Drilling for Diamonds

Lots of firms now measure their customer’s willingness to make referrals.

Loyalty Guru Frederick Reichheld argues the one number you need to grow is the number of customers who answer Yes! to this question:

“Would you recommend us to a colleague or friend?”

Marketers however also need to know other key information about referrals.

1. If a customer intends to refer you to a friend or colleague do they actually follow up and recommend you to a prospect?

2. Do these referred prospects actually become customers?

3. Even if the prospect becomes a customer, are they profitable?

These three questions allow you to measure the value of a referral.

Popularity: 12% [?]

The late Peter Drucker told us “the purpose of business is to create and keep a customer.” When businesses forget this fundamental fact they soon fall into decline.

When Lou Gerstner took over IBM in the early 1990’s, Big Blue was in deep strife, about to report its biggest loss ever, $8.1 billion. Here is how Gerstner saw his future:

“In the spring of 1993, a big part of what I had to do was get the company refocused on the marketplace as the only valid measure of success. I started telling virtually every audience…that there was a customer running IBM and that we are going to rebuild the company from the customer back.”

Gerstner went on to pull off one of the greatest turnaround stories of modern-day business, turning an $8 billion-plus loss into a $5 billion gain in 5 years by focusing on the needs of critical crown-jewel customers.

Popularity: 43% [?]

Diamonds show no sign of falling into the commodity trap.

Forbes reports, Guess clothing co-founder just paid $16.2 million for a 84.37 carat white diamond at a recent Sotheby’s auction.

Sotheby’s also sold a 2.26 carat purplish red diamond for $2.7 million to jeweler Laurence Graft.

It seems colored diamonds are all the rage.

Popularity: 15% [?]

What makes an entrepreneurial venture successful?

In a recent survey, fourteen venture capitalists picked marketing as the key business function - above technical superiority and product innovation.

The venture capitalists, who have backed over 200 ventures, ranked marketing 6.7 on a 7.0 scale.

These same venture capitalists said 60% of venture failures are caused by poor pre-venture marketing analysis.

Popularity: 9% [?]

When is comes to segmenting customers by profits and sales, I always start with a four tier segmentation model called DROP Analysis.

DROP is an acronym that stands for Diamonds, Rubies, Opals and Pearls

• The Diamond tier
  (the top 1%) contains your super profitable clients
• The Ruby tier
  (the next 4%) contain your highly profitable customers
• The Opal tier
  (the next 15%) are reasonably profitable
• The Pear tier (the bottom 80%) contains the marginal or
  unprofitable customers

Your DROs (the top 20%) are your crown-jewels. Finding and growing your crown-jewel customers is
the key to accelerated profitable growth.

Popularity: 10% [?]