In this article, you’ll learn…
- Five factors for maintaining successful customer relationships
- How to identify your most vulnerable customers
- How to calculate your company’s vulnerability index
In the early ’90s, the term “customer relationship management” (CRM) joined the marketing lexicon. Though the idea is often thought to refer to the implementation of some kind of technology, the real idea behind CRM is that the management of customer relationships is a business imperative.
CRM is about deciding which customers or segments to target, and then developing customer acquisition, retention, and growth plans that will attract and keep your best customers. CRM is really about making your customers the heart of your business.Our job as marketers is to acquire, grow, and retain profitable customer relationships to create a sustainable competitive advantage.
How do you measure customer relationships?
We’ve all come to accept that creating customer loyalty is an integral part of any organization’s strategy and focus. Various factors influence the success of any customer relationship initiative.
Here are five critical success factors:
1. Clearly defined business outcomes related to customer acquisition, retention, and growth
2. Agreement about who the customer is and what they want and need from your category (and you)
3. Well-defined customer segments (and their desired behaviors) and customer-experience objectives
4. A documented, integrated customer strategy
5. Explicit measures of success, and the data and processes needed to support the metrics
Customer satisfaction and loyalty are two of the most common measures of success. A variety of models are used to measure and quantify customer loyalty, ranging from simple recency and 2 referral models to RFM and customer lifetime value models. Recent research is examining those models to ascertain which, if any, truly measure customer loyalty.
Many organizations would agree that a loyal customer…
- Stays with the brand despite competitive offers, changes in price, negative word-of-mouth, and product failures
- Increases business/engagement in some way
- Actively promotes the brand to others
Though there are many approaches to measuring customer loyalty, one metric that many
organizations should consider is the Vulnerability Index.Add the vulnerability index to your marketing KPI’s. A vulnerability index serves as a way to measure loyalty in the face of competitive pull. Its purpose is to help you identify your most loyal customers—those who are going to stick with you through thick and thin.
To calculate your vulnerability index, you will need excellent market intelligence about your
competitors’ campaign’s channel, offers, and markets. Once you have this information, follow these seven steps to construct your vulnerability index:
1. Map the competitive activity. Include the competitor’s name, offer, duration of offer, and the offer’s focus area and market.
2. Generate a list of loyal customers in the market where the campaign ran.
3. Map their repurchase and engagement cycle based on frequency and last purchase date.
4. Isolate all the customers whose repurchase or renewal dates fall within the competitor’s campaign period. This is your observation set (OS) and the set of customers who will experience the greatest competitive pull and are, therefore, the most vulnerable.
5. Define your observation period, which is generally the campaign launch date and one purchase cycle after the last date of the competitor’s campaign.
6. Monitor the purchases by vulnerable customers. Track all the customers whose purchases drop during the observation period. These customers constitute your vulnerable set (VS).
7. Calculate the vulnerability index. Divide your VS by your OS and multiply that number by 100:
Vulnerability Index = (VS/OS) x 100.
The index will give you a good idea of the proportion of customers who are succumbing to
competitive pressure and some idea about the level of loyalty in those customers. If the index is high, you know that there is something to worry about. If the index is low, you can assume, with some degree of certainty, that your customers are exhibiting robust loyalty to the brand.
Because Marketing is charged with finding, keeping, and growing the value of customers,
customer retention falls within the domain of marketing. Therefore, marketing organizations
should have at least one objective aimed at retaining customers. In addition to monitoring customer loyalty and advocacy and customer churn, Marketing should also keep tabs on customer vulnerability. If your vulnerability index begins to climb and exceed that of your competitors, you can anticipate that your defection rate is going to increase. By monitoring your vulnerability index, you will know who your most loyal customers are, and you will be able to develop and implement strategies to withstand competitive pressure.
At a recent conference, Sylvia Reynolds, chief marketing officer for Wells Fargo, asked, “When did Marketing become the make-it-pretty department?” Reynolds then reminded conference participants that the fundamental role of Marketing has always been about the customer.
Essentially, Marketing’s role is to find, keep, and grow the value of customers. So what does that mean, and how does a marketer get beyond the “make it pretty” syndrome?
We can use the American Marketing Association’s (AMA) definition of marketing as a guide. The AMA defines marketing as “an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”
By using this definition, we can see that marketing is more than a creative function; rather, it is about a set of four critical customer-focused marketing processes.
Marketing sits in the space between the company’s capabilities and what the customer wants. By understanding the core capabilities of the company, and then matching it with customer wants and needs, marketing drives value creation.
This means Marketing must fully understand the customer. In this capacity, the marketing organization serves as a driver of an organization’s value chain by insuring products and services are shaped by customer expectations and demands.
To be the chosen supplier for your customer, you first have to be on your customer’s short list. To be on the customer’s short list, you need to know what the customer values. This way you can communicate how your company and its products/services deliver in such a way as to create a preference for your company and its products/services over alternative options.
Every customer touch point affects the customer’s decision and action; therefore, every touch point needs to be tied to and communicate the value proposition.
By establishing a strong link between customer value requirements and the major value- producing activities in the company, Marketing is in the unique position to enable the company to deliver on customers’ value expectations. Marketing can then use these value expectations to drive customer preference and stimulate purchase decisions.
One way to think of this is that at every customer touch point—whenever a customer will be affected by a decision or action—the people involved in that touch point need to understand and deliver on the value. In some organizations this is known as “moments of truth.”
Marketing is in the unique role of being able to look across all the touch points and monitor whether the value is actually delivered. Through constant monitoring, Marketing can help determine whether it is delivering on its value promise and whether the value proposition needs modification.
Managing Customer Relationships
We need to think beyond technology when we think of customer relationship management (CRM). Instead we need to realize that CRM is a business philosophy in which the customer plays a central, critical role in all business activities.
Though we can debate who “owns” the customer, Marketing is in the ideal position to be the centralized point for aggregating, segmenting, and analyzing customer data. This ability to create a single view of the customer comes with responsibility—to take a leadership role in creating and managing the processes associated with the company’s customer relationships.
For organizations to grow, the leadership team relies on Marketing for more “than just the pretty stuff.” It should be able to depend on Marketing to develop marketing strategies that create and deliver superior perceived customer value.
With this emphasis on increasing value, Marketing can help the firm achieve growth by penetrating existing segments, developing new markets, and creating new products and services.
Accordingly, marketers should be willing to own and be accountable for these four processes if they want to serve as growth champions within their organization and leave the “make it pretty” syndrome behind.