Using Four Box Models

What is a Four-box Model?

It’s a simplified graph, depicting two axes and the four boxes start at the corners of the graph. There’s an example further down below.

Why Use Four-box Models?

I love four box models. They’re simple and since they’re simple, they force you introduce clarity where there may have been confusion before. This makes the message easy to convey and simpler to isolate.

As such, all 4-box models provide a way of clarifying the problem space. Even if the solution you end up with doesn’t fit into the 4-box model, they’ll have been useful in clarifying the thinking within the group.

We’re going to see how they can be useful by looking at an example from CRM.

Customer Relationship Management

There are two similar models from Customer Relationship Management (CRM). The first model relates a customer’s historic spend with their predicted future spend. The concept here is to help you decide what to do with different segments of customers.

4-box CRM Model depicting historic spend against future spend
4-box CRM Model

The customers that everyone wants are those that have spent a lot in the past and are likely to spend a lot in future. So we do what we can to retain these and we continue to sell to them. Some organisations introduce a higher level of service for these customers (or even a smaller subset of that segment) in order to retain them.

The diagonally opposite segment is the low historic spend and low predicted spend. These customer suck up the time and effort within your organisation. So typically, we can take several steps for these:

  • stop selling to them (if you’re able to). This could be as simple as providing the information to your sales force so that they don’t chase these customers.
  • make the product that they buy easier to produce, makes the sales and distribution channels cheaper
  • introduce a lower-cost product that still serves that customer but takes less effort and cost per customer than you standard core offering.

Now, we want to see each customer in either the green or the red quadrants. The two grey quadrants are where you may find customers, but you’ll want to move them.

Those that had a low historic spend but a high predicted spend are prospects that need converting. You will want to start seeing their presence increasing across to the right, with a higher historic spend, as they spend more. This would move them to the green quadrant.

The other grey quadrant of high historic and low predicted spend is a conundrum. You can spend effort trying to understand why their purchases from your organisation are falling, maybe they’ve switched to a competitor, they’ve decided they don’t need that type of product or the service they received has become that poor that they’d prefer to do without. Once you’ve uncovered why they’re not likely to buy more, you have the choice of trying to increase sales to them (by fixing some of the problems, selling a more appropriate service, discounted campaign, offers, etc) or you decide that they won’t be buying anymore and put them in the red quadrant of reducing your involvement with them.

Sometimes you don’t have access to any reliable data for predicted spend. A trick in this case is to look at the trend, by plotting historic average annual spend against the spend in the last year. It’s not foolproof, nothing here is, but it’s an indication of what could be.

Analysis

What we managed to achieve with the 4-box CRM model is that we were able to break down customers into segments (fitting into each of the quadrants) and then able to briefly define a strategy for dealing with each of those segments. We even looked at two of the quadrants and defined additional options.

There are other axes we could have used: location (local, national/global), where they are in a marketing/sales funnel (aware, not aware), gender (male/female). In fact, you could apply any of the typical socio-demographic data that you can find in analytical software such as Google Analytics.

Do not restrict yourself to customer segmentation, you can use them to clarify concepts and reach decisions in most business domains, e.g. professionally-qualified versus non-professionally-qualified staff, weekday working versus weekend working, company-owned versus outsourced service, etc.

I’ll introduce a few other 4-box models over the next few weeks. If you have any suggestions, send them my way via the contact page.

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