Big Data Analytics The Value of Longtail Customers

Dr. Peter Theisen

When reviewing business with existing customers, senior management usually starts with a snapshot on totals, gains, and losses of revenue by product, territory, sales team, etc. Deep dives into individual top 10 to 20 customers typically follow the first view on aggregated numbers. The longtail of customers, however, rarely gets attention in such meetings. As a consequence, companies typically leave sizeable value potential on the table – often without knowing. 

The situation is quite understandable. Senior management is mostly incentivised by total Revenue, and the commonly accepted Pareto principle suggests that small customers don’t matter enough to occupy the valuable time of senior executives. Furthermore, top executives often personally engage with top customers and naturally need to gain a sufficiently deep understanding of the situation with their key accounts. So, it feels that there is simply not enough time to go deeper into the broader portfolio of mid and small-sized customers.

However, in our experience, insights from a systematic assessment of the long tail customer portfolio typically shed light on critical truths about the business. Also, they help to identify missed opportunities for real quick wins and to increase the overall company’s profitability.

Therefore, executives should ask their business analysts to perform an in-depth analysis of characteristics, patterns, and movements of longtail customers regularly, and include acquired insights in the agenda of business review meetings, at least on a quarterly basis.

Subjects to such analyses may contain the following perspectives:

Pricing – Given the current level of business, which longtail customers enjoy appropriate discount levels and which don’t?

Impact on operations – Which longtail customers are serviced smoothly through standard processes and which customers cause inappropriate levels of work in operations either from exceptionally high number of customer service events or from expensive product or process variations?

Segment specific opportunities – Do characteristic differences between the large customer segment and the longtail suggest that product mix or delivery processes can be adjusted or even simplified to cater to specific longtail requirements?

New opportunities and market trends – Do changes in sales of particular products/services indicate new opportunities or market trends that can be utilized for other segments?

New stars – Which longtail customers appear to be the next star and should be promoted to become a key account?

Through the initial deep-dive, analysts usually gain an excellent understanding of which aspects of the longtail segment matter most for the business. From this insight, companies can derive standardized views on data about longtail customers and include this into management reporting accordingly.

A good framework for regular reviews with senior management is the figure below. Tracking movements of longtail customers along these four categories helps top management to gain an initial perspective to what extent longtail customers create or destroy value to the overall company.

The initial in-depth structured assessment followed by regular reviews of summary statistics on the longtail customer segment offers companies additional ways to identify growth opportunities and improve overall profitability.

With up-to-date big data tools allowing to deep-dive into large datasets efficiently, it is probably only a matter of time until discussions on longtail customers become a standing agenda item in meetings with top executives.

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