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Customer Pyramid

Customer Pyramid

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Quick Overview

The model describes a way to divide customers into segments based on the turnover they create. It’s based on the Paretto effect, better known as the 80/20 rule which means that 20% of the customers create 80% of the turnover.


Related models: AIDA Model7S ModelKnowledge TriangleINKSWOT AnalysisBalanced ScorecardFive ForcesBCG Matrix6W's of Corporate GrowthCRM;KondratieffCustomer PyramidProduct Life Cycle

$5.20

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Details

Customer Pyramid

 

Origin

This model was developed by Jay Curry a marketeer who used his own experiences to create “customer marketing”, a method which puts the customer first because as Curry says,” “without customers, there’s no business to be done”. He developed the ‘customer pyramid’, a tool which surveys customers and uses analysis to improve the way customers are dealt with.

Related models: AIDA Model7S ModelKnowledge TriangleINKSWOT AnalysisBalanced ScorecardFive ForcesBCG Matrix6W's of Corporate GrowthCRM;KondratieffCustomer PyramidProduct Life Cycle

 

The model

The model describes a way to divide customers into segments based on the turnover they create. It’s based on the Pareto effect, better known as the 80/20 rule which means that 20% of the customers create 80% of the turnover.

By segmenting the customers, a pyramid is created. The top features a small amount of customers that are responsible for a lot of turnover. The bottom has a large number of customers that generate much less turnover.

 

The customers are divided into three segments:    

-      Top customers; 1% of the customers good for 50% of turnover;

-      Large customers; 4% of the customers good for 30% of turnover.

-      Average customers; 15% of the customers good for 20% of turnover.

 

The remaining 80% of the customers are sub-divided into:   

-      Minor customers (less than 1%);

-      Inactive customers (purchased product in the past but don’t anymore);  

-      Prospects (have asked for a proposal, but aren’t customers yet)

-      Suspects (people that haven’t heard of the company but are interesting)

The law of large numbers says that 20% of the customers generate 80% of turnover. On the other hand 80% of all promotion is geared toward the 20% of customers that generate 20% of turnover. The customer pyramid allows you to divide your attention more evenly between various customers.

 

What can you do with it?

Insight into the build up of the customer pyramid can be used as an instrument to determine company strategy. Is the focus on maintaining the top 20% of customers or is the strategy primarily focused on bringing the high potentials from the bottom segment to the top?    

A company’s marketing budget can only be spent once. Many companies focus most on winning new customers. Curry argues that a substantial amount of the marketing budget needs to be spent on existing customers.

Of course, you can tailor make the pyramid to fit your own needs. You could, for example, replace the turnover element with profitability. By focusing exclusively on the turnover of the top segment of customers, your view is schewed. It’s interesting to see to what degree the pyramid changes the arrangement of customers. Have a look at a few assertions that can be used in the pyramid:

-     20% of customers produce 80% of complaints;   

-     20% of physical customer contact is focused on 80% of customers.

The pyramid allows you to visualize in a clear and convincing way.     

 

Combine the customer period with other instruments such as the 5, 6, or 7 P’s of marketing. The Personnel aspect is an essential key to customer contact.      

The customer pyramid is a good tool to determine who your biggest and most important customers are. It clarifies the degree to which you are dependent on a given customer. In conjunction with Porter’s five powers model, you can channel the power of your customers into your company. How willing are you to maintain those customers in the top segment? How willing are you to keep them at all? Is your organization capable of allowing customers to flow from the bottom to the top of the pyramid. At the end of the day, the goal is still to maximize profit per customer.

 

Follow these three steps for your marketing strategy:

-      Attract new customers to your pyramid;

-      Allow customers to flow up to the top of your pyramid

 -     Keep your customers.

Curry always says: “Get them in and get them up!”

 

Good luck with this ancient work of art!

 

Related models: 

-   AIDA Model

-   7S Model

-   Knowledge Triangle

-   INK

-   SWOT Analysis

-   Balanced Scorecard

-   Five Forces

-   BCG Matrix

-   6W's of Corporate Growth

-   CRM;Kondratieff

-   Customer Pyramid

-   Product Life Cycle

 

 

Sources:

-       Wikipedia

-       http://www.gertjanschop.com/modellen/klantenpiramide_curry.html

-       Cutomer marketing ook op internet, Jay Curry en Adam Curry, EAN: 9789014076768

 

 

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