MARKETING STRATEGY
Customer excellence strategy
A well-designed customer strategy needs to deliver on customer excellence. Customer excellence is built upon converting customers to promoters, maximizing the customer lifetime value, the level of customer loyalty, and retention rates
Many very well-intentioned business leaders deeply believe that they put customers first in mind when creating value, however, research shows that while 80% of the executives believe they deliver an exceptional and differentiated experience to their customers, only 8% of the customers think that they did so.
This a huge gap in the perceptions of the sides (i.e. demand and supply of the value proposition), and there are several reasons to explain it:
- Often, what gets discussed in boardrooms, is so far away from the front line that it’s hard to tell whether the data is accurate and representative of the reality on the ground
- Organizations view the business through accounting and financial-driven lenses based on the assets on the balance sheet and lag a perspective on the source of all of these assets and profits, the customers. Therefore, businesses lack visibility into the health of customer relationships and they only witness smoke trails of their customer relationships that come in the form of revenues, costs, and/or number of products sold which makes it very hard to maximize customer value or customer capital
- The short-term perspective of business leaders, such as when the market conditions change and the business hits a down quarter, suddenly, there’s a dramatic need to cut back on discretionary spending which tends to be marketing spend including in customer service, call centers, salespeople on the storefront, and account reps. Furthermore, in such periods, leaders tend to look for additional sources of revenue which often come in the form of nuisance fees that will come at the expense of customer relations such as baggage fees in the airline industry.
These three reasons are indications that organizations tend to be ruled through a short-term and accounting-based perspective towards business and its source of data to measure customer value and strategy can be full of noise.
However, the perspective here should be of a more long-term nature and based on value creation for the customer. The benefits of placing nuance fees or cutting customer service expenses (i.e. showing profits in the balance sheet and income statement) should be measured and benchmarked against the costs they bring for the company against its customer relationship and profits in the longer term.
Gathering data for customer strategy
Reports that help define customer strategy and deliver value need not be too complicated. Investors and boards need insights into the changing value of a company’s customer base and whether the company is increasing the value of its customer base or not by:
- Growing the number of customers (i.e. volume)
- Growing the profitability and the lifetime value of customers (i.e. unit economics),
To answer this question, all we need are four basic types of information:
- How many customers does the business have? (i.e. volume of transactions)
- Is the number of customers growing? How many customers is the business losing/gaining? (i.e. acquisition, retention/churn, referencing the rate of change of volume of transactions)
- How frequently are they spending it? (i.e. recency of transactions leading to the volume of transactions)
- How much are they spending? (i.e. monetary value of transactions)
Based on the above four parameters, many companies have the rudiments in place to look at individual segments and cohorts of customers as they pass through the different stages of their lifetime, and calculate their lifetime value, and manage to optimize customer value or capital. This will require having a toolkit that enables the business to place lifetime value on customers and measure changes in it based on changes in behavior and sentiment towards the company through measures such as the Net Promoter Score.
While a bank may have a closer digital relationship with customers, there is no reason for a brick-and-mortar retailer to not have the mentioned data on its customers. Today most companies have access to customer data on payment forms such as the point of sale financial data and reward or loyalty programs that reward customers for their interaction data. The only thing that a retailer may miss is a customer who walks into the store looks around for something and then fails to find what they were looking for and leaves.
The “so what”…
The end goal with data is to grow the number of customers at lower costs and transform them into customers who are paying more and purchasing more frequently. This is where companies need to build lifetime models that inform decisions on how to maximize customer value. These models need to inform the business on matters such as:
- How to segment and cluster customers (e.g. based on historical behaviors and demographics)
- Who to try to sell more products and services to
- Who to cross-sell and up-sell to
- Whether to put somebody into an exclusive tier of service
- Identify what next best offers to make to a customer
Once a model can answer these questions, we will need coordinated efforts across marketing that reorient around customer needs rather around product or function to drive value.
Measuring customer excellence
Customer relationship and lifetime value maximization strategies initially grew within the Telecom and Financial industries in the US. When the US Telecom industry deregulated, the entrance of new competitors grew the importance of save and attrition modeling predictions. This modeling found its path into the financial services sector where data from credit cards in retail banking became the differentiating factor in the success of banks in designing and executing their customer strategies. Today we can store and analyze large data sets and combine internal data with external data such as those from social networks to better understand, communicate, and deliver value to customers. It is through these capabilities that companies such as Netflix and Amazon have mastered their customer lifetime value strategies and their efforts and learning are getting used in other traditional industries such as the hotel, airlines, or industrial supply sectors.
Despite these technological advancements, if a company wants to self-reflect whether it’s maximizing value for its customers and gaining their loyalty, it will face the problem that there aren’t standards for reporting fundamental customer data such as the number of active customers, revenue per customer, or churn and retention rates within industries.
