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.
For businesses, a pipeline is a targeted list of potential buyers who might have an interest in your products or services. Many companies face the challenge of capturing the attention of potential buyers and moving as many of these potential buyers as possible through the pipeline stages of contact, connection, conversation, consideration, consumption, and community. More and more companies are relying on Marketing to continuously and effectively grow their organization’s opportunity pipeline. Potential buyers who are not converted into customers are often referred to as leaks or pipeline leakage. Our role, as marketers, is to “plug the leak” and improve conversion rates. If the Marketing and Sales aspects of the pipeline are not connected and aligned properly, the potential pipeline leakage can be very large. So a crucial step is ensuring Marketing is properly aligned with Sales. Marketing and Sales alignment allows for the creation and implementation of strategies, programs, and tactics that will facilitate pipeline opportunity development and movement. Once your company achieves this alignment, the next important step is for Marketing to focus on marketing initiative that will effectively and efficiently contribute to pipeline performance and the generation of customers. We must be able to clearly demonstrate and measure our contribution to the pipeline.
Unfortunately, a Forrester Research study, “Redefining B2B Marketing Measurement,” found that “the metrics that most B2B marketers say they use — like number of leads generated and cost per lead” — rank in the lower half of the effectiveness list.” In fact, number of leads generated and cost per lead may actually work against us if we don’t look further into the buying process. At first blush, one program may produce more “leads” than another at a lower cost and therefore appear more efficient. But what is really important is how many of the opportunities convert (don’t leak) to the next stage in the buying process. If there is a higher conversion rate from the more expensive program, than it is actually more effective. If we only look at a marketing program in terms of qualified leads generated and cost, we could potentially be eliminating programs that actually help build the pipeline.
Therefore, we need to move beyond the lead as the marketing metric and leverage metrics more meaningful to the organization — metrics that are more closely tied to customer deals. Customer deals– that is, sales — is for most organizations one of the most important business outcomes. Every company establishes a revenue goal. This revenue target is generated by some number of deals and dollars from existing customers and some number of deals and dollars from net new customers. This brings up the question of what metrics should CMOs and their teams use to measure Marketing’s contribution to the pipeline? Here are four metrics to consider:
1. Pipeline contribution which measures the number of opportunities generated by Marketing that convert into sales opportunities and ultimately into new deals. This metric helps ascertain to what extent marketing programs and investments are positively effecting the win rate and reducing the number of qualified leads that wither and die or are rejected by Sales.
2. Pipeline movement which measures the rate at which opportunities move through the pipeline and convert to wins. This metric helps assess the degree to which marketing programs and investments accelerate the sales cycle.
3. Pipeline value which measures the aggregate value of all active marketing opportunities at each stage within the pipeline. This helps determine what increase in potential business marketing investments may generate.
4. Pipeline velocity which measures the rate of change within your pipeline-both in speed and direction. This enables you to determine whether your sales are accelerating, decelerating, or remaining constant.
When examining each of these metrics it is important to compare the marketing generated opportunities compared to non-marketing generated opportunities. This means we need to understand what is the difference in the win rate, average order value, conversion rate, and velocity between marketing generated opportunities compared to non-marketing generated opportunities. Ideally, over time, by monitoring results and analyzing the data related to these metrics, Marketing can begin to create more predictable results in terms of contribution, conversion, and value.