Who Are Good Customers vs Who Are Bad Customers
Your host Damian Bergamaschi & Stephen Yu, Chief Product Officer at BuyerGenomics, discuss what makes a customer either good or bad. As the episode begins we learn that the topic question is a bit of a loaded question. As marketers, we have to dig in and define what a good customer is for your business. Once you figure that out on the whiteboard you have to then prove it with your data. By the end of the episode both them come to a realization about marketing and its ability to set the expectations that customers expect. This is an important lesson that could help you to avoid the bad customers that detract from your business’s success.
Below is a lightly edited transcript of Episode 35 of the Inevitable Success Podcast with Damian and special guest Stephen Yu.
Damian: Today we’re back and we’re going to talk a little bit about different ways to think about what makes a good customer and a bad customer. And I know we kind of independently in the office asked a lot of different people, “Hey what would you consider a good customer and a bad customer.” And we all had slightly different answers to it, which was interesting, and even more interesting, I don’t think any of them were flat out wrong. And maybe if we kind of incorporated all of them together we will have a really interesting comprehensive view of what a good a bad customer is. So with that, kick it off, Stephen what would you say?
Stephen: Yeah well, some people say that “I am a bad customer.” Now that’s interesting. There are no bad dogs right we have bad owners. Same thing here. There are no bad customers. So why are they bad? Are they bad because they don’t spend money with you?
Damian: In that analogy, I’m guessing that the bad owner is that like a good or bad marketer right.
Stephen: Pretty much a bad business.
Damian: Gotcha, I don’t want to say that.
Stephen: There’s the good, the bad, and the ugly but I want to qualify this question with one more word to it which is, bad for what? We want to find out why because we want to sell more things to people right?
In fact, I joked around with my kids, when I’m dead, put “This man sold a lot of things that people don’t need” on top of my grave. Well that’s what we do. Actually, we help merchants to sell things that people don’t need. Well, that’s what we hope happens.
Now is that bad? Well, it gets the economy going, which is a good thing. At the same time if they don’t come back you know of course it’s bad. Good means many things. Again let’s talk about for what later on but let’s put all the qualifiers out in the market and then we decide what primer to use depending on what we want. So let’s start from the top.
Damian: I know some of that is in jest but I’m going to challenge part of that because I think it’s interesting.
Stephen: Absolutely. The first qualifier is the easiest one: People who spend a lot of money. But let’s think about a second qualifier. What if you spent a lot of money only once? The third qualifier. But he didn’t come back recently. All this busy buying behavior that was all three years ago. Is he still good? And then there’s a fourth qualifier which is, yeah but he came a lot three years ago even now he keeps coming back but he only comes back when there’s a big sale. He’s a bargain seeker. Is that good? Well, let’s think about it because you still make money with him. Is it better than not coming at all?
And is he loyal? Let’s talk about that too. What does that mean? That means when he wants to buy certain things, let’s say I’m selling, home audio equipment or, whatever it is. I mean you don’t call it home audio anymore. But let’s say that you deal with an audiophile, does he always come back to you when he has the need in that category? How loyal is he? Well, one more thing, and this is what you and I talked about earlier, will he or would he recommend this store to his friends?
Stephen: So we just talked to about six or seven different measurements of goodness. But depending on what you’re trying to do I think the way you look at these things change a bit. You cannot just go after the big spenders. If you’re in acquisition mode. First of all, you have to show up, as in your marketing has to be in front of the person. Will he respond to our offer? That’s another question. That’s even before they are good, bad, or ugly.
Damian: Yeah, I mean if I had to be general about the types of answers that we kind of came across. One was around, you know, the profitability of a customer and that totally makes sense. Obviously, we want profitable customers, more profitable equals better in most cases, right? Profitability is certainly one way to look at it.
The other way that I kind of put forward was, does that customer amplify your business? Or worse than that, detract? I mean I think in that case the dichotomy between a good and a bad customer is even more powerful. Because somebody that has like low profit versus high profit maybe gets lost. But at scale, if you have people who are amplifying your business where people who are literally like net detractors of your business, that’s a really big difference between those two. And it brought the idea that there certainly are things that if you look snapshot in time, and you took let’s say an NPS score of this person is a net promoter of the business and you could talk more about what an NPS is for people who don’t know. But, if at that point in time this person was a net promoter, what does their data story at that moment in time look like? And I bet you could profile people who fit that you know that high NPS just by looking at the data and then possibly either benchmark it or influenced that more.
