The current economic downturn and the barrage of media choices require a different relationship with customers—and a different way of monitoring that relationship.
Changes in the way customers receive and process information via social-networking sites, mobile phones, and the Internet, combined with shrinking margins, deteriorating customer loyalty, and increased demand for marketing accountability, suggest the need for a new approach to customer-centricity.
A. G. Lafley, CEO of Proctor & Gamble, signaled this reconfirmation best with his resounding cry, "The customer is boss."
Studies confirm that point of view:
- According to a 2009 study by Heidrick & Struggles, the number-one focus for C-level executives this year is the customer—acquiring new ones, increasing retention, and improving their lifetime value, in that order.
- A study by MarketingProfs indicates many marketers are focused on some form of customer acquisition or retention as their most important marketing objective.
- And a study conducted some years ago by Deloitte and Touche found customer-centricity makes sound business sense. It found that customer-centric companies were 60% more profitable, two times as likely to exceed return on shareholder equity, and twice as likely to exceed goals for pre-tax returns on assets, sales growth, and market share compared with less customer-centric counterparts.
Still, a recent study by SpencerStuart with over 200 chief marketing officers found that only 33% believed their success to be tied to having a customer orientation; moreover, 92% of the CMOs said they must "own" the brand to be successful, compared with 41% who indicated they must "own" the customer relationship.
Finding, keeping, and growing the value of customers is the reason for Marketing's existence. Accordingly, Marketing has the responsibility to take the lead for driving customer-centricity within the organization. So how can organizations accomplish this?
Four Best-Practices
There are four best practices that stand out regarding customer centricity: passion, reversing value chain, building relationships and experiences, and fostering purchase readiness.
- Passion. Organizations that are committed to customer-centricity are passionate and sincere that the "customer is boss." They believe that the customer is vital to their success and see the world through their customers' eyes. Marketers inside customer-centric organizations understand what customers want and expect. They leverage and value customer data and have a methodology for capturing customer insights and sharing this data across the organization.
- Reversing the value chain. Organizations that are committed to customer-centricity reverse the value chain to deliver what customers truly value. Customers' needs, wants, and priorities are the catalysts for developing products and services and selecting channels.
- Building relationships and experiences. Organizations that are committed to customer-centricity focus on creating mutually beneficial relationships designed to maximize the customer's product and service experiences.
- Fostering purchase readiness. Organizations that are committed to customer-centricity analyze, plan, and implement a carefully formulated customer strategy that incorporates programs that create a state of purchase readiness and focus on creating and keeping profitable and loyal customers.
Implementing these four practices is not an easy task. It requires a process and the right tools for capturing customer insights. For many companies, that means organizational change.
The key to the process is stronger collaboration among Marketing, Product Development, Service, and Sales in order to ensure that the right products are available at the right price in the right channel. And that requires a different set of metrics for most marketing organizations.
Although most marketers track something related to opportunity development (e.g., qualified leads), and something related to customer satisfaction, metrics that demonstrate how marketing strategies resonate with customers and tie back to the bottom line are often not developed. Even if they are developed, the right metrics for gaining valuable insight into customers are often missing from the marketing dashboard.
Three Customer-Value Metrics
People often ask us, "What customer metric should we use?" There really isn't a "one size fits all" list for every company all of the time. It's almost impossible to come up with one set of metrics that will be in place forever. However, there are three broad customer value metrics that have financial implications for every organization and therefore should be carefully monitored.
Let's quickly examine each of these broad organizational customer value metrics to understand how they can be monetized for every organization.
1. Churn/Attrition Rate
Securing new customers is even more challenging in today's environment. As a result, more companies are focusing on and investing in keeping customers than in acquiring new ones.
- Acquiring new customers can cost five times more than satisfying and retaining current customers. A 2% increase in customer retention has the same effect on profits as cutting costs 10%.
- The average company loses 10% of its customers each year.
- A 5% reduction in customer defection rate can increase profits 25-125%, depending on the industry.