It’s late on Friday evening and you’re driving down the freeway on the way home. You’re hosting dinner for one of your marketing agency’s most importance clients: the CMO of Simplify, one of the new "no-frills" mobile Telcos, which has been growing like crazy since it was launched two years ago. During your regular weekly call, he asked you what he should do to acquire profitable customers. It sounded urgent. You remember his half-hearted laugh when you said, jokingly, "Try not to lose the ones you already have."
The traffic is all snarled up and you begin to think about how you’re going to answer the CMO’s question.
Stepping beyond copycat competition
Simply is a good example of the cyclical behavior that many companies in hyper-competitive markets get sucked into. First, it acquired customers through expensive marketing campaigns tied to even more expensive subsidized handset-free minutes and free services offers. This brought in a deluge of new customers, many of whom will never be profitable, even with Simplify’s low-cost base. As competitors reacted with copycat campaigns, the deluge of new customers dried up. At the end of the contract, many of the expensively acquired customers simply defected to the latest new offer. Some even defected to newer Simplify offers to take advantage of better terms! And then the whole process started again.
Knowing your best customers
Part of the problem with this cycle of value destruction is that Simplify doesn’t know how valuable each of its individual customers is and what it is that makes each profitable—or not. Sure, it has developed needs-based segments to guide targeting for marketing campaigns, but it hasn’t enriched the segments with information about the services individual customers use or with the costs and revenue the customers generate using Simplify’s services. In short, company leaders don’t know how much each individual customer is worth. And if they don’t know how much they are worth, they can’t even begin to think about how to manage them according to their worth.
So there’s your first suggestion for the CMO: Develop a simple life-time value model for Simplify’s existing customers and identify the most profitable ones.
Keeping your best customers
Knowing who Simplify’s best customers are is just the start. The company also needs to know what to do to keep them. One way to do this is to set up a "Save Team" to work with customers who have said they want to cancel their contract. Simplify has about a month to try and find out why they want to defect, to try and fix any problems and to make them a better offer. Obviously, Simplify should do this only for its profitable customers and any offers should reflect the value of the customers: higher-value customers should be eligible for higher-value offers to tempt them to stay. And talking to dissatisfied customers will identify many problem areas that need to be fixed before they drive away other customers.
There’s your second suggestion: Set up a Save Team to retain profitable customers. And ensure that what the team learns through talking to these customers is used to fix the problems that caused them to want to defect in the first place.
Cloning your best customers
One of the hidden benefits of developing life-time models this way is that Simplify will understand which services have the highest profit margins, the order in which customers typically sign-up to them and which bundles of services influence customers to sign up new ones. This is similar to Amazon knowing that "customers who bought this book also bought … ." Simplify can use this insight to create a ready-made "migration path" for each customer.
Depending upon which services a customer has and the customer’s stage in the lifecycle, the company can make targeted offers at the right time to individual customers who already use particular bundles of services. And Simplify can also use this insight to understand why customers who have taken up services don’t use them. Many customers who take up even quite simple services never really use them. Often this is just because customers don’t know how to get the most out of the services they have signed up for.
There’s your third suggestion: Develop service migration paths for profitable customers and use them to make the right offer, to the right customer, at the right time.
Finding the new "best customers"
Once you know about customer value, your best customers’ migration path and what would lead those customers to defect, you enter a whole new acquisition game. Rather than just firing its marketing blunderbuss at all and any potential customers, Simplify can use its new-found insights about its best customers to identify how to create marketing campaigns and offers that appeal to new customers similar to its best ones. It can even use the most satisfied of its best customers to recruit other customers like themselves. Once acquired, these customers can be managed through their lifecycle so that they grow in value, are less likely to defect and tell others how great Simplify is. And each additional customer provides new insights to improve how the right customers can be attracted, grown and retained.
So there’s your final suggestion: Use insights from your best customers to develop winning campaigns and offers—and to target new customers who are just like them.
The traffic falls away as your enter the quiet residential area where you live. The late summer sun is still shining as you pull into your driveway. And you have four great answers to the CMO’s difficult question. You can almost taste the delicious Spanish food the catering firm is cooking up for you. After all, this is a very special occasion.