Customer-Centric Metrics Make Your Demand Generation Dollars Go Further by Laura Patterson * [38]

 

As one of the primary revenue generators for an organization, Marketing provides three essential roles: finding profitable customers, keeping profitable customers, and growing the value of these profitable customers. Customer-centric metrics offer a good starting point for identifying prospects who most look like your profitable customers, knowing which customers and products are making the largest contributions to the bottom line, and for effectively investing your demand generation dollars. 

Besides measuring customer satisfaction and loyalty, the impact on profitability is also an important measurement of any customer-centric strategy. Many companies have demand generation metrics and even measure customer satisfaction. Yet, we have found all too often that while companies say they are customer-centric, they have few customer-related metrics.

Most marketers agree that creating a satisfying customer experience positively affects a company’s profitability. The customer experience includes both rational and emotional aspects, as well as how the customer feels about the brand and the company, and what the customer thinks every time he or she interacts with the company. Having a positive impact on the company’s profitability translates into either increased revenue or some reduction in cost.

Ø Establish Profitability Targets - 3 Key Metrics

If you can calculate these three important customer-centric marketing measures, you can establish a set of customer profitability targets:

1.   Customer acquisition cost: Determined by calculating the average cost to acquire a new customer. See more below about how to use this measure in your demand gen efforts.

2.   Customer retention cost: Determined by calculating the cost to retain and serve an existing customer.

3.   Average customer profit: Determined by calculating the average value of each customer segment after accounting for standard costs.

You can monitor your success by measuring how well you are staying within your customer profitability targets for each of these metrics. You don’t need sophisticated tools to measure customer profitability. 

Ø Add Profitability Targets to Your Dashboard

Customer metrics are one of the primary categories that should exist on every Marketing dashboard. Once you have calculated these three customer-centric metrics you can set targets for each and report Marketing’s performance against the goal and Marketing’s impact on overall customer profitability on the Marketing dashboard. Overtime you will be able to use this data to determine which customers offer the best opportunities and focus Marketing investments on customers who will have the greatest impact on the bottom line.

Now that you understand which customers are profitable, you can apply this knowledge to determine which customer segments are worthy of your demand gen dollars.

Ø Customer Metrics to Guide Marketing Investment

When it comes to effectively investing your demand gen dollars, we recommend focusing on two customer-centric measures: customer value and cost to acquire. These measures when combined together can help your organization decide how much of your resources can be profitably allocated against a particular customer or set of customers.

The two customer-centric metrics we’re suggesting will help you identify the customers and/or segments to pursue. While it would be wonderful to be able to invest in every customer, most companies need to be selective.

We’ve simplified an approach to jump start your thinking process. You’re going to create a  2 X 2 grid with one axis being customer acquisition cost and the other axis being customer value.

Before you do these steps, decide which customers go where on the grid. Once you generate a list of all your customers, score each customer and/or customer segments for both customer-centric metrics.

1.   Create a Customer Value Score: To create a customer value score you will need information generated from two pieces of data: purchase frequency and customer revenue.

o    On the customer list table have a column for purchase frequency (you may want to use a numeric rating scale for this measure) and one column for revenue (you may want to create ranges for revenue and use a numeric rating scale for each range). Score each customer and/or segment. Customers who have high values on both columns (for example all customers who have either a 5 and 5 or 4 and 5 or 5 and 4 in the columns) would be your high value customers.

o    Those customers with a 5/5 would receive an overall score of 5, those with a 4/5 (frequency and revenue) you may want to give an overall score of 4.5 and those with a 5/4 (frequency and revenue) an overall rating of 4.

o    Do the same for each combination, with those customers with both a 1 in both columns having the lowest score of 1.

2. Calculate Cost to Acquire. For your same list of customers, in another column, calculate your cost to acquire each of these customers. Customer acquisition cost is the cost associated with convincing a customer to buy your product or service, including research, marketing, and advertising costs. It’s an important business and marketing metric that can be used to gauge marketing’s effectiveness.

• Again, to keep things simple, create acquisition cost ranges and then assign a 1-5 rating scale for each range (we’d suggest using 1 as the lowest cost range and 5 for the highest cost range).

Ø How to Use Your Scores

For each customer or customer segment you should now have 2 rating numbers: a number derived for the customer value score and a number for customer acquisition.

Divide your 2  X 2  grid into 4 quadrants:

• High Value/High Cost
• High Value/Low Cost
• Low Value/High Cost
• Low Value/Low Cost.

Plot each customer into the appropriate quadrant.

> Score Customers for Each Metric

Those customers and prospects similar to them in the High Value/Low Cost quadrant are where you should spend the money.

Obviously very little, if any resources, should be allocated to customers and prospects in the Low Value/High Cost. You may have to have some internal conversations about the other two quadrants and applying the customer lifetime value calculation to these customers can often help guide decisions related to customers in these two groups. While it may take some time, this is a relatively easy and affordable first step.

