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.
Spring heralds two events here in Austin, the nationally known annual music, media, and film festival South-By-Southwest (SXSW) and the State of Texas Fair & Rodeo. Rodeo season brings together participants who compete on various skills such as steer wrestling, bareback riding, calf roping and bull riding. Bull riding is probably the most dangerous but most popular rodeo event designed to demonstrate the cowboy’s prowess and ultimate superiority over a 2,000 pound beast. You know what they say, “it’s not if you get hurt, it’s when.” Those of us in business during this current economic environment can certainly attest to the truth of this statement as there are many valuable lessons business leaders can glean from bull riding. In times such as these, companies face a host of challenges ranging from lost customers, long sales cycles, average order value declines, to margin pressure, low new product adoption rates, etc.
Companies deal with these challenges in various ways, typically in the form of cost reductions, in terms of budget cuts and personnel layoffs in order to offset lower revenue. Itʼs a rare company that uses times such as these to invest in new products, new markets, or new talent. Yet, one of the first lessons business can learn from bull riding is that there really is no way to outmuscle a bull; the key to victory is outsmarting him. The same applies when it comes to winning in the market – itʼs about mental toughness. Gary Leffew, a former world-champion bull rider and veteran of the sport is oft to have said, “Bull riding is 80 percent mental and 20 percent talent.”
So what lessons can we take from bull riding and apply to business? The following six lessons are applicable to every business..
Step 1 – Market Research and Business Intelligence
A bull rider may not know which bull heʼll draw. So he has to be prepared to ride any of the bulls in the pen. Part of his pre-riding homework is to have done research on each bull to learn its tendencies, such as whether it spins right or left and how it jumps, head up or down. A winning business invests in research to learn about its current and prospective customers, the competition, and the market in order to be properly prepared and make fact-based decisions.
Step 2: Market and Customer Centricity
Once the bull is selected, the rider puts a plan together based on the bullʼs tendencies. Once a business selects a market, they need a plan on how to penetrate that market: what products/services to provide, and what strategies and tactics to execute.
Step 3 – Competitive Positioning and Differentiation
The rider should mount the bull in the chute only after the bull is roped down and the rest of the team is in ready position. Before exiting the gate, a rider must make sure they are securely positioned on the bull with a good grip. The same applies to business because in todayʼs environment, competition is fierce and products and services are easily commoditized. A company needs to have a secure and competitive position that differentiates it from other fierce competitors. Your efforts will only be compelling and meaningful to the current and prospective customers when the entire team is in-the-loop and ready to execute.
Step 4 – Maintain Balance
So what does it take to ride? Once the bull and rider are in the ring, it is up to the rider to move his body with the bull, maintaining his balance with the bullʼs every move. Like some markets, bulls can be unpredictable and irrational which is why companies need to be agile when it comes to the customer and markets. The better a company can maintain its balance and adjust, the more likely they will survive in a dynamic and fluid market. Management teams need to facilitate regular and frequent communication with employees, customers and stakeholders in order to keep the team flexible and manage expectations. They invest in processes, systems, and tools to help the organization maintain balance.
Step 5- Winners Adapt
The best possible score for a bull ride is 100 points. However, a rider must hang on for the entire 8 seconds or their scores are invalid. It is a combination of qualities from the rider and the bull that determines the overall score. Bulls are scored based on their speed, agility, power, back end kicks, front end drops, directions changed, and body rolls. Riders are judged based on their ability to be in constant control while matching the bullʼs movements It is up to the rider to get the most of each ride, and to adapt to the bull heʼs riding. Successful bull riders are not timid, and must aggressively approach each ride with confidence. Similarly, success in business comes from adapting to the twists, turns, ups and downs in the market place. Successful business leaders aggressively pursue the market and use product development and marketing to overtake the competition. They look for opportunities to grow the business regardless of the environment by identifying chinks in the competitionʼs armor and new needs within the market. If a business doesnʼt hang on during rough times, then much like the fate of a bull rider just under the 8 second mark, all the hard work will remain unrewarded.
Step 6 – Speed of execution
A proper dismount is critical in surviving the ride. The smart move is to RACE straight to the nearest fence to avoid being trampled or gored. Bullfighters rush in to grab the bullʼs attention so the rider can exit safely. This is when teamwork is once again very important. Winners understand the value of “speed of execution.” Once a company has a plan it takes the entire team working together in a focused manner to achieve the results. Successful companies avoid misfires, disruptive start and stops, and team player changes that impede successful execution and serve as distractions that give an opening to the competition.
