By Francis Buttle[1], Julie Jones[2], Merlin Stone[3]
In our previous article, the first of four, we presented an overview of a new model of Customer Relationship Management, dubbed the CRM Value Chain (CRM VC). The CRM VC, shown in figure 1, aims to demystify, characterise, and conceptualise CRM. The CRM VC is made up of three Core Processes supported by five Enablers all of which contribute to the goal of driving up customer profitability.
We explored the idea of customer profitability in our first article. In this second article, we dig deeper into the three Core Processes and in the third and fourth articles we survey the five Enablers.
Three Core Processes
The three Core Processes that deliver customer profitability are named across the top row of the Value Chain. They are:
- Identify Opportunity.
- Develop Offer, and
- Manage the Customer Journey.
Identify Opportunity
Opportunities can be identified at four levels of magnitude; in descending order these are markets, market segments, customer clusters, and unique customers. A market is best thought of as aggregated demand for a defined class of product. For example, we can talk about the market for strawberries or yoga classes; a market segment is some valuable division of that larger market, for example, bakeries are a market segment for strawberries, and senior citizens are a market segment for yoga classes. A customer cluster is a group of existing customers that have some attribute in common, such as being onboarded during a particular advertising campaign, or customers who have not bought any product in the last 6 months. The unique customer is… well, a cluster-of-one!
Initially, companies tend to spend time and money investigating opportunities at the market and segment level. The goal is to identify which markets and/or segments present attractive profit opportunities. Once new customers have been onboarded, the focus shifts to profit opportunities provided by customer clusters and individual customers.
Broadly speaking, an opportunity is an opening to solve a customer problem more effectively, at a lower cost, or with better customer experience, than current solutions. For example, the strawberry farm delivers berries to bakeries just-in-time for the production of muffins; our yoga instructor runs yoga classes with exercises and routines specifically designed and proven to be beneficial for senior citizens.
Identification of opportunities, of course, relies on insight; on a deep and empathic understanding of customer needs and expectations, and of the competitive landscape. Data and analytics are essential enablers of insight. We return to this in the third article in this series. Analysis delivers answers to questions such as: which geographic markets offer the best potential? Which market segments are not well served by competitors’ offers? Which customer cluster offers the best cross-sell opportunity? Which customer is most likely to respond favourably to a particular offer?
Develop Offer
The second Core Process on the CRM VC is “Develop offer.” The offer is the value proposition that is presented to the market, segment, customer cluster, or unique customer.
A value proposition can be thought of as the promise explicitly or implicitly embedded in the offer. Although it is traditional to focus on the product as the main source of value to customers, it’s important to remember two things: first, customers often make decisions based on consideration of other components of the offer, especially when products have become commoditised; second, there are occasions during the customer journey when the most appropriate action does not involve making a product offer. We return to this issue later in this article. However, excellent product-based value propositions typically promise more effective and more efficient solutions to customer problems, and improved customer experience (CX). Figure 2, the Value Star, identifies several offer variables that can be customised to offer improved customer-focussed value.
Process — how things are done with and for customers — is often particularly important because of its influence on CX. Broken, slow, or unresponsive processes deliver poor CX. Whilst it’s important for back-office processes to operate efficiently, it’s even more important to customers that the processes they encounter, or interact with, deliver an excellent experience. These may be small processes such as how new customers are onboarded; or big processes, such as how teams of account managers and engineers collaborate with customers to develop improved solutions for those customers’ problems. Marketers have typically neglected to think through and consciously design the processes that customers engage with when they first do business with the firm. CRM software applications often come with embedded processes, which, can, if necessary, be customized to suit the needs of a particular user firm.
Price can also be a source of value to customers. Offering a variety of payment options, for example, can be a source of perceived value. Some customers will value Buy Now Pay Later (BNPL); others may want to use PayPal. Some want to pay cash; others prefer to use their electronic wallet.
Service — before, during and after the transaction — is also a source of customer value. Consider, for example, pre-sale advice from an engineering consultant, assessment of competitors’ offers during purchase, or installation assistance after the purchase. Location, too, can be a source of customer value and offer better CX. Our yoga instructor doesn’t have her own studio, but partners with a local community centre that provides easy and safe access for less mobile seniors.
Logistics can also be a source of value for customers. Logistics is about OTIFNERP distribution — On Time, In Full, No Error, Right Price — where those parameters are defined by the customer. Where one of those parameters is performed sub-optimally, CX will be poorer. Some firms make a competitive virtue out of their logistics performance, perhaps no more evident than when Just-in-Time logistics is offered. JIT essentially means that customers do not need to carry stock, which frees up their working capital for other purposes. Instead, the supplier carries stock or manufactures on-demand and delivers JIT to the customer. The strawberry farm doesn’t itself deliver but partners with a local chilled products distributor to get berries to the bakery JIT.
