Cultivate Relationships to Increase Margins

A critical component of customer relationship management (CRM) - and yet often overlooked - is the cultivation of existing customers. We’ve seen it all too often; companies spend nearly all of their time and scarce resources trying to attract new customers - while existing customers are largely ignored. This practice can be costly in terms of lower profitability and higher customer turnover rates. Companies seeking to improve their CRM practices should look no further than cultivating existing customer relationships.

The Importance of Cultivation

All too often, businesses large and small become focused on one simple thing: attracting new customers. While this is an important dynamic for real business growth, it can become toxic if it is overemphasized and becomes the ONLY focal point for the business.

Customer acquisition is often the most costly and least profitable component of the overall customer experience. Companies throw promotions, price discounts, or free products and services at potential new customers - all of which can quickly hike up acquisition costs and squeeze profitability.

Don’t Make a Loss Leader be a Total Loss

We see examples of high acquisition costs every day. Grocery stores and other retailers are famous for offering loss leaders - popular products or commodities at an unprofitable price - in order to get customers in the door. Mobile phone companies subsidize new phone sales - again unprofitably - in order to land more subscribers. Even car dealers often sell new cars at very narrow margins in an attempt to land longer-term service relationships.

High-cost acquisition programs can be effective in landing new customers. However, in order to make the practice profitable, companies must focus more attention on taking care of existing customers and building meaningful and lasting relationships. Simply put, incremental revenue generated from an existing customer can be achieved at nominal costs. As a result, the cultivation phase - or back end - of the customer experience process can often be the most profitable.

Customer cultivation is important for one very important reason; it can significantly improve the customer lifetime value for your company. Customer lifetime value - simply put - represents the total revenue collected from a customer less any costs to acquire, serve and support the customer over the life of their relationship with your company.

Cultivate Your Relationships to Improve Your Margins

For example, if we commit $140.00 to acquire a customer that buys a $150.00 MP3 music player, we have made a margin of only $10.00. However, if we can develop and nurture the customer relationship at a nominal cost of only $50.00, they may turn around and spend $300.00 dollars on music downloads, gifts for friends, and related products over the next year - a respectable margin of $250.00.

If a meaningful customer relationship was never established after the initial transaction, then the lifetime value of the customer is a measly $10.00. However, by cultivating the relationship and obtaining additional follow-on revenue in our example, we increase the customer lifetime value to $260.00 from $10.00 - a healthy increase of 2600%!

How to Cultivate

Every new customer transaction plants a seed. What your company does with that seed can make a significant impact on future profitability. Will the seed lay there and be forgotten? Or will it be fed, watered, and nourished into a lush asset that bears fruit on a regular basis?

In order to get the most out of your customer relationships, you need to cultivate what you sow:

1. Relate: Relate with your customers through regular and meaningful contact, observations, and ongoing interactions.
2. Retain: Retain your customers by creating barriers to switching to a competitor and create an atmosphere of exclusivity.
3. Expand: Expand your relationship with your customers by offering complimentary products and services on an ongoing basis.
4. Innovate: Keep your customers excited and engaged by surprising them with new product innovations or special bundles that are tailored just for them.
5. Analyze: Analyze your customer behaviors and cultivation activities to predict and anticipate future wants and needs.

Very few companies get customer cultivation right the first time. Doing it effectively can take strong leadership, a clear vision, and an effective measurement system to continuously evaluate customer lifetime value. However, those companies that do it right can reap significant rewards.

The Customer Experience Process

Companies seeking to become more customer-centric should define the customer experience as a formal end-to-end process in their organization.

Business leaders that subscribe to the process-centric approach to business improvement understand the importance of having well-defined end-to-end processes. Typical end-to-end processes that are well-defined and optimized in businesses today include:

• Plan to Profits (Budgeting & Finance)
• Order to Cash (Operations/Order Fulfillment)
• Procure to Pay (Procurement)
• Recruit to Retain (Human Resources)
• Idea to Market (New Product Innovation)
• Forecast to Delivery (Manufacturing & Distribution)
• Market to Sale (Sales & Marketing)

For those organizations that have formally adopted a process-centric approach to business, the process is often formally defined, measured, monitored, and continually optimized. This level of discipline is critical to deliver a process that is high performing, predictable, efficient, effective, and error-free.