One way to figure out where a company stands would be benchmarking its performance through metrics such as competitive Net Promoter Score (NPS) to get a sense of how customers feel about the company and against the competition. Or by performing benchmarking diagnostics of some of the functions and processes in the organization against the competition such as whether a company has marketing analytics teams in place that are gathering direct customer feedback from social networks or not.
Lastly, internally, the marketing and analytics department can gauge the extent to which the business is growing or shrinking value for various customer segments and cohorts and whether the direction of the movement is positive or negative.
The marketing analytics department of the business can provide finer insights by:
- Assessing the pain points of customers at each touchpoint, categorizing and ranking them, and coming up with solutions to maximize customer value and minimize churn
- Assessing the promoters or loyal customers of the business, observing how the business won over their loyalty, and then increasing investments made on these success factors
- Benchmarking competition and where they were able to win customers, potentially replicating, outsmarting, and offering as much or more value to its customers
The loyal customer
A loyal customer is defined as not just one who produces large revenues but is also emotionally committed to the business’s success in some way, shape, or form. Loyal customers are resilient in the face of problems that may come their way when dealing with the business, convincing their friends and network to join the platform despite the challenges.
USAA — a case of customer success
USAA’s customers are fanatics and promoters of the brand and it's doing a variety of things differently to win over its customer loyalty, including:
- It has built its mission around serving a tightly knit community, current and former members of the military, and their families. This passionate customer segment/community has managed to promote USAA to other segments, diversifying the business reach to broader audiences at low customer acquisition costs
- It has built a cooperative operating model at the core of its culture, as they are owned by their customers. Hence, decisions made circulate around whether they deliver value for this customer base. What this ownership regime creates is that it minimizes conflicts of interest between the shareholder and customers. To achieve this operating model, USAA has broken down its organizational silos that defeat the ability to serve customers well and adopted agile, cross-collaborative, and human-centered operating models built around customers’ needs. For example, USAA is focused on delivering automobile financing and insurance to its customers, unparalleled to no other financial institution in the US.
The important factor about these loyal customers is that if the business makes a mistake or falls short of delivering its promised value proposition, they will forgive and help the business get back up on its feet.
The lack of the USAA model of ownership at top football clubs in Europe was the reason for the recent failed European Super League attempt. Clubs such as Manchester United and Liverpool failed miserably with their plans to build a franchise model of a football league and depleted value for their customers and shareholders, leading to political shifts in the European football realm.
Customer Excellence in action: building promoters
There are two things that a business needs to do if it wants to earn the loyalty of its customers and build business promoters. Initially, at the foundational level, it needs to satisfy the customer's fundamental needs so that it doesn’t lose them. This requires three key deliverables:
- The value proposition must find fit in the marketplace: the offering has to meet some fundamental needs that the customers have at a reasonable price relative to the competition you know the value proposition has to be good
- The value proposition needs to be delivered in the way that the customer expects to get it: not just the way it’s been promised by the business but also based on the customer's experiences with other offerings in the marketplace. In short, the value proposition delivery needs to find its position relative to the customer base
- Risk and rescue models need to be considered in the operating and delivery mode: in case a problem or crisis arises, the business needs to recover and earn back customer trust
These deliverables will create passive customers. But to create promoters, people who enthusiastically advocate the business, a business needs to differentiate itself, and that is achieved in two ways:
- It needs to offer things that competitors just don’t offer, and therefore customers can’t get them anywhere else
- It has to deliver what everybody else delivers in a truly exceptional way
Therefore, rather than spending resources on eliminating defects, businesses should invest in what takes more resources to do, differentiating their offering and its delivery.
Bringing change
Generally, the mandate to adopt a customer excellence model requires clarity of intent and the outcome the organization is shooting for (e.g. growth maximization, or optimization of the value created for the customer base). Depending on the vision and setup of the organization, this may require a change in organizational design and its operating model.
However, if the top management is not moving in this direction, this is not the end. There are good opportunities to lay the foundation of this strategy from the bottom or middle of the organization by adopting tools for:
- Measuring and managing customer lifetime value as opposed to or in addition to measuring clicks and new customer acquisition
- Choosing sales targets and rewarding salespeople not just for new businesses but for improving the lifetime value of customer
- Setting up a customer success function
These changes need to be in place if an organization wants to make the big leap to a needs-driven customer-focused organization and a lot of those can start at the functional and departmental level or the centers of excellence. What is expected to be seen with these changes in the bottom layers is that change will gradually push itself into top management layers and key organizational decision-making metrics — if not already aligned.
Customer excellence will only be achieved when a business understands that its long-term success and value creation for its shareholders lie in its customer excellence strategy. Businesses need to aim for maximizing their customer lifetime value, building promoters, and retention rates, to maximize their customer excellence efforts.
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