Recent research from LinkedIn shows that 72% of marketers have had their budgets cut since the start of the pandemic. Yet we also see that CMPs are falling and know that in prior economic crises, brands who continue to advertise in down times gain immense market share.
So, the trick becomes how to make the most out of your now-reduced marketing spend.
The answer? You must focus on your whales.
Whales Are Your Most Engaged and Enthusiastic Customers
Have you ever heard of the 80/20 rule, aka the Pareto Principle? The law states that, typically, 20% of the effort generates 80% of the results. This pattern occurs throughout society. The richest 20% of people hold 80% of the world’s wealth. Twenty percent of criminals commit 80% of crimes. Or, back in the day, 20% of video titles generated 80% of rental revenue.
This same concept applies to your customer base. Your whales – the top 20% of your customer base – generate as much as 70 to 90% of your revenue. Based on our research, there are a lot of other proven benefits to focusing on whales because they:
- Are less price-sensitive, making them more profitable.
- Retain better and buy more often, thus increasing their lifetime value.
- Provide favorable word-of-mouth marketing, leading to lower customer acquisition costs (CAC).
- Want to help you innovate, making new product development more successful.
- Behave more predictably, which presents your CFO with a reliable forecast.
The challenge is that, when we make across-the-board cuts to our budget, we’re losing out on reaching our whales. In fact, we’re making it easier for our competition to swoop in and steal them.
Yes, budget cuts are reality. But the key is to make strategic cuts. Don’t slash from your whales. If you need to find room in your budget, borrow from your barnacles — those customers who are a pain to acquire or serve.
How to Find Your Whales
If you’re going to make a distinction between your whales and other customers, the first step is to uncover who they are. Fortunately, advances in data science make it easy to spot your whales.
One trap is to think your biggest customers are your best. That’s not always true. You have to look beyond just revenue.
How? Start by segmenting your customer base by demographics, firmographics (for B2B businesses), purchase history, and behavior.
For each segment, look at metrics like customer acquisition cost, purchase frequency, average annual revenue, margin, retention, and customer lifetime value.
The segments that are easiest to acquire, most profitable, and stick around the longest are where you’ll find your whales.
In working with our clients, we find that whales aren’t always who you expect them to be!
For a business services firm that offered leadership development training, the bulk of sales and marketing spend was against executives in crisis. But our whale research uncovered it was actually peak performers who wanted the service. By fine-tuning messaging toward this group of whales, the firm lowered customer acquisition costs by 75%.
For a media business in the home renovation space, leadership focused on high-end homeowners. But the data revealed the real whales were local tradespeople, like contractors, architects, and designers. By creating a newsletter focused on the professional market, the brand was able to double its number of readers in just a few months.
For a company in the trucking business, conventional wisdom in the boardroom was to focus on 50- to 60-year-old men, but there was a hidden group of whales: female truck drivers. A new business line focused on this segment led to double-digit growth.
Now That You’ve Found Them, Study Those Whales
You took the time to find out who they were. The next step is to go knock on some doors (via Zoom) and talk to your whales one-on-one. Discover their wants and needs. Ask questions like:
- What got you interested in [your category/industry] in the first place?
- What pain points do you face in this area? What keeps you up at night? Probe on both tangible and emotional problems.
- How does our product help address these issues? What else can we do to help you?
Based on what you learn in these interviews, you’ll be able to create a compelling value proposition for your brand. As you craft your value proposition, keep in mind who you’re targeting (your whales), what problems you solve for them, and why you’re uniquely positioned to solve those problems.
Next, vet the value proposition with your team. Get feedback across departments, from sales to customer support to marketing. Then, send out a quantitative survey to a broader population of whales to validate that you got your messaging right.
Align your marketing message with your value proposition, and the whales will come.
Brands That Know Their Whales, Inside and Out
Sometimes, it helps to have an example in mind as you look to connect with and market to your whales. These companies have figured out exactly who their best customers are, and they do an incredible job speaking to their needs.
Dollar Shave Club (DSC) found that their whales are 18- to 30-year-old men with a few common pain points. Many young men are concerned about costs; they cannot afford Gillette razors. They like the convenience of shopping online, and they hate going out to buy blades — or even worse, forgetting to do so.
Dollar Shave Club created a good-enough product to meet the needs and price point of their customers. It started a subscription razor blade program, which was simple for customers and helped DSC achieve predictable, consistent revenue. They reached their whales with persuasive messaging that spoke to the millennial male sensibility. Dollar Shave Club exploded onto the scene in 2012 and sold to Unilever in 2016 for a billion dollars.
Casinos also build their success on the backs of whales. Indeed, whale as a business term was coined as a reference to the high rollers on whom the casino industry’s business model is focused.
Wynn Resorts, for example, keeps a list of their 50,000 highest rollers, and they do everything they can to make those people happy. Client managers are paid as much as $5 million a year just to manage their needs and expectations.
Why do Wynn Resorts focus on this niche, rather than attracting as many people as they can to the casino? After all, tens of millions of gamblers come to Las Vegas every year. These 50,000 high rollers are far less than a fraction of 1% of all potential customers.
They do it because the whales drive massive growth for them. Casinos give their whales everything they’d ever want to spend gobs of money on. The high rollers return to their casino of choice because they know the casino will provide exactly what they want. And not only do these whales bring their large checkbooks with them, they also bring “fish”— the wannabe-whales who strive to be like the high rollers.
By expertly serving this very small percentage of the total market, Wynn Resorts and other casinos create a very successful business.
Many businesses right now are facing the reality of budget cuts and reduced marketing spend. But as you tighten the belt and pare down investments to preserve cash flow, be sure you are cutting disproportionally! Do everything you can to maintain — or even increase — spend against your whales, and move investments away from your barnacles. You’ll gain share and set yourself up for continuous success.