In order to become more customer-centric, businesses should add the customer experience end-to-end process to their portfolio of strategically important processes. The customer experience is a process. Like any process, the customer experience process can work perfectly (or go horribly wrong), may contain numerous scenarios, and it can be analyzed, re-engineered and optimized.

The customer experience process does not begin and end at the store, sales representatives, web site or call-center. It extends from the moment the customer becomes aware of a company and may last until they die, move, or leave for a competitor. In short, the customer experience process is broad, deep, iterative, and (hopefully) long running.

The customer experience process is comprised of three distinct phases:

1. Customer Attraction (before): Customer attraction represents all of the touchpoints and interactions encountered by your customer during initial sales and marketing activities.
2. Customer Interaction (during): Customer interaction represents all of the touchpoints and interactions encountered by your customer during payment, service, and delivery activities.
3. Customer Cultivation (after): Customer cultivation represents all of the touchpoints and interactions encountered by your customer after a purchase or transaction that includes loyalty, reward, and ongoing communications management.

Great customer experiences don’t happen by accident. They require a keen attention to detail, a focus on every touch point, and an orchestration of all customer encounters regardless of how each customer may navigate the company. Mastering the customer experience must begin with mastering the end-to-end customer experience process.

At any time that a customer is involved in the process, the ultimate goal is to deliver a customer experience process that sells more, increases buying frequency, and broadens the relationship. A critical first step to improve any customer experience should be to map the entire customer experience end-to-end process. By doing so, companies can develop a deeper appreciation for how the business interacts with their customers.

To achieve the focus and discipline that the customer experience process deserves, businesses should add a new end-to-end process to its portfolio of strategic processes. By defining the customer experience as a strategic end-to-end process, the customer experience process can be studied, measured, monitored, refined, re-engineered, optimized, and improved. The process will become much more disciplined and receive the attention it deserves in the organization.

Customer Experience Wars: Wireless Edition

The wireless telecommunication industry continues to be highly competitive as the major carriers slug it out to compete for an increasingly elusive and fickle customer. While major players such as Sprint, Verizon, T-Mobile, AT&T Wireless and U.S. Cellular were once content to compete on value, call quality, or network coverage – there has been a noticeable shift to a new competitive battleground: the customer experience.

The shift in strategy is due to a changing wireless industry landscape. The maturing industry is being characterized by increasing market saturation, industry consolidation, flat or declining revenue per customer, and generalized commoditization of products & services. As a result, the traditional “Five P’s” of Marketing (Price, Product, Place, Promotion, and People) are becoming less effective as the major players seek ways to gain a strategic advantage.

To respond to these new challenges, major wireless carriers are doubling their efforts to create a meaningful emotional connection with their existing customers while (hopefully) attracting new customers. In some cases, the shift in focus towards a differentiated customer experience has been subtle. For other companies, the change in messaging is in stark contrast from previous marketing efforts.

Sprint

Old: Sprint became well known for their ‘pin drop’ commercials that promised the best possible call quality.

New: Sprint’s more recent ads are clearly focused on the customer experience. Helping customers get the most out of their smart phones is a clear shift to a more customer-centric focus.

T-Mobile

Old: In several of T-Mobile’s early ads, the clear focus was on value as they featured their ‘whenever’ minutes and emphasized price.

New: T-Mobile has made a clear shift to a more customer-centric approach; In their latest adds, they emphasize individual and family needs while showcasing real-time account personalization.

U.S. Cellular

Old: U.S. Cellular has always been an industry leader in customer service. Many of their early ads followed the industry, however, and focused primarily on the value element of free incoming calls.