From the customer’s perspective, more communication is not necessarily a good or valued thing. What really matters to customers is to receive the right communication in the right channels at the right time. Paradoxically, often the right communication is no communication — silence. Say nothing when there is nothing of value to be said. Of course, there are many times when customers will welcome outbound communications from a supplier: a text reminding them that an insurance policy is about to expire; a pop-up message advising that an incomplete order remains in an online shopping basket; a thank-you note post-purchase letting you know that help is available online if required. No customer wants to be bombarded with untimely, irrelevant, messages making offers that are not aligned with their needs or requirements. Regrettably, some CRM practitioners seem to think it’s OK to send daily, weekly, or monthly offers to their database of customers regardless of customer preferences. This is the dark side of CRM.
Finally, people can be a source of value for customers. A knowledgeable, empathic, responsive customer service agent; a skilled service technician who fixes a problem first-time; a hotel concierge who knows everything about a destination — all of these add value and enhance customer experience. Sadly, the opposite is also true — an ill-mannered, unhelpful, unresponsive customer service agent can drive customers away.
Manage the Customer Journey
The third Core Process is “Manage the Customer Journey.” The goal in managing the customer journey is to build lasting relationships with profit-generating customers, based on the delivery of positive CX and effective problem-solving.
We identify three main stages of the customer journey: customer acquisition, customer development, and customer retention. Each of these major stages breaks down into several sub-stages which may look different from the perspective of the supplier or customer. For example, customer acquisition might involve a supplier in prospecting, lead identification, lead scoring, lead nurturing, and customer onboarding. From the customer’s perspective, the process can look very different: identification of an unmet need, search for alternative suppliers, evaluation of those alternatives, supplier selection, negotiation, and trial purchase.
Suppliers should try to understand the processes the customer goes through so that they are better placed to offer positive CX in those journey stages. For example, a company that understands the importance of online in a prospect’s search for a supplier will develop a site with an engaging user experience. This typically means simple navigation, large elements, clear copy and calls-to-action, and dynamic content that varies for each prospective customer.
The customer development process aims to grow the profitability of customers in one or more of three main ways: cross-selling, up-selling, and cost-reduction. Cross-selling involves selling additional products and services to the customer; up-selling means selling higher-priced or higher-margin alternatives to the customer. Removing costs from the customer relationship can also enhance the profitability of the customer. Maybe customers can self-serve online, or a monthly sales cycle can be replaced with quarterly sales calls, or components of the offer that are not valued by the customer can be eliminated or reduced.
Customer retention strategy aims to retain not just customer numbers but the profitability or Customer Lifetime Value (CLV) they generate. When a customer churns to a competitor they take all future CLV with them and they eliminate any additional value that might have been generated by their referrals. Customer retention strategy starts by identifying which customers the business wants to retain. Firms employ a wide range of customer retention strategies that usually work by lifting customer engagement, such as example loyalty programs, customer clubs, and developing structural and social bonds. As we’ve pointed out in our previous article, not all customers are worth retaining. Indeed, a business’s profitability can be improved by divesting/clearing out customers who cost more to service than they generate in contribution margin.
We mentioned earlier that there are occasions on the customer journey when trying to sell a product is not the appropriate offer to make. Yes, it does make sense to create an enticing product offer to acquire a new customer, and it may be appropriate to create value by cross-selling customers, particularly if they are satisfied with their experience of doing business with your firm. However, the offer that is made to build customer retention might not be product-based at all. The offer may be an invitation to join a customer club, enroll in a loyalty program, refer a friend, attend a product launch, enter a competition, experience a free product service, or many other relationship-building offers. It’s also important to understand the customer’s context when composing offers. Trying to up-sell a customer who has an unresolved complaint is unlikely to lengthen the tenure of the relationship.
Customer managers need to think strategically, develop budgets and plans, and identify suitable CRM tools to help execute plans on each stage of the journey. It’s no longer sufficient just to put together a generic marketing plan. For example, a CRM-driven plan would identify which prospects the firm wants to onboard, and how these prospects can be reached and nurtured until they are ready to buy. Many CRM tools can assist in this process. Customer managers should also consider which customers the firm wants to retain and the strategies and CRM tools that are most appropriate. Similarly, which customers does the firm want to terminate and how can that be done courteously and effectively? Which customers offer potential growth in CLV and what CRM tools can be deployed to that end? There is a huge variety of CRM tools available for use in marketing, selling, and service touchpoints. We return to this in our next article.
Coming Up
These three Core Processes — identify opportunity, develop offer, manage the customer journey — are empowered by the five Enablers that we will explore in our third and fourth articles. Without these Enablers, CRM cannot create value for the firm.
Notes
[1][email protected] Formerly Professor of Marketing and CRM at Manchester Business School (UK) and Macquarie Graduate School of Management (Australia), Consultant in CRM, Customer Experience Management and Word-of-Mouth.
[2][email protected] Lecturer in Marketing at Aberystwyth Business School, Wales. Marketing Consultant and Chartered Marketer
[3][email protected] Formerly Professor of Marketing and Strategy, St Mary’s University, Twickenham, London, England
