The Customer Pyramid

The Customer Pyramid

Large databases and better analytics are likely to reveal greater distinction among the tiers. Once a system has been established for categorizing customers, the multiple levels can be identified, motivated, served, and expected to deliver differential levels of profit. In this section, we illustrate a framework called the Customer Pyramid (see Figure 1) that contains (for purposes of illustration) four levels. While different systems and labels can be useful, our framework includes the following four tiers. 

• The Platinum Tier describes the company's most profitable customers, typically those who are heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and are committed to the firm.

• The Gold Tier differs from the Platinum Tier in that profitability levels are not as high, perhaps because the customers want price discounts that limit margins. They might not be as loyal to the firm even though they are heavy users in the product category--they might minimize risk by working with multiple vendors rather than just the focal company.

• The Iron Tier contains customers that provide the volume needed to utilize the firm's capacity but whose spending levels, loyalty, and profitability are not substantial enough for special treatment.

• The Lead Tier consists of customers that are costing the company money. They demand more attention than they are due given their spending and profitability, and they are sometimes problem customers--complaining about the firm to others and tying up the firm's resources. 

Note that this classification is very different from usage segmentation done by airlines such as American Airlines because it is based on numerous variables other than sales that are responsible for profitability of the tiers. The specific factors vary across industries, but the Customer Pyramid is a rich and robust concept across most industries and categories. For example, it can be used successfully by companies selling directly to consumers, to intermediaries (such as retail, wholesale and professional channels of distribution), and to other businesses.