Customer marketing focuses on maximizing long term customer value in order to drive revenue and profit growth. It does this by enhancing the customer experience and engaging customers appropriately based on customer insights that are generated by analyzing customer attitudes and behaviors across channels. Customer marketing should be the hub of your digital marketing framework.
Should You Increase Your Investment?
The first step to decide whether to increase investment in your customer marketing is to measure the value of your customer base and to understand the elements that drive the value. Value can be defined in different ways in different businesses—it could be a revenue or sales measure, a profit or contribution measure or even loyalty or advocacy. The choice of value measure is driven by the strategic business objectives of the company.
Next, segment your customers based on current value as well as potential future value.
Customer marketing should be the hub of your digital marketing framework.
Once these are understood, the third step is to use your business objectives to determine what your customer marketing objectives ought to be. For example: Do you want to retain your most valuable customers or acquire more of those types of customers? Do you want to increase the value of your average customers or perhaps even encourage your least valuable customers to exit?
Finally, once you have set your objectives, figure out what the financial or strategic value is of meeting that goal and how much you are willing to invest in it. This amount can be driven by some financial measure such as return on investment (ROI) or internal rate of return (IRR) or by the availability of budget and the value of this objective versus competing objectives
Measuring the True Return on Customer Marketing
The best way to measure the return and to conclusively prove the effectiveness of marketing is by holding out a sample (control group) of customers who are similar to the segments you are targeting for customer marketing, but do not give them the customer marketing treatment (e.g. personalized messages, triggers based on actions and objectives, etc.). Track the average value of the control group vs. the complete target group.
The deviation in values over time, aggregated across the entire customer base, gives you a measure of the value created by customer marketing. This is the return on the investment that you have made in customer marketing. Does it meet your financial or strategic objectives? This measurement is often neglected by marketers and it often comes back to haunt them—because without control groups they cannot prove that their results would not have happened without their campaigns.
A media company client of ours who is a leading practitioner of customer marketing has been able to achieve a 250% increase in their registered visitors, 300% increase in email response rates as well as in visitor pages, a doubling of ad rates for their sites and as a result of all this their ROI on customer marketing is well in excess of 50%.
The key is discipline in developing meaningful measures of customer value (revenue or profitability are not always appropriate), segmenting the customer base based on value and designing marketing programs that are optimally designed to increase that value.
So if your challenge is customer attrition you should not be focused on customer acquisition or cross sell, but on identifying and retaining your most valuable customers. Control groups, well designed experiments to figure what does work and what does not are also critical.