Stephen: And that is not just by keeping his transaction history because let’s say you are selling, I mean we’re all wearing headsets now, so let’s just talk about that. Tell your boss you sold some amazing headsets. You just did. Yes and lucky so much so that you know I will actually take time, 10 minutes, and write a review and give them a five-star review because I love it so much. Now at that point, you are a one-time buyer, you just dropped about $300 for a headset but you took the time to write a review, which is favorable. Do you really care what the guy did or bought so far? What are you going to say “Oh its a one-time purchase” so you discount his value? No sir not even in a different dimension at this point, conversely, let me ask you this part, which is a bad review. Have you ever written a bad review for some merchants or service?
Damian: Yes, I have.
Stephen: Now why is that? Why would you bother to write a bad review? Think about it.
Damian: There’s probably different reasons and different situations but in one case I feel like it’s almost like my duty, you know.
Stephen: Right! So does that make you a bad customer or are you being a good citizen? There’s a dichotomy.
Damian: Yeah, I agree. I like to say I’m a good citizen. Said every bad reviewer ever.
Stephen: But let’s not be altruistic for a second. Let’s just think about it as a marketer, why people do that, its because they think there was a mismatch in what the person expected.
Damian: This is such a good segue because I want to go back and challenge something you said earlier. You had made, in jest, you know that you could sell a lot of things that people necessarily didn’t need or want.
Stephen: We can all make a good argument we don’t know why we want the stuff we don’t need.
Damian: Right, but you know it kind of makes me think that a good business is really just a value exchange where the customer gets what they perceive as a higher value than the dollars in their pocket. And really when the customer says that’s good that’s when the expectations were met or exceeded. And when it’s not it’s when there was a miss. So you know ideally, all my best customers are the ones that I’ve met or exceeded the expectations because they’re going to be net amplifiers to my business. And its kind of almost when I thought about it that way it puts the onus back on, I think the business.
Stephen: That’s what I’m trying to say.
Damian: To be good owners.
Stephen: That’s right! What did I say? There’s no bad dog.
Damian: Right. And in some ways, like you know I think we talk a lot about like what tactic could you do to improve your marketing. And I actually think one of the best tactics you could do is to increase your value proposition. Because increasing your value proposition is what by definition it just makes you more compelling. Exactly. If you’re more compelling or at least you exceed expectations are often going to get amplifiers to your business, you should have higher profits. And guess what? You’re bringing value to people. So…
Stephen: And it’s so much easier to market. Yeah. You know the expression you have the product sales itself. Don’t we wish that we all deal with that kind of product? And by the way the other day I recommended this company that we help our digital marketing and I recommended that print to my kids love that they bought it. You know I feel really good about it. I felt like, oh wow. You know what? We’re helping people to sell things that people actually like. Although this is not the cheapest thing in the market and the category. And but they’re good.
Damian: It’s a good value.
Stephen: Exactly! Value is not about oh, this is the cheapest or most expensive, right? The other day and we kind of joked about it, we had a really expensive running around with that. Yeah, but you know we know where the money went. We’re not complete. But how bad is it? Oh my God! This is so bad that I felt bad for the chicken. They died for it.
Damian: You’ve taken that to a new level. Yeah.
Stephen: They did die for it.
Damian: But I agree with you.
Stephen: The point is we always think about it as bad customer, good customer. It’s not a one-dimensional thing.
Damian: How do you find, at scale, customers that really value your product? And how can you increase the value of your product so that you can basically reach more customers?
Stephen: We talked about jokingly the dimensions of defining the customer. We talked about dollars, frequency, recency, the loyalty, the bargain-seeking behavior, and also will he ever recommend your product to others from a scale of 1 to 10. 10 being yeah, I’ll recommend this hotel every single time. That’ll be 10, right?
Now that we know the parameters. and I sound like a broken record. You have to have some measurements in your database to create such a match so that when you need to find those people for different purposes. Ok, am I looking for high-value customers? No, I’m mixing things like I want a high-value customer who also come often and his last transaction they should be less than 12 months ago and his lowest and highest amount of, I imagine should be this. And now I’m saying this in terms of database parameters.
But imagine a situation where you only imagine what a good customer definition is. You can do that all day long. Huge difference, can you actually do it? You have the data sets that are ready for it. Now that is something that we always talk about. You know, all this customer 360 and all of that. What good is it you cannot answer this question? These are very basic questions, by the way. But he just stored the data on a transactional level and now you have to add up numbers by customers who owe you. And also, yeah, I know the lifetime total but do you know what he did the last 12 months, 24 months, 36 months and so forth? When was the last time he bought this item or that item? These things should be like (Snap) that.
