Like a newborn baby, some customers enter your company's world with great possibilities and a screaming need for attention. As you nurture the relationships with those customers over time, some will develop strong bonds with your organization. They will grow along a predictable and profitable lifecycle on their way to becoming your most valuable customers (MVCs).

Many companies dream of these customers driving their long-term growth. But just like children have to face the fact there is no Easter Bunny or Santa Claus, businesses have to face the reality that growable customers represent nothing less than the future of their business. Nurtured properly, your most growable customers (MGCs) will someday be your most valuable customers.

The challenge is to find customers who have the most potential. Perhaps they mirror your most valuable customers, or they lie untapped in an emerging market. They may be going unnoticed among your existing customers, they may be a segment of your competitors' customers, or they may still be unknown prospects. Once found, these customers need to be deftly cared for to maximize their potential.

First, the discovery phase
What is a most growable customer? Although the definition will vary company to company, in general an MGC is a customer who may have little actual value at the present time, but have a great deal of unrealized potential. Whether they're your customers or your competitors', they exhibit the beginnings of behaviors that your current most valuable customers exhibit.

One way to identify MGCs is by modeling customers according to an adoption curve. An adoption curve illustrates how growable customers add products or services on the way to becoming MVCs. "To grow customers you must understand the behaviors that your most valuable customers exhibited," says Paul Bierbusse, SAS Institute's senior director, Customer Intelligence Solutions. "That way you can understand how to maximize share of wallet. You can understand the products and services that are important and the order in which your MVCs bought into them. If you can mirror the adoption curve, you can grow customers."

Once organizations understand who their MGCs are, they can begin to find and acquire them. Companies often locate MGCs from among their existing customers by maintaining quality data and analyzing it for growth opportunities, or using the data to mine for customers who mirror valuable customers' behavior. For example, the behaviors a bank would like MGCs to "mirror" are opening new investment accounts, increasing credit card usage, and opening a second mortgage.

In fact, customer insight is integral to transforming growable customers to MVCs. AXA Financial, for example, uses data analysis to separate customers into dozens of groups. Customers are measured by international profile, profitability, and revenue growth, just to name a few. But they're also monitored for lack of growth. At AXA, a stagnant customer on the spreadsheet is an MGC.

"Organic growth is very important and you can achieve it by looking at your customers who you are retaining, but not necessarily growing," says Ashwin Goyal, general manager, Siebel Retail Finance. "Every customer has a value proposition. At AXA they discovered that customers…put in a low value group could actually be grown if given more attention."

Cleveland's KeyBank saw a similar opportunity. Data analysis uncovered a group of customers whose value was high based on total assets, but low in terms of activity. Low activity, its data showed, was a precursor to attrition. KeyBank worked with customer analytics firm Epsilon to develop a proactive attrition model that the bank then used to identify and retain the bank's most growable customers.

Although financial services companies lead the way in developing sophisticated analytics, other industries are seeing the benefits as well. With competitors like Harrah's nipping at its heels, Mississippi-based Pearl River Resort and Casino needed to find players with the most growth potential from among its current customers and prospects. To do that they have identified six criteria that formed customer groups that the resort could treat differently. They ranged from new guests to returning guests to advocates and from dollar slot players to big spenders.

The messaging to those groups varies based on their past behaviors, but has in common a focus on encouraging existing behaviors that will lead them to become most valuable customers, according to John Enriquez, vice president of information technology at Pearl River. Those behaviors include more frequent visits to the resort and using new features, like the golf course and the theme park.

"We used to market to who we thought were our most valuable customers, but that sometimes led to spending money against customer groups that were unprofitable," he says. "Now we group customers into behavior buckets.

If we know someone is a loyal guest we do what we can to make them an advocate. So they will get an offer from us to bring a friend and get a free dinner. If a formerly frequent guest is inactive, maybe they need to get a mailing from us inviting them back." When planning a contact strategy for reaching out to MGCs, keep in mind that responsiveness (on their part) is a must. "After you figure out what the top end of your customer base looks like, then you need to find customers who will someday fit into that group. And the only way to do that is to communicate with the people who will most likely respond," says Quaero data specialist Steve Schultz. "If I'm Cadillac, I don't expect responsiveness from 20 years olds and I don't expect them to consider me until they're 35. So why would I want to advertise on network TV when I know there's a fair amount of 20 year olds watching?"

Responsiveness is expected by many in the industry to become a most valuable behavior. "One year from now the challenge will be requesting and maintaining enough customer information to turn growable customers into valuable customers," says Carlson Marketing Group decision science analyst Taylor Duersch. "I have to find a way to continually gather information without interrogating them. I have to know my share of wallet; that needs to come from customer insight. I have to know when they're in the market for the next relevant offer, [and] that takes customer insight as well."

