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By Mark Klein, Arthur Einstein & Amy Grainger
Why the rate of change in your customers' behavior can be vital to the pace of your business's growth
A few years ago, Bill Gates, in his book, "Business @ the Speed of Thought," wrote, "If the 1980s were about quality, and the 1990s were about re-engineering, then the 2000s will be about velocity."
Good point. Today, only six years since the book was published, the speed of business has accelerated as he predicted. But velocity is a measure of both the rate and direction of motion or change. And the business person who isn't conscious of the direction in which his or her customers are moving can be in for a rude awakening.
A New Way to Look at Customers
Savvy marketers continually have tried to divide their customers into logical groupings to make their campaigns more efficient and productive. Over time, the demographic and psychographic tools at their disposal have become more and more sophisticated. However, velocity marketing, as we call it, is rooted in a new and different premise: that customers can (and should) be segmented based on their activity and the rate of change of their activity.
Here's an example of why the rate of change is so important. Imagine two cars traveling east on a freeway at 65 miles per hour. Their speed and direction are the same, so they have the same velocity. But suppose that a few moments before, one was traveling at 70 mph and the other at 60 mph. Obviously their velocity is changing in different ways. Now imagine two customers who each made purchases of $1,000 in the recent quarter. But, one of the customers spent $2,000 in the previous quarter while the other's purchases totaled only $500. The velocity of their purchasing is changing at different rates—one is accelerating and the other decelerating. These changes in the velocity of purchasing, including changes in non-monetary metrics such as the time between purchases, reveal much about customer behavior.
Velocity marketing starts from the point of view that traditional demographic segmentation is irrelevant if customers are motionless, sitting on the sidelines. Active customers are the ones making the purchases—they're the ones who matter. Therefore, the first law of velocity marketing states that customers who are on the move, whose velocity is changing in a positive direction, are more likely to buy. After analyzing many companies' housefiles, Loyalty Builders found that typically more than 75 percent of accelerating customers will continue to accelerate in the next period. The more they accelerate, the more revenue they generate. They are prime targets for smart marketers. Some of them may be your oldest and best customers; some may be brand new customers. What they share is velocity.
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