VIP Customers: How to Identify Them and How to Treat Them (2021 Guide)
Every business has those extra-special, extra valuable, VIP customers. They’re the ones who generate the most revenue for your business and the ones worth rolling out the red carpet for.
The problem is, how do you identify them and how should you treat them to make sure they’re with you for life?
In this guide, we’ll walk you through everything you need to know about VIP customers – who they are and why they’re so important, how to identify them, and how to treat them to drive retention, satisfaction, and profits for your business.
We’ll cover some ideas for the incentives and rewards to offer your VIP customers and how to communicate with them.
We’ll also look at how you can use the data you gather, from the metrics you use to identify your VIP customers, to target new high-value customers, and drive your existing customers towards becoming the most valuable to your business, and your bottom line.
Let’s dive right in:
What Defines a VIP Customer?
In simple terms, VIP customers are those who bring you the most value. Depending on your specific business and niche, your most valuable and profitable, customers may be:
- Frequent, loyal buyers who don’t necessarily spend a lot on each purchase but their repeat purchases add up over time to a high customer lifetime value (CLV).
- Big spenders who make infrequent but high-value purchases.
- Advocates who send new business your way or create valuable social proof for your brand.
- Satisfied customers who require little after-sales support and cost you less to retain.
- High profile customers whose patronage is a valuable endorsement for your business.
On the other end of the spectrum, your very unsatisfied customers, who are a liability in that they’re likely to take to social media and damage your brand reputation, should also be given VIP treatment as preventative damage control.
Your VIP customers may be any one or combination of the above. When you’re considering who to give VIP treatment to, ask yourself who brings you the most value? Who would you miss the most if they left?
Those are the customers you should work hardest to retain and who should get the best perks and exclusive, VIP treatment.
Why VIP Customers are So Important and Why You Should Treat Them Like Royalty
Your VIP customers are your most valuable customers. They generate a high percentage of your profits and often drive new leads to your business, reducing customer acquisition costs. These are the relationships you want to nurture, strengthen and retain the most.
A formalized VIP customer program or strategy is a great way to build those relationships, retain those customers and motivate other customers to achieve that VIP status.
The benefits of identifying who your VIP customers are and giving them special treatment include:
- Ability to provide them precisely targeted and personalized communication
- Tracking their customer journey to find others like them and to move others to VIP status
- Improved customer satisfaction and engagement
- Reduced customer churn rates for premium customers
- Higher customer lifetime value
- Greater advocacy, social proof, and referrals
- Increased sales and revenue when customers buy more to achieve VIP status
- Improved customer relationships and better overall customer experience
- Increased customer loyalty and long-term customer retention
Identifying your VIP customers gives you insight into where they came from, how they came to be your best customers, and where to find new customers like them. It also allows you to identify which customers have the potential to be your next VIP customers and how to personalize their experience to push them towards becoming VIP customers.
Rewarding and celebrating your VIP customers makes them feel special and appreciated. It motivates them to stay with your business and share their positive experiences with others, driving higher profits and increased sales for your business.
How to Identify Your VIP Customers
So, how exactly do you identify which customers in your database are the most valuable and the right ones to extend VIP treatment to?
This question comes down to accurately segmenting your existing customers to see which ones are generating the most profits for your business.
There are several metrics to track when you’re assessing the value of each customer (more on that below) but the main aim is to define the customers who:
- Are currently active and engaged
- Spend frequently
- Spend a lot
- Generate value in ways other than direct purchases, such as social proof or referrals
- Are currently inactive but have high potential if they can be retargeted effectively
- Customers who fall just short of VIP status but have the potential to get there
Providing VIP treatment to your customers can cost you more than your average customer is worth. Accurately identifying the right customers for your VIP customer program is essential for your bottom line and the success of your program.
When you’re assessing metrics and segmenting your customers, you need to make sure that you’re assessing activity within a finite period, which is usually the past 12 months. This allows you to weed out customers who are no longer active but still include those who have been active recently enough for retargeting.
You should also decide what your thresholds should be for someone to be eligible for your VIP program and if this should be a fixed or dynamic threshold.
A fixed threshold can be something like “customers who have spent over $1000 (or customers in the top X% of spenders) in the last 12 months” and will this will be reassessed in 10 months (or any fixed term from the date of assessment). A dynamic threshold is frequently reassessed and VIP eligibility is frequently adjusted, on a weekly or monthly basis.
There are pros and cons to using fixed or dynamic thresholds and the one you use will depend on how your business operates and how fine-grained and flexible your assessment of VIP customer eligibility needs to be.
Right, let’s look at the specific attributes and metrics you can track to segment and identify your VIP customers:
Which Metrics Use When Identifying Your VIP Customers
To find exactly what defines your highest value customers and by extension which customers worth including in your VIP program, you can track and measure the following metrics.
Look for which customers stand out above the average and how many or what percentage of your customers stand out. Sometimes you will find a clearly defined group that far exceeds others for a particular metric and sometimes you will find more than one group that stands out, by varying degrees.
If you have more than one group, you should consider a tiered VIP program, designed to push those on the lower tiers up, to make the most of their potential and your potential profits.
