A lavish courtship can win many a heart, but a suitor who lapses into inattentiveness risks losing his prize to a competitor with impeccable timing. So, too, a company which has acquired a healthy customer base through a major investment of time and money risks gradual erosion of its most valuable asset without a timely, continuous customer relationship management program.
Like a courtship, the biggest investment of any customer care program is acquisition. The cost of acquiring new customers is approximately four times as expensive as the cost of retaining and preserving the ones you have already. So the business case for a well-targeted customer relationship management campaign is compelling.
Author Frederick Reichheld buttresses this point with a stunning statistic. In The Loyalty Effect, Reichheld reports that a five percent increase in customer retention typically will result in a 75 percent increase in aggregate lifetime profits from an individual customer. A 75 percent increase not in sales but in profits! It almost seems too good to be true; but considering the steep up-front cost of wooing new customers through giveaways, introductory discounts and expensive marketing and advertising campaigns, when customers "stick around" past the initial acquisition investment period their profitability skyrockets. It does so not only because of the initial acquisition costs having been repaid, but also because of the increased value those customers are ascribing to the benefits of the relationship.
The key in creating effective brand loyalty programs is to discover the most persuasive loyalty drivers for each customer. Loyalty drivers generally fall into two categories: product attributes (e.g., performance, quality, reliability) or price/promotion sensitivity.
Customers whose brand repurchase is driven by intrinsic product attributes are generally high-value customers because they exhibit a high predisposition to stay with the brand and have low price elasticity (e.g., their sales volume is relatively unaffected by an increase in price). Conversely, customers whose brand repurchase is driven primarily by price/promotion sensitivity are generally low-value consumers because they exhibit low predisposition to stay with the brand through price fluctuations (e.g., high price elasticity).
To obtain a clear picture of the drivers behind brand loyalty, you need to build a consumer-centric analytic framework that attempts to understand the consumer values and thought processes preceding a purchase decision by drawing from divergent sources of data.
Purchase Frequency vs. Brand Loyalty
Unfortunately, the most commonly used approaches tend to equate loyalty with a frequency of repeat purchases. This type of quantitative tactic does not take into account customer motivations, which should not be overlooked. Without knowing why a customer makes multiple purchases, management is missing the critical key behind the actions and cannot adapt the product or marketing to respond to customer preferences. An opportunity to maximize sales is simply lost. The challenge becomes:
- How to focus a marketing campaign on existing customers who are most likely to generate repeat business.
- How to anticipate what goods and services these customers will want.
- How to communicate with these premium customers cost- effectively.
The first step in maximizing sales and profits from your existing customer base is to identify which are your core "brand-loyal" customers and which are the price-sensitive, bargain-hunting, convenience customers. The distinction is important because different customer/ loyalty types respond better to promotions targeted to their respective purchase motivations: e.g., coupons and discounts are far more effective in stimulating sales to the "communication" customers than the brand loyals.
In general, it is more cost-effective to focus major marketing efforts on the core brand-loyal customers for whom the products is filling a need or preference, because this group has the highest value and will be a more profitable source of repeat business. The bargain-hunters, in contrast, are more fickle and less likely to be profitable since their major draw is based on low price or convenience.
After identifying your brand loyals, the next step is to develop a long-term, ongoing relationship with them. Profits will naturally follow. This is the very foundation of customer relationship management. But the question is: How do you create profitable customer relationships? Which customers should you target? How much should you spend? The foundation of profitable customer relationships is, quite simply, know your customer.
Complete View of the Customer
It is no longer adequate to compartmentalize customer data in standalone buckets. While topical, single- segment analytics are appropriate for mass marketing, customer relationship marketing requires timely customer snapshots well-rounded pictures of how they individually think, feel and act in order to understand the true motivations behind their individual product/service choices.
Here's the key: these customer snapshot profiles must be multidimensional. Instead of just tallying past purchases, these profiles must include attitudes, past behaviors, demographics and psychographics because all these factors are interrelated and they all influence the final outcome of purchase decisions.
In this just- emerging analytic frontier, customer/brand analysis begins conventionally with a tally of the repeat sales or, to use analytical jargon, a transactional data set. Then it takes the additional step of surveying a sample of the customer base and asking why each chose to buy this particular product consumer lifestyle and overall preferences can also be assessed. The result is a customer profile, albeit only limited to a sample of customers.
Next, the profile characteristics are extrapolated over the entire database. In the final step, the customer-specific data is combined with outside sources of demographic or geodemographic information such as age, income, housing, family size, etc. Finally, all the fact bites from different databases are mixed together like a big stew.
What finally appears from all this analysis is a clear picture of your customers. Not just what they did (buy your product), but who they are, what they are like and why they buy your product. What basic needs does your product fill to keep them as brand-loyal customers, returning for subsequent purchases again and again. And what other types of products and services do they typically buy?
To be sure, there is no instant camera that lets you peek inside the hearts and minds of your customers; a total- facet, in-depth customer analysis is not a quick, simple or inexpensive undertaking. But knowledge is a powerful tool and, once in hand, can be applied very cost-effectively to reach the right customers with the right messages and services to keep them coming back.
Retention and Motivation
Here's the payoff: Now that you know your customer, you are positioned to tailor customer loyalty programs or service packages directly in response to actual customer wants and needs. No more guess work. You will be able to offer more personal service, boost visibility with your most loyal clientele and present a company image of caring about your customers and being responsive to their needs. You will be able to anticipate your customers' wants and desires and achieve higher growth revenues as a result, because you already know up front that there is demand for your new products and services before they hit the market.
In direct marketing campaigns, for example, you can target a specific segment of your customer base that is likely to be interested in a particular product or service instead of wasting money sending materials to other customers with a low probability of purchase of that particular item. Your campaigns have instantly become more cost-effective in time and resources.
In customer loyalty/reward programs, you can create benefit packages that respond to actual wants and needs, and increase your customer visibility and business volume. Keep in mind that different customers are loyal to your product for a variety of different reasons. Your loyalty programs should recognize each customer's uniqueness through reward systems that are built around their individual needs, interests and preferences.
This customer-centric approach can be useful in reinforcing brand loyalty with just about any noncommodity- based product: hotels, pet foods, stores, restaurants, clothing, banking, airlines, wireless phone service, even Web sites or Internet service providers.
For example, a hotel could use customer profile preferences to design better guest packages with a variety of optional services and built-in upgrades and rewards for frequent stays. A pet food company could offer brochures with nutrition or healthcare facts for pet owners who are interested in and likely to respond to such information, all in an effort to enhance brand loyalty or expand the brand's appeal. A customer-centric bank with interdepartmental data about each customer (loans, credit cards, retirement savings, all rolled into one profile) would be better positioned to shape new programs and special offers which motivate customers to seek more services.
All these examples demonstrate the incredible value of "melting together" multiple data sources to reveal the key to consumer motivation. Flat, quantitative purchase statistics have been fleshed out into living, active consumer portraits and a powerful competitive tool. Let's face it a satisfied consumer is not likely to be a good prospect for your competitors; your competitors' customers, on the other hand, may very well be your next prospects.
The potential reward of going beyond "what" a customer bought to answer "why" the customer bought is easy to grasp and generates great excitement at the corporate level. The challenge is execution: the task itself is complex and multifaceted.
If you can cultivate customer brand loyalty and accelerate it to the next level, you'll find it is a great new way to forge ahead of your competitors by retaining your best customers.
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