The Four Customer Relationship Groups

This post is to supplement the slides titled "Step 5 - Capturing Value from Customers" - 'Building Relationships with the Right Customers" under Topic 01.
Companies can classify customers into 4 groups according to their potential profitability and manage their relationships with them accordingly: strangers, butterflies, barnacles and true friends.

Each group requires a different relationship management strategy.

"Strangers" show low potential profitability and little projected loyalty.  There is little fit between the company's offerings and their needs.  The relationship management for these customers is simple: Do not invest anything in them.

"Butterflies" are potentially profitable but not loyal.  There is a good fit between the company's offerings and their needs.  However, like real butterflies, we can enjoy them for only a short while and then they are gone.  An example is stock market investors who trade shares often and in large amounts but who enjoy hunting out the best deals without building a regular relationship with any single brokerage company.  The strategy to deal with butterflies is to "Make them happy while they are interested, enjoy them while they last. After that, cease investment in them".

"Barnacles" are customers who are loyal but give little profit to the company. E.g. a customer who buys a packet of $0.50 sweets a few times a week from the convenience but nothing else much.  Or the bank customer who keeps a bank account that is a few hundred dollars only or even lesser.  In both cases, the convenience store and bank do not profit much; in fact the bank might lose money because of the maintenance costs of keeping the customer's banking account.  The relationship management for these customers would be to try to cross-sell or up-sell to them, i.e. encourage the customers to buy more.  But if even such a course of action does not bring about increased profits, then the company might consider 'firing' such customers.

"Strangers" are customers who are neither loyal nor profitable.&nbsp; An example of a stranger is a passer-by who does not stay, work or study in the area, but just makes a one-time purchase of a can of soft drink at a provision shop to quench his thirst, unlikely to ever patronise the shop again.&nbsp; Another example are bargain hunters who bargain and haggle over an already low-priced item at a shop which does not earn the business owner much profit, but yet, their next purchase will not be from the same shop again, but to another shop which gives them the lowest deal. &nbsp; The key to dealing with strangers is to differentiate them quickly, and do not invest in them at all.<br />

Finally, "True Friends" are customers who are highly profitable and loyal.&nbsp; An example of a true friend is the Apple fanatic fan who rushes to buy any new product launched by his favourite company, and queues up for hours just so he can purchase the newly launched version of the iPhone or iPad etc, and not baulk at the high cost of his gadgets compared to those of Apple's competitors. &nbsp; Obviously, businesses should treasure these customers!&nbsp; They should constantly delight them, nurture them and retain their loyalty by communicating with them in a regular but yet unobtrusive manner.