With the above in mind, here are seven metrics to assess:
1. Number of Purchases
The number of purchases over a set period and the intervals between purchases will give you insight into which customers are buying from you most. These customers might have a high purchase value every time they buy but their cumulative spend and lifetime value is likely to be higher than average.
These customers are also your loyal customers, who are usually your best advocates and add value to your business by referring others and leaving positive reviews or other social proof for your brand.
It is also useful to compare long-term customers with new customers when you’re looking at this metric so assess the overall trend in purchase frequency – if someone has a steady rate over 12 months that higher than average for the 12 months, that steady rate might not be higher than average for the last 6 or 3 months, which is useful to know.
2. Average Order Value
The average order value (AOV) looks at the amount a customer spends on each purchase. Look for the customers who spend a lot each time they buy, even if they don’t buy very often. These customers are more valuable than the ones who buy frequently but spend small on each purchase.
It is also important to note if they’re buying at full price or marked down items. Customers who buy full-price items contribute more to your profits than those who spend a lot on items where your margin is lower due to a sale or discount (more on this below).
3. High Profit Purchases
Every business has customers who only buy when there is a promotional discount. These customers may well buy frequently and even have a high customer lifetime value (CLV) but they’re not the most valuable to your business in terms of the profit they generate for you.
Look for customers who have a history of buying from your most profitable lines and those who regularly buy items at their full price rather than only when they’re marked down.
This kind of data will help you identify your most valuable customers in terms of their average contribution to your profits (rather than sales) and it will help market your products more effectively to them. Don’t offer someone a discount if the price doesn’t really matter to them and they might find something that costs you less more appealing!
4. Customer Lifetime Value
Customer lifetime value (CLV) is one of the most reliable metrics to use when defining your VIP customers. Customers with a higher-than-average CLV are those who will contribute the most to your bottom line if they’re effectively retained. Including these customers in your VIP customer program will strengthen that relationship, increase retention and secure the long-term profits they have the potential to provide.
5. Type of Products Purchased
Customers who buy from your most profitable lines, be that lines with the highest margins or lines that cost the least to house or in marketing should be considered high-value customers. This data needs to be correlated to purchase frequency and average order value to be meaningful enough to warrant VIP customer status but it is a very useful metric to measure.
6. Indirect Customer Costs – Support and Returns
Sometimes, customers who buy frequently or spend a lot can seem like high-value customers but when you take into account their after-purchase behavior they’re not so valuable. Customers who frequently return items or require a very high level of assistance and support cost you more than those who don’t. This impacts how valuable they are to you, in real terms.
They’re also the customers at the highest risk of becoming frustrated with your company, which will either lead to churn or negative social feedback. Investing in these customers may make them happier and less likely to give you bad press or it can mean wasting resources on a customer that’s “just not worth it”. How you see this will depend on the customer and the ratio between what they spend and what they cost to retain.
7. Referrals, User Generated Content, and Social Proof
Customers provide value to your business in a variety of ways. Beyond purchase values and frequencies, they may be providing considerable value in the form of referrals, testimonials, product reviews and great user-generated content. In the age of social media and online shopping, this should not be overlooked!
These customers don’t need to buy a lot from you to be incredibly valuable to your business – the impact of their non-purchase activity has a huge impact on your brand’s visibility, credibility, and trustworthiness in the eyes of all your potential customers. Customers who really stand out here should definitely be considered VIP customers.
So, now that you have segmented your customers and defined the group/s that make up your VIP customers, what do you do next? How do you use the data you have gathered to your best advantage?
Broadly, defining your VIP customers allows you to do two things:
1. Target New Potential VIP Customers
Once you have a clearly defined group of customers that are the most valuable to your business, you can use that data to learn more about them.
Finding out who they are, what characteristics they share, which channels lead them to your business, and where they came from is highly valuable information. It will allow you to find and target more customers like them.
It will also allow you to find more customers like them, who have VIP customer potential, in your database. You can hone in on these customers and nudge them towards being your next VIP customers.
2. Target Existing VIP Customers and Provide a VIP Experience
Now that you know exactly who they are, you can work on your VIP customer program to retain them and keep them active, engaged, and happy.
As your most valuable customers, these are the ones you should work hardest at retaining. Providing incentives, special treatment, and hyper-personalized communication through your VIP program is key to building and maintaining these relationships.
In addition to finding ways to make them feel special and valued, your program will also allow you to personalize your communication and marketing efforts with them for increased sales and profits.
How to Treat Your VIP Customers – Creating That VIP Experience
There are numerous ways to incentivize and reward your VIP customers but it is the experience that matters most. Whatever you’re offering, offer it in a way that makes them feel like a real VIP!
Make sure they’re aware of how exclusive and special what you’re offering is, and why they’re being included in this small and elite group.
All communication with them should be focused on making sure that they know how valued and appreciated they are.
This includes next-level personalization so they know that you know who they are personally and that you know their preferences and values. Tailor your communication as much as you can for each customer and aim to build a personal relationship with them.
Studies have shown that when customers have an emotional connection to a brand, the average customer lifetime value (CLV) goes up by 306% – Now imagine that applied specifically to your most profitable customers!