Determining the potential of untapped markets
Identifying growable markets is still one of the most promising methods for finding MGCs. So promising in fact, for former GE Jack Welch it was a mantra: Dominate the market share in one market, then create another market and dominate that one.

"In Welch's world creating a new market literally meant creating a whole new business that a new group of untapped customers would be attracted to," says Judy Melanson, vice president of the travel and hospitality division for consultancy Chadwick, Martin, & Bailey. "But now the new market is not a whole new business, it's a new customer group. The new customer group is the new market. That's how you find growable customers."

Vesta is an example of one company taking this approach. Vesta specializes in the strategy, execution, and maintenance of prepaid cards. Its biggest customers are telecom providers like Sprint and Cingular. The focus on the phone market netted Vesta a 374 percent revenue growth rate from 2003 to 2004. Now the company is finding MGCs by identifying partner brands in new markets that could also benefit from prepaid cards, but those brands will need to have what Vesta considers growable customers.

That definition has changed over the years. Prepaid cards used to be extended to the "credit-challenged," says Rocky Scales, vice president, sales and marketing. Now the market is different, and on the consumer side, Vesta's definition of MGCs is different. Prepaid cards are now popular and profitable in the teen and "tween" customer groups. Expect Virgin and Disney, for example, to launch their own prepaid cards for several product categories.

"For us it's all about the right market and the right customers," Scales says. "We are constantly evaluating new opportunities, new markets, and new market segments. The most growable companies for us have some kind of established brand, and have the potential to get our cards to at least one million customers."

Another strategy for entering a new market is through acquisition, but it's a risky proposition. "You can acquire customers that have the capacity to grow," Schultz says. "But you need to make sure that they have expressed an interest in doing business with you and you need to make sure they look like your current most valuable customers."

An example of large-scale MGC acquisition in action is the Nextel-Sprint merger. Sprint's average customer value is among the highest in the telco business. Its churn rate is among the lowest. When the merger was announced executives at both companies were widely quoted about the merged firm's growth potential. Sprint's strong presence in the consumer market and Nextel's popularity among business customers provide two sets of most growable customers. In fact when Gary Forsee, chairman and CEO of Sprint, commented on the FCC's approval of the merger he ticked off areas of growth that aligned with specific customer groups: wireless services, new consumer devices, data services that focus on media and entertainment, and enhanced business and government applications.

Retention and growth
MGCs are so important that some companies are employing a new strategy for retaining them, and setting them up for future growth. It's called on-boarding. Organizations that use on-boarding overserve their new customers for the first 90 to 120 days, until they can calculate the customers' total growth potential. They may introduce those customers to their loyalty program with aggressive points offers or give initial discounts on new products. They may also create a specific communication strategy to present those customers with consistent, relevant offers.

"On-boarding is risky but it can be very effective for customer groups that you consider to have high potential," says Ellen Olson, senior vice president of worldwide marketing for Epiphany. "As long as your cost to serve doesn't go too far out of line it can accelerate the growth into a valuable customer."

Another retention strategy is simply to have a solid growth plan for transforming MGCs into MVCs. But that strategy will only be successful for companies that understand and are guided by customer lifetime value. LTV will be unique to every company, but its common denominator is the growth strategy that it demands. If a bank can quantify the LTV for its most valuable customers, it can use that information to set revenue and profit goals for the customers who have not yet reached most valuable status. It can change the behavior of customers so that they grow into MVCs.

The concept of lifetime value has emerged as an essential analytic discipline for companies that balance short-term financial goals with long-term customer strategy. Customer strategists Don Peppers and Martha Rogers, Ph.D., define LTV as the net present value of the future stream of cash flows a company expects to generate from the customer. "The important thing to recognize about LTV," says CMG's Deursch, "is that it takes into account current customer value as well as long-term customer value. It's a model for how much you expect your customers to grow."

LTV might be the expected number of purchase transactions from a customer each year, times the number of years the customer is expected to remain loyal, times the discounted net present value of the margins on those purchases each year. Whatever formula a company uses, LTV needs to be measured and managed to. For example, if a consumer electronics company uses an LTV model and expects its MGCs to generate $1,500 in revenue each year, it needs to offer a continuous stream of new products, upgrades, and new services to hit the growth target.

To support those growth efforts, it's vital that organizations interact consistently with MGCs through customized, relevant communication. Frequent communications set up a strong marketing relationship, and those relationships can help transform a growable customer to a valuable customer. Example: Petco recently developed a campaign that delivers specialized emails based on what the company considers its most growable customers as defined by customer purchase histories, buying patterns, and responsiveness to sale offers. The approach resulted in a 335 percent increase in incremental revenue and a 123 percent higher conversion rate than past campaigns.

So maybe customer strategy does have a bit in common with parenting. A little nurturing, a lot of attention, and keen observation skills can help companies grow customers to their full potential.