The recession has resulted in a number of companies having to change their ‘business operating models’ and to switch their emphasis. Sometimes this can have unintended consequences . For example, talking to one telecoms executive, his company’s emphasis has changed from acquiring new customers, to retaining the ones it already has. This is quite a change for the telecoms industry, more used to spending huge sums of money acquiring new customers to replace the ones that it lost the previous year, than to keeping existing customers. This change applies to many other industries too.
As the recession evolves into something more frightening, I am sure that there will be many more of these ‘phase changes’, as businesses switch from their current operating model to a different one.
The difficulty with changing the emphasis from customer acquisition to retention, is that it requires very different business capabilities. Acquisition is generally done through mass marketing campaigns to the market as a whole. What is generally on offer is a bundle of product, service, even experiential components, that are almost identical to what competitors are offering. The emphasis is on competitive intelligence and mass marketing capabilities. Retention on the other hand is mainly done with a combination of mass-customised follow-on offers to individual customers based upon their recent behaviour. The emphasis here is on customer analytics and mass-customised marketing capabilities. Making the switch can be very difficult, as although most companies already have these new capabilities, they are not always there in the right quantities to deliver against management’s change in emphasis.
And as if that wasn’t bad enough, customers have changed their behaviour as a result of the recession too. Their basic needs haven’t changed, but the products, services and experiences they ‘hire’ to do them have. Customers are putting off buying some products until later. They are swapping products for cheaper alternatives. And they are using less of the products that they do buy. This changing behaviour means that customer analytical models developed on data sets from even as recent as three months ago, may already be obsolete. Customer behaviour has changed in the last three months and the models will need redeveloping to match. And the further we go into the recession, the bigger the future changes in customer behaviour will likely become and the faster analytical models will become obsolete.
One way out of this dilemma is to hire more people to do customer analytics. But that quickly reaches a point of diminishing returns, as it is not only the ability to develop models that is important, but also the ability to implement them in day-to-day marketing activities. If my own experience is anything to go by, it might take only ten or so days to develop a customer analytics model, but it might take double or triple that to implement it, to develop matching offers, to integrate marketing support and to put in place the right performance measures. And there are operational complexity limits to how many models most companies can operate at any one time.
Another option is to go back to basics and look at what customers really need – in terms of the jobs they are trying to do and the outcomes they are looking to achieve by doing them – and to use these insights to innovate around products, services and experiences so that they exactly match customers’ needs. (Perhaps this is long overdue; many companies today have become so wrapped up in themselves and their competitors that they have almost forgotten about customers’ real needs.) This isn’t as difficult as it sounds. In industries with highly modular products managed by computer systems, this may just mean adjusting the systems to create new product bundles, rather than going through the whole new product development process from scratch. For example, Turkey’s Garanti Bank developed a Flexi credit card that is made up of a number of components, such as interest rate, fees and loyalty points, that customers can customise themselves to construct their own credit card. This approach has the advantage that it not only increases the company’s responsiveness to customers’ real needs, it also greatly reduces the costs of marketing, as ineffective offers are not made to customers at all. With marketing response rates averaging 1-2%, we are talking about a lot of ineffective offers and wasted marketing costs that can be reduced.
I believe that companies should go for the best of both worlds. They should look afresh at what customers really need, they should use these insights to innovate around products, services and the customer experience, and they should develop needs-based customer analytical models that help match the right products to the right customer needs at the right point in time. It sure beats flogging out-of-date models and offering out-of-date products to uninterested customers.
What do you think? Can companies manage by just doing more customer analytics? Or do they need to adopt a more customer-intelligent approach to survive and thrive in the recession?
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