Huh? What happened to maximizing shareholder value? “Nurturing” sounds pretty soft for the hard-tacks of the business world. The logic, however, is straight forward.
Companies strive to create value. But what defines your firm’s value? And what is the source of that value? Investors and M&A folks will talk about market capitalization and a multiplier on profits. Your finance people will be quick to point out the company’s assets, from products and brands to processes and patents to property and facilities.
But value is created by customers. In fact,
• the value of your company is determined by the current and future value of cash flows from customers.
Customers buy stuff – that’s what creates value. Strong customer relationships prompt customers to buy stuff again (AKA retention), buy stuff more often (AKA frequency), buy more stuff (AKA cross-sell and share of spend), buy more expensive stuff (AKA upsell) and recommend that others buy stuff (AKA referrals). These actions or customer behaviors are
• loyalty behaviors, behaviors that create value for your firm – and the absence or negative of those behaviors destroys value.
Maximize these behaviors and you will maximize the value of your company. But these behaviors don’t happen randomly. They happen because of strong, sticky relationships reinforced by great customer experiences.
Every experience, every touch, is both an opportunity and a risk: you can further solidify customer relationships with the positive reinforcement of a great experience. But you also can weaken or undermine relationships by performance failures and disappointing customers. And, of course, you can leave customers yawning with eminently forgettable experiences that go into the ether. (BTW, experiences that elicit yawns aren’t really neutral; they skew to the negative and create relationship risks.)
Since customers create value through their behaviors, the goal of your company can be restated as
• the nurturing of customer relationships to stimulate those behaviors that maximize the current and future (or lifetime) value of customers.
This makes the role of marketing twofold:
1. motivate loyalty behaviors on the part of customers and
2. acquire new customers to motivate.
Everything else is noise.
The overwhelming majority of most companies’ revenues in any given year – more than 90% for most — will be generated by existing customers. How important is retention of those relationships? Look around: in all likelihood 90+% of your revenues next year will come from the customers you have this year. That’s the importance of retention.
In this context, customer relationships – and the experiences that feed or perhaps undermine those relationships – take on a whole new magnitude of significance. This makes customers your company’s most important asset. That’s why the care and nurturing of customer experiences and relationships is the defining priority for your firm.