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?
Post a comment and get the conversation going.
Graham Hill
Customer-driven Innovator
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So well said and educational to read!
Similar to that credit card company, a telco in the Netherlands is running win-back marketing programs that offer clients the ability to put together their own retention offer on the web site. This seems particularly clever to me because often you switch becaue you are looking for a new deal on a device or plan. In order to reengage customers to walk themselves through this process they employ a combination of channels ranging from SMS to mail to web.
Another telco, this one in the US, has worked on the first part of the problem that you address in the article. They have refined their attrition prediction models by including customers’ web site behavior as part of the attrition. Turns out that certain site behavior is highly indicative of attrition risk with certain rate plans while other site behavior is indicative for other rate plans. Overall, the company achieved 10-15% lift in their retention models. But more importantly, the behavioral component from the web site will hopefully make the model more “real time” than models built on demographics, etc. etc.
Thank you for the insights!
Akin
Hi Akin
Long time no hear. Thanks for your comment.
The volumes of customer data are proliferating at an ever increasing rate. There is data from transactions, from website vists, from social networks and of course, hidden data about their fundamantal needs. All of this data needs bringing together intelligently so that it can be used by customers and companies to co-create value together.
But companies have focussed on the mostly low-hanging fruit of transaction data that yields good but by no means impressive results for telcos, banks, utilities etc. The current craze for real-time analytics is just a more expensive version of the same. Companies are only just beginning to think about the other types of much more informative data and how to bring it together and make sense of it.
And customers are getting in on the act too. Fed up with being spammed by direct marketers abusing the low hanging fruit, they are starting to demand control over their own data and to be paid by companies wishing to use it for marketing. Just like at innovative telco Blyk in the UK that offers free mobile calls and texts in return for listening to adverts. Or they are opting completely out of marketing altogther.
Just like in the Kaplan & Norton did in the 1990s for performance management data, we now need a balanced scorecard for customer data that looks at the different types of data required, how to structure it and what to use it for. Companies need to start to think about all aspects of customer data, not just the low-hanging fruit of transactional data.
I will write about this in more detail in a subsequent blog post.
Graham Hill
Customer-driven Innovator
Follow me on Twitter
Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.
See the follow-on blog post about:
It’s Time for a Balanced Scorecard for Customer Data
http://www.customerthink.com/blog/it_s_time_for_a_balanced_scorecard_for_customer_data
For more details and further discussion.
Graham Hill
Customer-driven Innovator
Follow me on Twitter
Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.
Graham:
You’ve touched on some very interesting and important points where customer analytics, customer insight and customer innovation intersect.
From my perspective, CRM is a journey toward creating a meaningful and sustainable point of difference among one’s customers, not a destination; it’s an organizational philosophy, not a software package or technology implementation. But perhaps most importantly, it’s the recognition that CRM is not about what the company wants; it’s about what the customer needs.
To do so, companies need to adapt the organization to support current and future customer needs and then apply the right customer-centric people, processes and technologies that support those efforts.
This economic environment challenges us to be different, by changing the status quo if we are to survive the transition. Those unable are caught in what I call the “Barriers of Convention” syndrome, where the status quo remains anchored to old world thinking, ideals, strategies and the perceived need to protect long-tenured functional power bases.
Companies caught in the BOC syndrome have not crossed the philosophical, attitudinal, functional and operational chasms from product/channel centricity to true customer-centricity.
Prior to the economic downturn, the primary pursuit of CRM by companies was to enable and sustain high levels of growth by adding new customers, growing existing customers, capturing more market share and improving service. With the cooling economy, companies have traded growth for cost-savings including substantial employee layoffs, and are focused on increasing the efficiency of existing business processes and resources. In effect, these firms are attempting to realize more from their existing investments. Since customers are, in fact, a company’s greatest asset — one in which the firm has made a considerable investment, it stands to reason that a company would want to realize more ROI from their existing customers.
I believe that companies need to break free of their conventions and be mindful of the following:
A. Identify the best, next best and the worst customers through analytics. As the economy declines, identifying the most profitable, as well as unprofitable, customers is a growing concern. A business relationship requires that we identify best and next best customers and collaborate with them to create new value that will benefit both parties over the long term. Deciding which customers to focus on and which to neglect is the first and most important strategic decision. Recognize that value creation is a joint experience between the brand and the consumer and consequently, value will vary with each customer.
B. Win through customer-centric innovation. Creating new and mutual customer value means that companies need to have a process for customer inclusion and collaborative innovation. Old-style innovation that comes to fruition using off-line attitudinal research and product definition is not sufficient. The customer must be involved throughout the process. Online customer advisory panels and Web 2.0 social networking communities are present-day examples.
C. Measure customer performance. Focus on customer profitability with the goal of improving it, rather than the tradition of only measuring product, product line and divisional profitability customer costs and customer value perceptions. It is quite acceptable to sell products at a loss if the relationship is profitable and/or strategic.
D. Align budgets with the customer centric journey working with Finance to implement processes and technologies to view departmental accounts through a customer-centric lens, thereby mitigating the risk of the customer being impacted, ignored or alienated when tough business decisions are made during bad economic times
In conclusion, I would heartily agree that companies need to adopt a more customer-intelligent approach in order to survive and thrive in the recession.
Cheers!
Phil