In addition to these six steps, bull riders realize that staying in shape, practice, training, and getting back on the saddle after a fall are table stakes when it comes to bull riding – just as they are when it comes to running a business. Lessons learned from bull riding can make all the difference in whether your business “stays in the money” or “lands in the mud.”
Ted Levitt, author of The Marketing Imagination, writes, “The role of marketing is to create and keep customers.” A marketing plan is a valuable instrument in helping Marketing plot a course of action for how it will go about creating and keeping customers.
Now that 2012 is less than 50 days away, you are likely tackling your marketing plan and budget. The pressure for marketing organizations to justify their spending, prove their programs’ contribution to the organization, and demonstrate value is only increasing.
A study this summer by Forbes Insights found that being able to measure marketing is “not taking a backseat” and that proving “how budgets are used remains a strong priority.”
Given the current economic climate, it is important to make every investment count. The issues of alignment and accountability are inextricably linked. Without alignment between Marketing and the business, it’s impossible to quantify the value Marketing is providing to the business, let alone focus on the right metrics to establish progress toward helping the organization achieve its goals.
And without the ability to demonstrate value, the budgeting process becomes a game of guesswork because there is no link between expenditures and desired results.
This past summer, a study with more than 4,000 top marketers by The CMO Survey found that marketing spending is expected to increase—with the caveat that Marketing be able to measure its impact.
An initial step every marketing organization can make, regardless of whether it has sophisticated data systems or measurement tools, is to develop a customer-centric, metrics-based marketing plan.
Such a plan serves as the foundation for improving marketing accountability. If developed properly, it will provide you with guidance on how to measure Marketing’s effectiveness and value.
These three steps can help ensure you are properly aligned with your organization and help you secure your marketing budget:
- Secure clearly defined business outcomes.
- Establish outcome-based marketing objectives.
- Develop performance-based programs.
1. Secure Defined Business outcomes
One of the most important steps you can take to help Marketing be more successful is to ensure you are aligned with the organization’s business outcomes.
An organization needs clearly defined business outcomes to be successful. Business outcomes need to be quantified so it’s clear what change is required. Since Marketing doesn’t market to buckets of revenue, marketing organizations that work from a revenue target are operating blind when it comes to business outcomes.
When you are working with your leadership team to clarify the business outcomes, be sure you secure the following information:
- How many “customer deals” does the organization need?
- How many of those deals will come from current customers buying current products?
- How many of those deals will come from current customers buying new products?
- How many of those deals will come from new customers, and where are those new customers located? In the same verticals and geographies we’ve always done business with? In new verticals and geographies.
Once the business outcomes are defined, you want to clarify what the organization expects Marketing to do with regard to those business outcomes and how Marketing’s effectiveness and contribution will be measured.
Keep in mind that the business outcomes are how the organization will measure success at the end of the time horizon. They are specific and quantifiable, for example:
- X% of Tier 1 current customers will adopt WIDGET X, resulting in $ of revenue.
- Acquire X number of net new customers in ABC segment to increase market share by Y%.
- Marketing is expected to contribute 100% to X% of Tier 1 current customers’ product adoption of WIDGET X.
- Marketing is expected to contribute 100% of the net new customer qualified opportunities in ABC segment.2. Establish outcome-based marketing objectivesThe business outcomes serve as the foundation for your marketing objectives, and each marketing objective should align directly to at least one of the business outcomes.
Measurable marketing objectives articulate how Marketing will move the business closer to reaching the business outcomes. The objectives should be measurable and time-bound.
- Increase preference for ABC product among top share determiners in XYZ markets from A to B by end of 2Q.
- Generate X number of qualified leads within six months of product launch at $Y/lead. Outcome-based measurable marketing objectives facilitate metrics development. The example showsshare of preference, qualified leads, and cost/lead-related metrics.Frame your objectives to reflect Marketing’s three core responsibilities: finding, retaining, and growing the value of customers. Those responsibilities directly relate to what most organizations are trying to improve as a result of revenue and sales: increased market share, customer lifetime value, and customer/brand equity.
Once you craft the objectives, secure agreement from the leadership team that accomplishing those objectives will constitute success. It is essential to secure this agreement before tackling the strategic and program-development elements of your plan. Without the agreement, you may be in for a significant rework.
3. Develop performance-based programs
A study by Forbes Insights suggests that marketers need to determine the overall success of a marketing program prior to implementation and then measure performance against those targets.