You just want it, you get. That’s number one. Number two, let’s not be one dimensional. Now they have all this data arsenal. Let me give you an example of something that everybody experiences, right? Let’s talk about airlines, for example, we all have complaints about it. You know I always have complaints about their customers too. A lot of them are bargain seekers. They’re not loyal. They are on the plane because you just happen to offer the cheapest price to go to Chicago at that day at that time. That’s it. It’s not that loyal. How do you imagine you get your customers? It’s not that easy is it? OK. So people who pay the full price for that ticket. Is that good? What if you only did that once? People who do that often. Right? People have less time between booking from actual flight time. That means that this guy could be a really heavy duty business traveler and I want to him, right?
Then there’s a good old point system. Every airline company has a mileage system so you could easily use the point system. But what if it’s a point of however and that like redeeming a lot of business? Not redeeming any of it is bad too because that means they’re not engaging with you at all. But there are people who are point seekers. OK so let’s talk about that and there are other people who buy extra services, for cash. Upgrades, you know, extra food or wine or whatever that they sell. Are they good? The question that I have all the time is you know that there’s no one answer.
The first quest, let’s not be one dimensional. The second quest, if you want to have say a full price ticket item, is your database ready to answer the question? Because I know for a fact that even an airline, by the way, they have like more two pages full of ticket codes. If you include all the ticket codes that they use with their affiliate program like Expedia, then it’s even more. So the market asks a very simple question, I want to know who paid full price for their flights. And I want to know how many times that person did out of how many flights per year. If you don’t know how to decipher these things you will take forever to do. So, going back to the original question is your data ready for these things?
And the third of course, is that changing the mindset of the users of this data? That said you know what, now that you have all this data, please think about the goals. In other words, OK is that a good customer? For what? For the longevity of the relationship? For the value itself? Or the short term value of the long term value? Or will he do this next year type of thing? Or will he recommend this airline to others? For what is also another very important qualifier to that question.
Damian: Yup I mean even in the airline industry like there are certain airlines that they’re going to be of value to different people for different reasons. I’ll pick two what I would think of is extremes. One would be they get picked on a lot is Spirit Airlines. Just extremely you know, it’s basically it’s all about price and then let’s say like a higher end airline for this more luxury I should say like Emirates or something like that. Sure. Right?
Stephen: Emirates is not that expensive by the way.
Damian: Yeah, I know. But they’re going to have vastly different you know value propositions. Very different customers. They’re going to meet different expectations. The customers themselves are going to have different expectations. And I think getting that right match of the right customers when the expectation of the customer meets the expectation that the brand is setting. Then that’s ok. That’s a good customer.
Stephen: But you know what the bad customer is? I’m going to be selfish and say this. Sure. People who want a Mercedes level car with a budget for the Hyundai Excel. Now that’s a bad customer. You don’t even know what you want. I agree. You know that disparity between what you expect and what you get, well that gets frustrating. You cannot get a Tesla with like $10000. You just can’t.
Damian: Like the expectations minus reality. It’s a happiness philosophy.
Stephen: I don’t want to be too about it but I think the one thing that…
Damian: I agree. You can’t please everybody.
Stephen: We can’t. In a capitalistic society, we are all entitled to something. The sense of entitlement cannot be too bloated either.
Damian: You know what I actually think this is one of the spots where… We covered a lot of stuff here. This is one of the spots where I think marketing in this truest sense can be very powerful because you know communicating something the right way through messaging, creative, even frequency and timing of when you do this can be very powerful and in some cases be almost polarizing to part the sea so you get the good customer and avoid the bad customer.
Stephen: Ideally, you have a really interesting point that I never thought about before, the function of marketing. It level-sets before somebody walks into the store, that yeah this is what you’re getting. If you like it, come. I’m going to make it sound like it’s the most important thing that you ever get. Of course in the market that’s what we’re going to do. But also you kind of mind these things like a guarantee that nobody will promise too much. It kind of levels sets what the value is. This is why you go all the way to Brooklyn to buy a TV set. Why? Because you are a bargain seeker and this guy is sitting in Brooklyn. Problem is that this is the cheapest TV price in New York. Well then, they’ll say it’s not. There’s no conflict. Yes. There’s no good or bad there. But when that disparity happens, everybody is unhappy.
I mean you’re going to get bad reviews.
Damian: Like every relationship ever, most of it is communication. Right.
Stephen: So I mean I didn’t know you meant that. I mean let’s take it on and talk.
Damian: Well like I said we hit a lot. I think next time. Always fun. Makes me think every time we speak and you know I’m going to be more cognizant about setting expectations, communicating the value, and marketing as well making sure the data sets are ready so that I can act on things when I see it. That was a key message.
Stephen: But also, we wanted to provoke some thoughts today.
Damian: You provoke thoughts?
Stephen: Well here’s the thing if you want to learn something please read our blog. Yes. You want to just chat and think about things in a very different way. Maybe this is the right form. I agree.
Damian: Alright. Well, thanks again. Until next time. Thank you.