The Marketing Book 5th Edition

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570 The Marketing Book

cent would end up in 20 per cent of pockets how-
ever society attempted to regulate matters. To
Pareto, whether all men are created equal or not,
they certainly don’t end up that way.
So it is with customers. Every direct
marketer knows that some customers are much
more valuable than others. Every astute direct
marketer knows who the valuable ones are. The
really smart direct marketer has a system for
forecasting who the valuable ones are going
to be.
Why is this so important? Let’s consider
two examples.

Customers who cost money

Typically, 75 per cent of new customers gained
by a home shopping business will have lapsed
without providing enough business to recover

the cost of recruiting them. All of the profit will

be contributed by the remaining 25 per cent.

If the company learns which are the best

sources of good customers, it can work to reduce

the 75 per cent of loss-making intake. If it fails to

learn, the 75 per cent will become 80 or 85 per

cent, ensuring that the company loses money.

Again, typically, a bank will lose money on

at least 80 per cent of its private customer base

at any one time. By devoting special attention

to the remaining 20 per cent, it can expect to

satisfy more of them and so keep their custom.

If it fails to differentiate between its good (and

potentially good) customers and its loss-mak-

ing customers, it is the good customers who are

most likely to defect.

Figure 22.1 shows a real life example of

segmentation of charity donors based on their

response to the last appeal made to them.

Figure 22.1 Analysis of postal donors to charity