Segmentation and CRM

I recently had an experience with customer service at Apple that reminded me of lessons I’ve learned on segmenting customers.

My iPhone broke after a few months of use; the home button stopped responding. The last three months in my life have been hectic, so I just worked around the problem for a while.  By the time I got around to going to the Apple store, my warrantee had expired about a month earlier and the sales manager told me it would be $150 to replace it.

At the risk of sounding like a jerk, I spend a ton of money on Apple products. Between work and my personal computing, we have three Macbook Pros, two iPads, two iPods, two iPhones, a Mac monitor and a bunch of peripherals like keyboards, music, in-app purchases, etc. I’ve also been buying Mac products since the late 90s.  As I attempted to negotiate with the genius bar manager, I gave him the inventory list of Apple products that we have, to which he replied “well, we treat everyone the same”.

Really?!?

This is money left on the table in my opinion.  Every non-commodity supplier, not just service companies, should leverage some type of customer relationship management technology and/or processes to ensure that they don’t treat all of their customers the same.

Think about it from the Apple example:

A number of iPhone users purchase a single Apple product which is subsidized by a carrier.   A  lot of those customers will move to Android for their next phone.  Not all of them, but a bunch.  A one time iPhone consumer will gross $600 in revenue for Apple: $200 from the customer and $400 from AT&T. Apple runs a 26% profit margin, so for a one time apple purchaser, Apple will pull $126 in total profits from that customer, then say goodbye.

Assuming that I continue on my current Apple purchasing trajectory, I would probably get a new laptop every three years, a new phone every two, and a new tablet device every few years (let’s say four).  I’ll hopefully be around for a few more product cycles, but just taking the next 20 years that’s about six laptops that we can  round to $2,000 each, ten phones at $600 each and five tablets at about $600.

Assuming that prices don’t rise for 20 years (woohoo!), and using a discount rate of 8% (good luck finding 8% returns anywhere), then my present value in profits to Apple is about $3,000.  

Device
Laptop  $14,000
Phone  $6,000
Tablet  $3,000
Total Revenue  $23,000
Total Profit (26%)  $5,980
Discount Rate 8%
Present Value of me, in profits, to Apple  $2,942

 

 

I’m consistently perplexed as to why companies work so hard to treat everyone the same, especially when they have so much data to work with from existing customers’ purchase behaviors. I made this discount model in two minutes using excel.  Apple has all of this data and is the biggest tech company in the world, but doesn’t bother to do anything with it.

I unwrapped my first Android phone today. It wasn’t an effort to spite Apple, and the reality is that I’ll continue to purchase a bunch of Apple products. With that said, it’s surprising to me that Apple and lots of other companies don’t make better decisions with the ocean of data that they have on their customers.  I believe there are big opportunities for companies that leverage customer data in smart ways and learn to extract full lifetime value.

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