of $20 over regular fares (a conservative figure), it could potentially realize $240,000,000 in new revenues. This estimate assumes demand for tickets does not change, although Southwest hopes the addition of a Business Select fare will attract new passengers.
The danger is that creating classes of customers can alienate some members of the "lower class." This danger is particularly relevant to Southwest, a company that built its brand in part on equality among customers (e.g., no reserved seats and open boarding process). A move to segment customers could create a backlash of negative response, which has happened to Southwest. This possibility must be considered, and management has to project whether the backlash will be short lived or create negative goodwill that hurts the company.
Labels: Marketing Strategy