New: U.S. Cellular’s latest efforts have introduced a new brand promise; “Believe in Something Better.” Their ads clear shift the focus away from the handset or network and focus on a more rich and emotional experience.

Verizon

Old: Verizon’s early advertisements hammered home that the focus was on the network. Their “Can You Hear Me Now?” campaigns have been very effective in hammering home their network-focused strategy.

New: Verizon’s current advertisements continue to focus on the network. However, we see a shift from the straight forward ‘Can you hear me now?’ to more engaging situations that attempt to explain how the network can help customers avoid a bad experience – or dead zone.

AT&T Wireless

Old: AT&T (previously Cingular), like other wireless carriers focused their early advertising efforts on value with no roaming or long distance charges.

New: The latest AT&T Wireless commercials paint different customer scenarios that could be avoided if they had AT&T’s service. Although still product-centric, these ads seek to paint the picture of a better customer experience.

Summary

The wireless industry customer experience wars will likely become more pronounced in the coming years as the market become more saturated and increasingly commoditized. Although recent economic factors will prompt consumers to place greater emphasis on price and value, expect the major wireless carriers to continue their battle to differentiate based on customer experience.

Customer Centricity: A Case Study

While many companies continue to follow the product centric ‘Make it and they will come’ philosophy, other companies have turned the corner on customer centric business practices. One company that seems to get the concept of customer centricity is Progressive Insurance. A sampling of their recent television ads demonstrates how Progressive.com is standing out in the historically stodgy insurance industry.

Now I’ll admit, I’ve never been a fan of the insurance industry; I harbor anxieties that are perhaps common among insurance customers:

1. I fear that although I have insurance, I won’t be compensated for potential losses. “I’m sorry sir, but your policy doesn’t cover locust attacks.”
2. I fear that I’m paying too much for my insurance, because I don’t continually monitor competing rates. “Why yes sir, your insurance rates have gone up each year even though you’ve never filed a claim.”
3. I fear that if I ever need to file a claim that it will be an extremely painful process – which could take months or years to bring to closure. “Thanks for calling. We are experiencing extremely high call volumes. Please hold, you are currently 3,423 in line…”

Progressive.com’s customer-centric approach focuses on addressing these typical customer anxieties front and center. They focus on saving their customers money and providing outstanding customer service. Their marketing approach is an excellent example of how companies are turning the corner on customer centric business strategies.

Progressive’s recent marketing efforts offers several lessons for companies that are seeking to turn the corner with their customer centric business strategies:

Customer-Centric Lesson #1: Be clear about your brand promise.

Everything that Progressive does in the marketplace reinforces their brand promise of customer centricity. Even the company tag line clearly states their focus on the customer: “It’s about you. And it’s about time.®”
Specifically, Progressive’s brand promise is to deliver more value and better customer service than its competitors and is demonstrated in one of their latest television ads:



Customer-Centric Lesson #2: Address your customer’s biggest concerns.

Getting insurance won’t make anyone cool, sexy, or popular, but it will bail you out if – or when – you need it. Without question, the number one concern for any insurance customer is to get the best value for their insurance dollar.

Progressive made waves several years ago with their innovative willingness to compare their insurance rates to key competitors on their website – a feature that they still boast today. This competitive rate approach sends a clear message that Progressive is more interested in saving the customer money than simply selling insurance coverage.

Check out one of Progressive’s televisions ads to see this brand promise in action:



Customer Centric Lesson #3: Differentiate with customer service.

As any home or automobile owner can attest, they often don’t think or worry about their insurance until they actually need it. Filing a claim or getting assistance should be easy, efficient, and straightforward and Progressive reinforces this brand promise in another of their latest television ads:



Perhaps other companies can learn a lesson or two from Progressive.com. Their brand promise clearly focuses on the customer, they address many of their customers biggest issues and concerns, and they focus on delivering great customer service.

Note: I am not a Progressive customer, nor am I associated with Progressive.com any way.