Unless you’re among the few marketers who have all the time and money in the world to burn, we hope employing this analysis helps you decide how to eke out the most value from your limited and precious resources. You’ve probably already come to the conclusion that the best place to spend it is on those customers who are most likely to buy.  

Got the customer-centric metrics bug and want to know what else you should be measuring? Here the top eight measures often associated with companies truly committed to being customer-centric:

1.   Customer retention

2.                2. Buying frequency

3.   Contact frequency

4.   Churn rate

5.   Average revenue per user

6.   Customer lifetime value

7.   Share of customer’s wallet

8.   A customer’s EBITDA

Conduct a quick audit to see whether your company tracks any of these customer-centric measures. If it doesn’t and being customer-centric is important to your organization, then it may be time to revisit the metrics you are measuring.

 * This post was reprinted with permission from VisionEdge Marketing, Inc. 

Laura Patterson is a marketing practitioner, consultant, writer, and speaker. Contact her at  laurap@visionedgemarketing.com. Also, check out Laura's article "The Value of Investing in Customer Value Management" [22].  Post Editor: Preview (blogger.com)

 

The Customer Value Proposition as a Basis for Business Strategy by Ravi Chinta * [27]

Customer Value Proposition (CVP) has become one of the most widely used terms in business in recent years. A CVP is the value perceived by customers in the product mix that your business is offering, in light of competitive options. Most businesses will conduct marketing research to identify benefits and cost savings to customers to induce purchases. Such research focuses on understanding customer needs by asking potential buyers what they want with respect to goods and services.

Product enhancement and new product introductions are often based on a process of continuously “productizing” the needs and wants explicated by customers via research studies. These are in essence market-based innovations driven by addressing the desires explicated by the customer. However, in the pre-automobile era if you asked customers about what they wanted in transportation vehicles; they would have said they would like to have faster horses. And we know how automobiles made their debut and made horses obsolete as transportation vehicles. Thus, technology-based innovations often come in and transform the mindsets of customers in how they assess perceived value. Simply stated, the primary difference between market-based innovations and technology-based innovations is that the former is driven by explicit needs and the latter is driven by both explicit and implicit needs of the customers. Thus, the customer-centric view should be expanded to include both explicit needs (expressed by the customer) and the implicit needs (elicited by a deeper and unobtrusive observations of customer behaviors).

Shadowing the customer and evaluating daily behaviors can help understand the implicit needs of consumers and businesses. For example, in a research project at Hill-Rom company, a hospital beds manufacturer based in Batesville, Indiana, hospital nurses were observed as to how they spend their 8-hour work shifts. And, that analysis led to electronically adding vital signs data entries at the bedside instead of taking notes and then typing in the data at the nursing stations. Addressing the implicit needs of customers also gives businesses a pioneering advantage because these initiatives are more difficult to imitate than product modifications based solely on explicit needs.

I contend that customer value propositions that are properly constructed and delivered make a significant contribution to business strategy and overall performance. To ensure market leadership, I recommend that a firm continuously adds new features to their product/service offerings based on newly uncovered implicit needs of customers. Apple’s market dominance is easy to understand when viewed in this way. That is what sustainable competitive advantage is all about. Thus, customer value propositions must be viewed as a dynamic concept that enables a firm to self-cannibalize its own product lines and keep up its lead in the market. It should be noted that customer intimacy is a prerequisite to product excellence, and it is the responsibility of senior management not just marketing management, to ensure that their customer value propositions reflect both the explicit and implicit needs of the customer. 

* Ravi Chinta, Ph.D., is a Professor of Management at Nova Southeastern University. He can be reached at: rchinta@nova.edu

See "The Value of a Value Proposition" (Post 11) for additional insights on the CVP.

Customer Focus to Customer Obsession [2]

[There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else. Sam Walton]

The above quote by Walmart’s founder said it best – business strategy is all about the customer! The customer-first message has spread to the workforce. During a recent one-week period, I was pleasantly surprised to hear three Millennials call me “boss” during routine transactions at the Fresh Market, Office Depot and Subway. The same week, I also got a “hey, chief” and “I appreciate you”. Yes, the word is getting out – the customer is in charge! Value-creating organizations demonstrate that they value their customers’ business.   

Customer orientation ascribes to David Packard’s (HP’s co-founder) philosophy that marketing is too important to be left to the marketing department. It is the responsibility of everyone in the organization. A customer orientation is a service organization practicing Japanese style marketing - putting the customer first. In fact, the Japanese word okyaku-sama literally means “honored customer” or the “customer is God.”  Is the customer really king in the U.S.? When leaving an American restaurant, sometimes one is barely acknowledged; in contrast, it is not uncommon at a Japanese dining establishment to have several parties graciously bow farewell in thanks for the customer’s patronage.    

