A good customer strategy needs to be measured.
How many times have we all heard that? Every time we read a new book on marketing or customer management, we see a different metric. Customer satisfaction, income, frequency, ARPU, churn, new customers, ROI, ROC, number of customer complaints, average number of complaints per customer. I could fill pages and pages of acronyms and metrics. On top of everything, we have all the management and marketing gurus telling us we need to measure. Peter Drucker told us many years ago, "If you can’t measure it, you can’t manage it."
He is right. Part of defining a good customer strategy is defining how we measure if it is working. And to know if it is working, we need to know the objectives of the customer strategy, so we can measure against them. But most companies make it almost impossible. They measure too many things. The multitude of metrics used makes it impossible for a company to act on them.
During the past eight years, I lead the customer management group at a leading telecommunications company in Colombia, where I reviewed and work with a set of metrics that allowed us to take fast and knowledgeable decisions in a very competitive market. We became obsessed with having information to see the results of our customer centric strategy. Measuring was just a part of life. Measuring important things, that is. Not measuring anything and everything.
At first, we all proposed around 180 customer centric KPIs, including average revenue per customer, total revenue per customer, average margin per customer, total margin per customer, average domestic long distance revenue per customer, average international long distance per customer, average number of complaints per customer, average income increase per customer per month, anything average per customer and everything total per customer. The list was just unimaginable. Then we realized that we needed to measure only three things : profitability, loyalty and satisfaction. One type of measurement for each of the three, measured consistently over time.
Obsession
Being obsessed with measuring what was important contributed to three improvements: working toward operational excellence; getting positive numbers after the second year in business (and three years before our original business plan; and getting 37 percent market share in less than five years. The results in customer satisfaction and retention were also great. We were leaders among all long-distance and mobile companies in Colombia. They are amazing results. We used measuring as "the gear" for the strategy.
Why do we need to measure? We need to measure to have focus, to have direction and to be coherent. Even to justify our budgets. We need to document real results compared to what we thought we were going to have.
A good set of metrics should be many things:
- It should be simple.
- It should be a small set that can be easily processed and understood, avoiding overload. (At Gartner’s 2006 CRM Summit, analysts recommended having five to 12 metrics.)
- It should be measured by the person who can act on it and can control its results.
- It should include positive things, not just such negative ones as the number of complaints a customer has made.
- It should be collected in a cost-efficient manner.
- And it should be used—not just presented on a report one reads once and keeps in a file.
Customer-centricity
What do we need to measure in a customer-centric strategy? A customer-centric strategy is focused basically on two things: customers and money. That is, satisfying the customer with the experience the company provides and positively affecting the company’s profitability. Remember that the experience is a combination of rational and emotional aspects. It includes the way a customer feels about the brand and about the company and what the customer thinks every time he or she interacts with the company. It is the consistency between brand and execution, between what the company says it is and what it does.
Having a positive impact on the company’s profitability means incrementing income or diminishing costs associated with providing a satisfactory experience to customers. We all know that it can be done by acquiring more customers, or retaining and growing high-valued customers. Measuring your strategy should take both elements into account. It should measure customer satisfaction with the experience, and it should measure the impact on profitability.
Measuring customer satisfaction with the experience is not just conducting a satisfaction survey or collecting customer feedback on specific processes. It is understanding what drives the customer behavior. It is understanding what the customer thinks, feels and says about the brand and if that is consistent with the company’s deliveries. Metrics such as customer satisfaction in general or customer satisfaction at specific processes are important. But they need to be congruent with brand metrics such as brand equity, top on mind or top of heart. Customer retention metrics cannot be forgotten. Measuring buying frequency, contact frequency, churn are also important.
Measuring the impact on the company’s profitability includes many customer value metrics. Metrics such as average revenue per user, customer lifetime value, share of customer’s wallet and a customer’s EBITDA ("earnings before all the bad stuff) are all very important. What a company has to do is select just a few of them and track them consistently over time, so the company can act on them.
A customer-centric strategy needs to be measured. Remember those wise words: If you do not measure it, you cannot manage it. Just make it simple and practical. Think customer and money. Focus on satisfaction with the experience and impact on profitability. Measure those metrics you choose and act on them. Do not just let them sit in your office begging you to use them.