Acknowledgment, recognition, and appreciation is the real gift you’re giving them; and that is the basket in which you deliver your rewards and incentives.
VIP Customer Incentive and Reward Ideas
Your VIP customers are the ones you go the extra, extra mile for. They’re the ones who get special things that the rest of your customers do not access to. To provide this exclusive experience, you need to create some incentives and rewards to offer only to your VIP customers.
The best rewards and incentives are appropriate for your business type and contextually relevant and valuable to your customers. To do this, you can get as creative as you want but here are some ideas you can use, to begin with:
- VIP-only promotions – Sales or promotional offers that only your VIPs have access to
- Exclusive early access – Give your VIP customers early access to your existing promotional events like sales and new product launches
- Points based incentives (loyalty programs) – give extra points or perks to your VIP tier
- Surprise gifts – give your VIPs a little something extra with a gift or gift certificate
- Celebrate with them – send them cards and goodies on birthdays and major holidays
- Free access to add-on services – for example, if you offer tailoring or alterations, give it to your VIP customers for free
- Personalized thank you cards and gifts
- Charitable donations to causes they care about
- Surprise discounts or upgrades – give them a voucher for a discount on their current or next purchase, upgrade their subscription for free or give them priority shipping at no extra cost
- Exclusive access to services/benefits – if you offer services, you can give your VIPs preferential treatment when it comes to bookings, allow them to access VIP-only spaces or skip the line to enter. These kinds of benefits make them feel like a VIP and cost you very little to provide.
There are many other ways to incentivize and reward your VIP customers and you can use any that make sense for your business.
However, it is important to consider what your customers will value most. Know your customers! Remember the customers who don’t wait for sales to purchase? They’re probably not going to be as pleased with a discount voucher as the ones who only shop when things are marked down.
Personalize your incentives and rewards as much as possible to make sure that they’re relevant to and valued by the specific customers you’re offering them to. That is the key to providing them with the most while costing you the least, and avoiding any misdirected profit cuts.
Leveraging Your VIP Customer Experience to Create More VIP Customers
A VIP customer experience is not only there to anchor your existing VIP customers and drive retention and satisfaction. It is also there to attract new VIP customers and incentivize existing customers to strive for VIP status.
To leverage this, make sure that your VIP benefits are easy to find and clearly set out. Everyone should know what they’re missing out on and how to achieve it!
Studies into the effectiveness of exclusivity rewards in customer loyalty programs show that 56.8% of customers will be motivated to participate if there are exclusive rewards on offer.
This is especially important for the customers who fall just short of the VIP threshold – consider sending those customers a message to let them know how close they are to achieving VIP status, and what they need to do to get it.
You should also personalize your communication and marketing to these customers, to nudge them towards the behaviors that define your most valuable, and profitable, customers.
To wrap up and recap, we have covered:
- What VIP customers are and why they’re so important
- How to identify your VIP customers and which metrics to assess
- The benefits of identifying them and what to do with that data
- How to treat them and the incentives and rewards you can offer them
- How to leverage VIP customer status to drive customers towards achieving it and find new VIP customers
There’s no doubt that assessing your customer database to define your most valuable, VIP customers is a hugely beneficial exercise.
It allows you to better target new customers and work to increase sales, retention, and customer satisfaction within the group of customers who generate you the most profit.
It also allows you to attract new customers and incentivize your high-potential customers to strive a little harder and reach that coveted VIP status.
References and Useful Resources
P2P Marketing: Customer Appreciation: 13 Easy Things to Do Today (Guide)
P2P Marketing: Loyalty Marketing – The Definitive Guide for 2021 and Beyond
Frequently Asked Questions
What is a VIP Customer?
VIP Customers are the customers that generate the most value to your business - they're the ones who spend the most money with you, buy frequently or spend a lot on each purchase, and those whose buying behavior generates the highest profit for your business. They can also be those who generate valuable social proof, advocate for your business or frequently refer others to you. Check out the full guide for more detail on what defines a VIP customer.
How do you identify your VIP customers?
There are several ways to identify which customers are the most valuable to your business. These are seven metrics you can use:
1. Number and Frequency of Purchases
2. Average Order Value
3. High-Profit Purchases
4. Customer Lifetime Value
5. Type of Products Purchased
6. Indirect Customer Costs – Support and Returns
7. Referrals, User Generated Content, and Social Proof
Read the full guide for more on how to assess the above and define your most valuable, VIP customers.
What are the benefits of identifying your VIP customers?
Segmenting and isolating your VIP customers allows you to personalize and target those customers in precise ways to boost retention and customer satisfaction, and to increase sales to them. It also allows you to target new customers who share essential characteristics with your VIP customers and identify and target your other, existing, customers who have the potential to become VIP customers with the right incentives and nudges. Read the full article for more on how to use the data from your VIP customers to your best advantage.
How should you treat your VIP customers?
Your VIP customers should be treated like royalty - they're your most valuable assets after all! This includes personalized communication and access to exclusive incentives and rewards that are designed to make them feel special, valuable and appreciated. Check out the full guide for incentives and rewards ideas, as well as tips on how to communicate with your VIP customers.
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