We all have something that holds more value over everything else. This may be a close family member, a prized possession, a family pet, or even a sport. In terms of business, according to Jim Baker in his The Adventure Begins When the Plan Falls Apart, the thing that adds the most value to a company is called a crown jewel. Once business owners determine the service or product that is most valuable, it is then important to discern which customers are willing to pay the most for this crown jewel. In this way, businesses can increase their gross margins.
Most valuable customers (MVCs) can be the game-changing factor for businesses – but who are they and how can you find them? Every company will have customers that come and go for one-time business, but those that make frequent purchases and offer high gross margin percentages are the customers that a business should value and set focus toward. The Pareto Principle, also known as the 80/20 principle, applies to businesses looking to increase their gross margin. Often, 20% of your customers can bring in close to 80% of your revenue. These 20% of customers that bring the most business are your company’s most valuable customers. This is great, however, it is important to note that businesses must not get caught in the loop of only having repeat business.
A perfect example of a company that has identified their MVC or their 20% is Amazon. Amazon allocates all their resources towards the consumer, even if it means sellers and content providers feel cheated. Think of Amazon Prime, Amazon’s popular membership program. Amazon has determined their Prime members, who pay a monthly fee, as their most valuable customers: the average Amazon Prime member spent $1,400 in just the first three months of 2019. As a result, Amazon offers benefits to Prime members, including one day delivery, live events, free movies and music, and more to ensure these customers stay. As Amazon goes the extra mile to reward their most valuable customers, they consistently increase trust, loyalty, and gross margins.
While Amazon demonstrates the success that comes from defining a MVC, Chipotle, a popular Mexican chain restaurant, portrays the consequences that result from a lack of a loyalty program such as Amazon Prime. Around five years ago, Chipotle was distrusted and losing sales due to food quality problems. Chipotle had their winning product: Mexican cuisine that was made from organic locally sourced foods that are made to order in front of customers. However, when a food quality problem unexpectedly arose, those who consistently dined at Chipotle lost faith in the business, and it was inevitably a lack of knowing their top customers that hurt Chipotle more than their problematic food quality. During this time, a program similar to Amazon Prime would’ve been useful to gain back trust and to offer aligned sales to their top customers, which would have made customers comfortable with being back at Chipotle. Without any sort of personal relationship, Chipotle’s sales were consistently diminishing, whereas a customer loyalty program would’ve allowed for assuring their customers in focus of quality on food.
As you may have guessed, there is a good side to Chipotle’s eventful experience. Eventually, they did create a loyalty reward experience, and unsurprisingly improved from it. They identified their most valuable customers as those that came more than 25 times a year, and have offered bonus rewards and free meals for those doing so. Just a few years after the food scare and implementing a loyalty program, Chipotle boosted digital sales by 88% while accounting for 18% of Chipotle’s $1.4 billion in the third quarter of 2019. The loyalty program checks for consumer’s orders, pick-up times, and even offers the possibility of loyalty members to easily gain free orders by simply redeeming 1,250 points (Chipotle loyalty members receive 10 points per $1 spent). Those without the loyalty program are now at a disadvantage. As Chipotle understands who their valuable customers really are, they can offer appropriate sales and promotions that align with the consumer wants and needs!
By learning that identifying your valuable customers is crucial the hard way, Chipotle has been able to implement one of the strongest loyalty programs in the country. If Jim Baker’s book and this article teach you anything, it should be this: identify your company’s crown jewel and which customers add value to it. By doing this, your business will grow by an unimaginable factor!