The goal of marketing is to help create new customers. And across industries, one of the primary drivers of new customers is… positive word-of-mouth from existing customers. Looked at this way, shouldn’t investment in driving loyalty from your customers be looked at as marketing?
Through this lens, what’s the difference between investing in social media, TV advertising, direct mail – or customer experience – as marketing initiatives? The truth of the matter is, your customers should get the lion’s share of your marketing team’s attention – and a goodly share of budget, because current customers are one of the – if not the – best ways to get new customers.
Here’s the overarching issue: The mindset most companies have when talking about the cost of customer experience and customer service improvement – key drivers of loyalty and positive word-of-mouth – is usually wrong. Customers cannot be thought of as a financial liability or an expense. But that’s exactly how investments in them are most often viewed.
Changing Your Perspective: Follow the Money
The greatest mistake many firms make is failing to invest in developing the overall value of customer relationships. Instead, they focus on the tools for reaching out to customers: campaigns, channels and media.
There appears to be a sort of cognitive dissonance underlying the marketing strategy that most companies espouse. They publicly claim customers are their greatest assets but then do nothing to nurture their value. Recent AdAge research shows 60 percent of companies spend 20 percent or less of their marketing budgets on retention strategies. This is a problem, especially considering the high cost of limited customer loyalty.
Changing this perspective is going to take some work. In our experience, one of the greatest drivers of change is financial proof. So, we need to follow the money – and it’s not that hard to do. According to a 2011 report from Oracle, 86 percent of customers will pay more – up to 25 percent more – for a better experience. And, its been proven time and again that loyal customers are more likely to not only spend more but share positive stories of your brand with others.
Then, there’s a study that correlates stock market performance to customer experience leaders and laggards – showing that leaders generate far greater returns than laggards. This is the macro-level data that you need to pay attention to: Businesses with the highest levels of customer experience outpaced the cumulative total returns of the S&P 500 by threefold from 2007 to 2012. On the other side of the coin, companies that neglected customer experience saw a negative 33.9 percent decline in total returns.
Which side of this equation you end up on will depend in large part on where and how you decide to invest in your customers – or not.
How One Market Leader Does It: By Putting Customers First, Success Follows.
Amazon is often held up as a customer experience and market leader. It’s not an accident. They have long been a proponent of investing in customer experience, offering more and more services to their customers and doing so better and more cost effectively than many of their competitors.
As a previous CMO post pointed out, Amazon has a major focus on proactively delivering great customer experiences. I experienced this myself, receiving this email last Monday:
Hello,
We noticed that you experienced poor video playback while watching the following rental(s) on Amazon Instant Video: World War Z
We’re sorry for the inconvenience and have issued you a refund for the following amount(s): $3.99
While Amazon Video On Demand transactions are typically not refundable, we are happy to make an exception in this case.
Now, the movie looked fine to me. But the fact that they noticed something I didn’t and proactively took action simply confirmed why I go to Amazon first for almost everything. Along with millions of other customers, I might add. Amazon put my needs ahead of their short-term profits and not only confirmed my loyalty—they’ve made me an advocate. That’s an investment worth making and a strategy worth emulating.
More and more, customers are looking for companies that look out for them and will avoid the ones just “selling.” To achieve this, companies have to look at their investments in customer experience and relationship quality through the same ROI-driven lens that they’ve always used to justify investments in advertising and promotion – and do so with the understanding that your customers are likely the most valuable marketing investment you can make.
Which begs the question… I wonder where that $3.99 gets charged to when Amazon’s accountants categorize the GL… Marketing, maybe?
This blog originally ran on CMO.com, where Michael Hinshaw writes the weekly “Get Customer-Centric” blog.
Your blog is, pardon the pun, right on the money. Many, if not most, companies are overly leveraged and focused on customer acquisition and non-personalized methods of maintaining continuity with existing customers. As I wrote in a piece (“The Preoccupation With Pre-Customers”) for another marketing and customer experience portal several years ago:
“Many companies devote considerably more energy and resources to winning or capturing customers than they do on keeping them. The word 'conquest' is a frequently used surrogate term for new customers, especially among automotive retailers. Consultant and author Robert Tucker has stated, "Companies are often so concerned about attracting new customers that they denigrate their unique value proposition to loyal customers.” They focus instead on chasing down the next sale, competing on price, and compensating employees more for winning new accounts than for keeping existing customers happy and loyal.
A multi-industry continental Europe study by Professor Adrian Payne, visiting academic (from Australia) at Cranfield University in the U.K. showed that 80% of companies spend too much of their marketing budget on customer acquisition. He calls these companies 'Acquirers'. Parenthetically, his study found that 10% spend too much on retention; and 10%, whom he calls 'Profit Maximizers', seem to get the mix right.
Why does this overemphasis and preoccupation happen? There are five reasons, according to Professor Payne:
1. Belief that existing customers will be retained; company needs to focus resources on building acquisition
2. Companies experience high churn rates, the 'leaky bucket' syndrome
3. Customer acquisition is reported regularly to analysts, share holders and senior management; but churn rate may or may not be reported
4. The lifetime value profit impact of lost customers is not reviewed
5. Sales force and senior management compensation is often based on acquisition, not retention
The acquisition mindset of marketers and senior management isn't likely to change anytime soon. We can preach and preach about the advantages of a balanced, or profit maximization, approach to customers and optimizing value over life cycle, striving to "change the basis of their thinking”; but we had also better be prepared to help acquisition-obsessed companies in the real world.
This drive to acquire customers often leads to the twin challenges associated with bringing new purchasers into the fold. As you note, these challenges are the superficial approaches to customer targeting and qualifying, and also to understanding the factors impacting perceived value and behavior for the prospect, who has yet to make an initial purchase.”
So, through a more customer-centric approach, building relationships and creating and delivering value through experiences to existing customers is the superior method of generating, and sustaining, revenue.
In thinking about strategic customer value, there is another element of the customer life cycle that many companies miss. It is the lost, or defected customer, who may become highly profitable if recovered. My colleague Jill Griffin and I covered this in our 2001 book, Customer Winback
(http://www.amazon.com/Customer-Winback-Recapture-Customers-Loyal/dp/0787…). With case study examples, we were able to demonstrate that it is possible to generate up to ten times the net return on customer investment (ROCI) of won-back former customers compared to newly converted customers.
“86 percent of customers will pay more – up to 25 percent more – for a better experience. ”
Think about the wasted value that represents! Happy customers keep coming back and are the ones that hold your doors open long enough to find and connect with new customers. You can’t grow your customer base if the foundation is constantly leaving for the competition.