Prospect Value Management: Maximize Profits, Not New Accounts

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Historically, most companies devote considerably more energy and resources to winning or capturing customers than they do on keeping them. The term “conquest” is a frequently used 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 Adrian Payne, professor or marketing at the University of New South Wales, showed that 80 percent of companies spend too much of their marketing budget on customer acquisition. He calls these companies “Acquirers.” Parenthetically, his study found that 10 percent spend too much on retention; and 10 percent, 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 on 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 calculated or considered
  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. History, we have learned, repeats itself. 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. 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.

What Does a Prospect Value?

Let’s deal with the second challenge first, namely gaining insight on what represents value for prospective customers. Surprisingly, with all the attention given to learning what leverages customer retention, customer loyalty, positive customer relationships, and even customer risk and loss, there is little research or information collection around what causes a prospect to become, or not become, a customer.

For prospective customers CRM is largely built on outbound contact and streamlined lead management.

One of the three main applications of CRM systems is selling and sales force automation (in addition to the other two: marketing and customer service), often through integration of multiple sales and communication channels. For prospective customers, however, CRM is largely built on outbound contact and streamlined lead management. While an enterprise view of CRM is focused on helping sales groups generate customers, and providing seamless support and service once customers are on board, companies infrequently attempt to identify 1) what prospective customers want or need, or 2) how well companies themselves are positioned to address and meet those wants and needs.

As a result, CRM systems tend to be less effective at the front end of a customer’s life cycle. Companies which are process-oriented and focused on creating benefit when it comes to keeping customers and optimizing their purchases over time, and even stemming and mitigating rates of defection or recovering lost customers, rarely give enough attention to pre-purchase processes or value creation.

Everyone can repeat stories, for instance, of being ignored, treated poorly, or given insufficient information or service by badly trained, indifferent sales and service staff, thus preventing them from making an initial purchase. Or, what about unreturned phone calls, non-response to email messages, or trying to navigate poorly-designed web sites? These are just some of the pre-customer process breakdowns which CRM systems could address, in both b-to-b and b-to-c worlds, but so rarely do.

What is a Potential Customer Worth?

The other prospect challenge is that of customer suitability. Stating that all customers are not created equal is hardly an oversimplification. But, just like the pigs in Orwell’s Animal Farm, some customers are more equal than others. No company has unlimited resources to equally service or support all their customers. Repeat buying power, one key element of customer loyalty, is everything when prospecting for potential customers. Some customers are worth a great deal, some may become more valuable over time, some may be valuable for a brief period but may be easily lured away, some are only seeking a price which would be disadvantageous for the supplier, and some are never likely to become valuable.

No company has unlimited resources to equally service or support all their customers.

At minimum, companies need to segment their customers so they can determine how much longer that customer will remain with them, how much revenue and profitability each customer will contribute, how much and what kind of services the customer should receive, and what efforts will be needed to keep them whether they are new, at risk, or even already lost. Also, if a company is changing product or service focus—such as beginning a new CRM or frequency marketing program—decisions will have to be made about which customers they want to retain.

Just as companies are becoming smarter about keeping the customers they want, or “firing” less attractive customers through stepped-down services, they have to invest more up-front in learning which potential customers will be the most valuable over time. This goes beyond segmentation. It is almost pre-segmentation.

In an industry like gaming, where the level of customer migration is very high, it is imperative that casinos not only keep the players they want but target the right customers in the first place. They do this in a number of ways, including geodemographic profiling, for their acquisition. For the high rollers they’ve lost, many of the casinos make an extra effort to get them back as well.

Other industries are beginning to learn how to profile and focus on the best prospects. In the retail automotive industry, for example, potentially loyal new customers take less time making their purchase decisions, consider fewer dealerships, are less price-driven, and rely less on magazine articles and other media and more on previous experience, word of mouth, and personal recommendation. The shrinking pool of auto dealerships would be well advised to learn this about prospective customers at an early point in the sales process.

Ideal Customers

Advanced companies have begun to understand the financial and other values of advocacy, seeking customers who:

  • Need less direct motivation (incentive) or indirect motivation (promise of support and committed resources) to purchase
  • Have demonstrated more resistance to claims and attempts to lure them away
  • Are less price-sensitive, and place more value on intangible, relationship-based aspects of delivery
  • Are more accepting of occasional value performance lapses and are less likely to accept alternatives if their brand/service is unavailable
  • Demonstrate more positive attitudes about ‘their’ brand, and actively, and positively, communicate about their preferred brand or supplier

Similar attention should be paid to undesirable prospects. Just as attractive customers should be sought, companies should make an effort to identify potential customers who may be an inappropriate match. They may need too much service, have a history of being transitory, require unreasonable price concessions, and the like. Pursuing customers with those kind of characteristics is, simply, a waste of resources.

In all the haste to bring in customers, companies can often forget to court the right customers, those who represent the best long-term revenue potential, or who won’t overtax the company’s customer service and support structure and are most likely to stay with the company in the first place. In our 2001 book, Customer WinBack, my colleague Jill Griffin and I called this tendency to be non-selective the “Casanova Complex,” and it’s to be avoided. Effective targeting, as a means of exercising discipline, certainly merits at least as much emphasis as the preoccupation with identifying and converting prospects.

Michael Lowenstein, PhD CMC
Michael Lowenstein, PhD CMC, specializes in customer and employee experience research/strategy consulting, and brand, customer, and employee commitment and advocacy behavior research, consulting, and training. He has authored seven stakeholder-centric strategy books and 400+ articles, white papers and blogs. In 2018, he was named to CustomerThink's Hall of Fame.

1 COMMENT

  1. Indeed a very informative and thoughtful article. You are absolutely right Michael! We always try to preserve an account instead of growing the account.

    Regards,
    Kajal Das

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