That exercise refers to program performance target-setting. Difficulty in setting performance targets is one of the most common challenges marketers face.
Long gone are the days when we can list something as generic as public relations or advertising. And the days where we could use output-based targets, such as a monthly email campaign to prospects or one webinar per month, have also gone by the wayside.
Today, marketers need to set outcome-based targets for their programs. So instead of a performance target of one webinar per month, an outcome-based target might be generating some number of Stage 1 phone appointments.
What are performance targets, and what does setting one entail?
A performance target is basically a stake in the ground that indicates what the program needs to achieve to be deemed successful. The selected measures and targets must be relevant to the objectives and outcomes.
The value of performance targets is that they help drive performance improvement, bring focus, enable course adjustments, and assess effectiveness.
Having baseline data is very helpful when setting program performance targets. A program’s past performance doesn’t necessarily indicate its future performance, but understanding what has been achieved, at what cost, and in what time frame can be useful information.
To establish the performance target, you need to clarify what result or action constitutes success. The closer success can be behaviorally defined, the better.
Once you know what behavior you want to motivate, then set a numerical range of performance (i.e., rather than setting a hard target of X, consider using a range, such as from X to Y). It will be important to attribute the action/behavior to the program and to verify the results.
Be accountable for the money
Organizations give Marketing money to invest on their behalf. The leadership team expects Marketing to use those funds to develop and execute strategies that will result in consideration and preference for the organization’s products and services.
Over time, they want us to achieve results better, faster, and less expensively. If Marketing is unable to meet that expectation, the leadership team will reallocate its investment.
When you tie investments back to outcomes and performance, you stand a better chance of securing your budget. The three steps suggested in this article enable Marketing to communicate how it is investing its resources to provide business value.
To be effective, Marketing needs to ensure alignment to business outcomes and to develop outcome- based marketing objectives and performance-based targets for its programs, tactics, and activities.
We all understand the need for Marketing to positively and directly impact the sales cycle and win ratio. This is still an area of challenge for many marketers.
The CSO Insights 16th annual sales performance study of 2,800 companies and an Aberdeen study conducted with 472 participants, brought to the light the need for marketing to do a better job when it comes to both quality and quantity of leads.
When these are out of kilter, sales cycle increase and the lead-to-conversion ratio declines. Both of these are critical metrics for marketing to monitor, measure and manage. Our ability to affect these metrics is indicative of how well Marketing is affecting business results.
Sixty-three percent of the respondents in the CSO Insights study reported that the quality and quantity of leads generated by marketing need improvement. The Aberdeen study found that 59% of the respondents don’t convert enough leads to sales.
The Aberdeen study revealed that Best-In-Class companies convert 44% of the leads to sales compared to an industry average of 26% and have experienced 8.4% year-over-year reduction in the sales cycle time compared to a 1.3% reduction by the industry average.
What do the Best-in-Class do differently?
Best-in-Class Marketing organizations embrace performance analytics, invest in training and technology, and streamline their processes in order to shrink lead turn-around time and response to customers. And they improve their understanding of the customer buying process and organize their marketing and sales processes around the way customers’ buy.
These six steps will help you engineer your pipeline around the customer buying process:
1. Create a detailed list of your customer’s entire buying process. (customers in different industries or different sizes may have different processes, so one process may not “fit all.”)
2. Organize the list in the order you think they occur.
3. Validate the process with your customer advisory council or board or other “friendly” customer.
4. Reconfigure your opportunity pipeline stages using the customer buying process so that your stages are linked to specific observable incremental customer buying behaviors.
5. Revise your lead scoring methodology to match the customer process to improve the handoff between sales and marketing, reduce leakage, and improve the conversation rate.
6. Synchronize your marketing and sales activities with the customer process.
The Value of Pipeline Engineering
Pipeline engineering helps identify where bottlenecks or gaps exist. For example, maybe there are too many contacts and the organization cannot process them quickly enough. Or there is a dearth of qualified leads indicating that the sales team won’t be able to produce the needed number of deals. We can also use the pipeline to compare a program’s performance to industry standards. Pipeline engineering allows you to calibrate your marketing and synchronize marketing and sales efforts. It truly is the first step in marketing and sales alignment.
This methodology also allows you to take a more scientific approach to opportunity and customer development enabling you to understand what is happening in the buying process and where to make adjustments. Pipeline engineering enables you to manage opportunities and improve the lead-to-win ratio.