 “We must be more customer focused, we need to create new market opportunities!” Undoubtedly, you have heard this management mantra or a variant of this theme recently. Executives use terms such as customer (or market) centric/driven/focused/ oriented and so forth to motivate their people to do a better job relating and responding to customers. While the idea is sound, too often it’s just lip service rather than a major investment to improve all facets of the organization. A true customer orientation changes the business culture to create and maximize customer value which in turn leads to an improved bottom line.

 Customer Commitment > Culture > Customer Value > Business Performance         

The healthcare market is fast growing and projected to be the largest employer in the services-producing economy in the United States. Globally, health care is a major challenge and vital industrial sector, as well. Many healthcare organizations, however, are slow adopters in creating superior value for customers. Successful healthcare organizations have embraced a customer-centered philosophy in the now economy – it’s not just about the care offered, but about the caring offered by service providers (physicians, nurses, technicians, front-desk personnel, and so forth.) 

Walk-in clinics or urgent care facilities are a relative new innovation in the industry as most consumers would prefer to not have to visit a hospital emergency room for a sprained wrist, flu shots, skin rash, common cold symptoms, or other minor maladies. Yet, some of these so-called urgent care centers may be viewed as semi-urgent, at best. They may be closed after 9 p.m. and on Sundays, their website says to call but no one answers the telephone, they have long waits for service, or are even ill-prepared to assist with basic medical issues since they are staffed by nurse-practitioners instead of seasoned physicians. In contrast, the Baptist Health System (17 centers in Miami-Dade and Broward counties) pioneered urgent care in South Florida more than 15 years ago and is all about the healthcare experience [www.GetTreatedBetter.com/]. Patients may call or e-mail ahead for appointments and have reserved free parking. Amenities include comfortable waiting rooms with large flat-screen televisions, wireless internet, and freshly brewed coffee and tea. An efficient expert team of highly skilled and compassionate doctors, nurses and technologists is readily available, and full service imaging services are provided, as needed.

Are You Obsessed about Your Customers?

Great companies such as Amazon and Apple are totally obsessed about their customers. Their CEOs, CMOs (Chief Marketing Officers), CCOs (Chief Customer Officers) and CXOs (Chief Experience Officers) stay awake at night strategizing how to improve the customer experience. They are masterful at creating and delivering value to their highly satisfied, loyal client base. Consider these examples: Federal Express changed its name and repainted its trucks to read FedEx, as that is what customers called them (“let’s FedEx this package to Zurich”).  Nordstrom’s sales associates have been known to buy products from a major competitor, Macy’s, to satisfy an unfulfilled customer’s request. Zappos, an online shoe and accessories retailer and an Amazon company, gives their customers a full year to return their product.

According to the 2017 Global Customer Experience Benchmarking Report by Dimension Data, 81% of companies stated that customer experience is their top competitive differentiator. Yet, only 13% of respondents acknowledged that their company’s level of service was excellent. Also surprising was the fact that more than 30% of organizations do not have anyone in charge of the design and delivery of the customer experience.

Forrester identified four levels of customer-centricity. These are: 1) customer-naïve companies, 2) customer aware companies, 3) customer committed companies, and 4) customer obsessed companies. Based on their research, two-thirds of the firms are customer naïve or customer aware (only 10% were customer obsessed). Therefore, a majority of businesses should restructure to implement customer-obsessed operations. Organizations will need to build a culture to mobilize around customers, high performing teams, developing technologies, processes, and metrics.  Forrester adds that customer-obsessed organizations such as Coca-Cola, HSN, and the Lego Group follow four guiding principles. They are customer-led, insights driven, fast, and connected. They define a customer-obsessed enterprise as, “one that focuses its strategy, operations, and budget to enhance its knowledge of and engagement with customers.” 

Realize that greatness in marketing and customer service is a function of attitude, not resources. Here’s how a local dry cleaner delivers exceptional value. I pulled up in front of the store in a South Florida rainstorm and the owner jogged out with a large umbrella to greet me and my clothes for drop-off. He stated, “I can afford to get wet, but not you!” Another time when I visited there for a pick-up, the store clerk quickly hung up the telephone when I entered. She said, “I was only talking to my boss, customers are way more important.” How’s that for mastering customer value thinking?

Other companies do not do a very good job in customer service - you probably can identify many of these firms. We have all been put on hold endlessly when calling for technical support, been ignored or treated indifferently when visiting a retail site, and sold inferior goods or services upon occasion. While second-rate firms may survive in the short term, they will not last in business unless they become value-creating for customers.

So, is your company truly obsessed about its customers? If not, WHY NOT? How can your organization design and deliver outstanding value to your customers in the now economy?

This blog post is the 2nd in a series extracted from Superior Customer Value – Finding and Keeping Customers in the Now Economy, 4th Ed. (2019, Routledge Publishing/ Taylor & Francis). For further information, contact Art Weinstein at artweinstein9@gmail.com, www.artweinstein.com/, 954-309-0901 .