Blog: Customer Strategy

Recently I was on a keynote panel at the National Center for Database Marketing (NCDM).  In response to a question from the audience, one of my co-panelists pooh-poohed the value of web analytics.  He referred to it as just a fancy reporting mechanism for web activity with little relevance for marketing.  I was a little surprised by the comment and was itching to make a rebuttal, but the moderator chose to take the conversation in a different direction.  "Web analytics" is one of those terms that tends to be thrown around casually by folks seeking to impress others and can mean different things to different people (and mean nothing to most people).

It's Friday night. If your household is like mine, this occurrence is synonymous with pizza and a movie, typically enjoyed in the comfort of our own home. Combining our infatuation with this magical combination of dough, tomato sauce, cheese and you-name-it in conjunction with the visual stimulation of a good flick somehow makes everything right.

Not too long ago, our pursuit of this objective involved a well-defined, perfectly timed-out process: order the pizza by phone, drive to the video rental store, select a movie, pickup the pizza, and return home with the spoils. But we live in a time of great change, when we constantly have to adapt, altering our routines to maintain, or even improve, the overall experience and perceived benefit.

I work in the business of Customer Relationship Management and have seen many companies achieve considerable success in finding and keeping profitable customers.  However some of my own personal experiences make me wonder whether companies are too focused on the forest and not spending enough time on the trees.  Or, to put it another way, focusing on a concept as grand as the "Customer Relationship" assumes that there are customers out there who think of how they deal with large companies or brands in the same way as they think of their personal relationships.  That is often not the case.  From a customer's perspective, the "relationship" with their bank, say, is often viewed as just a series of individual experiences of specific transactions or events.  There is very little true "loyalty" present, and what little there is can easily be eroded or destroyed by a bad experience.

Let me illustrate using a recent example ...

Customer Data Management. Customer Intelligence Management.  Data Intelligence Management.  The notion of using customer data to drive investment decisions has propagated many organizational names and acronyms over the last few years.  Customer Intelligence Officers were crowned, integrated task forces were formed, and dedicated publications multiplied.  Why?  Because data = $.

Based on what I observe with many of our clients these days, particularly the ones that are hurting the most, I wonder if "hard times bring forth innovation".   Clients in multiple industries seem more open to considering new ways of doing things, perhaps because the same old same old is simply not working anymore  Or is it perhaps because they are so desperate, they will try anything?   Actually, having spent some time with senior marketing executives as well as general managers, I think the smart ones see an opportunity to actually use these hard times to execute on ideas they have had for some time - so it may be a case of not letting a crisis go to waste.  

1. There is no "P" in loyalty (Bill Hanifin) -- Bill Hanifin stresses the importance of understanding that loyal customers are not necessarily profitable customers. In other words, starting a loyalty program without having an understanding of customer profitability could hurt your bottom line.
2. State of the Loyalty Industry (Michael Hemsey - PDF) -- Key quote: "Loyalty programs are an investment, not a cost center, and they should generate a positive return."
3. Analyzing Customers, Best Buy Decides Not All Are Welcome (WSJ) -- Best Buy found out back in 2004 that many of its most loyal customers were hurting its profits. Understanding the relationship between loyalty and profitability led Best Buy to roll out a controversial "angel-devil" strategy. One can only wonder if a similar strategy could have saved Circuit City.

Bruce Temkin, VP and Principal Analyst at Forrester Research and resident expert on customer experience, has developed a framework for improving customer interaction called "The 6 Laws of Customer Experience." These rather tongue-in-cheek "laws" actually provide a great deal of wisdom about the challenges organizations face in providing their customers with the best possible experience in their everyday interactions. In the past few blog pieces I have examined the first three laws:

1. Every interaction creates a personal reaction.
2. People are instinctively self-centered.
3. Customer familiarity breeds alignment.

Today I'll take a look at Law # 4: "Unengaged employees don't create engaged customers," or to put it another way: Customer Experience depends on Employee Experience.

In previous pieces I've spent time examining what Bruce Temkin, VP and Principal Analyst at Forrester Research on customer experience, calls "The 6 Laws of Customer Experience." These rather tongue-in-cheek "laws" actually provide a great deal of wisdom about the challenges organizations face in providing their customers with the best possible experience in their everyday interactions.

Today I'll look at Law # 3: "Customer familiarity breeds alignment."

Bruce Temkin of Forrester Research speculates that customer experience is impacted by six tenants or laws, which he tongue-in-cheek equates with the three laws governing physics. The laws are as follows:

1. Every interaction creates a personal reaction.
2. People are instinctively self-centered.
3. Customer familiarity breeds alignment.
4. Unengaged employees don't create engaged customers.
5. Employees do what is measured, incented, and celebrated.
6. You can't fake it.

It is axiomatic in marketing and customer management circles that it is much more difficult and expensive to acquire a new customer than it is to retain an existing customer.   Estimates range from five to fifteen times as expensive, depending on the industry and situation.   This is a reason why companies ought to pay more attention to nurturing current relationships and ensuring that customers feel valued, whether by providing a great experience or by other means.    Incidentally, happy customers can also be a great source of referrals and can help reduce the above mentioned high acquisition cost.

Okay, I've always hated the saying about eating your own dog food, but in this case, I think it's appropriate.  And if you're reading this, it means it got your attention! One of the basic tenets of our Customer Experience platform - and a differentiator for us - is that we examine the customer experience from a customer's perspective. So, it's only fitting that we ask our customers about their experience with us.  And now, with the launch of our new (and much improved) customer satisfaction survey, we have put in place a tool to help us understand and measure our customer's perspective of how well we understand and address their needs. 

What comes to mind when you think of loyalty programs?  I'm guessing it's not S&H Green Stamps or the Gold Bond Stamps program.  However, the prevailing loyalty programs in today's marketplace are nothing more than more automated versions of these early vanguards.  We've traded in stamps for points and books for online statements.  But the underlying structure of the loyalty program has remained the same.  It's high time we wipe the slate clean and re-think loyalty program objectives and design.

In 1899 the Economist Thorstein Veblen coined the terms "Conspicuous Consumption" and "Pecuniary Emulation" in his classic text The Theory of the Leisure Class.  In this work, Veblen evaluated the behavioral characteristics of the super-rich and the middle-class of his day and developed a new school of economic thought, Institutionalism, which still holds relevance today. Veblen posited that people make purchase decisions not necessarily based upon the usefulness (utility) of the products purchased but instead based upon the perceived status such products bring. As a result, "Conspicuous Consumption" refers to purchases made primarily to demonstrate one's wealth and status to others as opposed to purchases made out of necessity.

The popular saying that necessity is the mother of innovation, gave me one source of optimism that the current times might actually engender some innovation in how marketers approach their customers and their markets. Alas, so far, I have not found that to be the case, at least among large companies.

At the beginning of every year, I make it a point to visit with our primary clients who tend to be large companies. This year, these visits were particularly important given the steep downturn in the economy as well as the recent acquisition of Quaero by CSG Systems.

Many organizations have begun to look at their customer experience with an eye toward increasing the efficiency of their marketing, sales and service efforts while minimizing costs. This can be very effective.

However, organizations that want to maximize their customer experience management activities need to look beyond a “one size fits all” mentality when it comes to the customer experience and incorporate customer intelligence and strategy into the delivery of the customer experience.

In his Origin of the Species, Charles Darwin made the famous observation that it is not the strongest species that survive or even the smartest but the most flexible. As we look at the carnage in the markets and a looming recession, the questions you should ask are these:

• How do I survive this market?
• If survival is not an issue, how do I take advantage of this situation?

The answers may surprise you. It is not that different from what Darwin found. This is a time that calls for nimbleness and agility. It may be a wonderful opportunity to change the very nature of your marketing.