Last year, Aberdeen Group published a report titled, What's Next in CRM: The Learning Relationship. Our title was derived from an idea in a 1995 Harvard Business Review (HBR) article, "Do You Want To Keep Your Customers Forever?" in which the authors Don Peppers, Martha Rogers and B. Joseph Pine II observed that keeping customers long enough to gain the benefits of repeat business required more than properly executing the transaction immediately at hand.
Keeping customers forever, or at least for a long time, requires building a relationship in which the vendor and customer gain something beyond the value of the goods and services traded. Insuring that kind of win/win scenario requires that the vendor have a deeper understanding of the customer in other words, a "total customer view." Without the enhanced relationship, which a total customer view provides, customers have no reason to exhibit loyalty and decisions are made primarily on price. This article discusses some of the reasons total customer view (TCV) is important and what customer relationship management (CRM) systems can do to assist enterprises seeking to achieve TCV.
In a traditional transaction, value is exchanged in the form of product or service for cash, but the learning relationship discussed in the HBR article goes beyond a mercantile transaction. The authors envisioned a bilateral relationship in which information was the primary stock in trade; specifically, it is how the information affects the parties. The effect of information use contributes greatly to the customer experience.
However, what is considered valuable information for one party may be inconsequential for the other. For example, through the simple act of requesting an item or service, a customer provides a vendor with information about what one small part of the marketplace needs. That need extends beyond a product requirement it describes a business problem for which a product is merely the current solution. A smart vendor will compile that information and the information from thousands of other customers and use it to determine product demand and nascent trends, which will drive product development and marketing plans into the future. Understanding the business problem orientation of a request also gives a vendor the chance to see an inquiry as a request for help and an opportunity for further sales, as well as a chance to give the customer a positive experience and a reason to return.
Of course, a vendor will have a lot to say about the best ways to use its products and services information well beyond the features and functions it touts in a sales process but there is no need or reason to bombard the general customer base with that information unless asked. At the point when a customer asks for the information, it gains purpose and high value in the eyes of the most important audience. Over time, lots of these types of interactions are the heart of the learning relationship; and they provide a hard-to-measure but vital benefit return on relationship (ROR) that keeps customers coming back and keeps vendors aligned with customer needs. Customers in learning relationships churn less because there is simply no product-related reason to seek an alternative supplier and because they are happy with their experiences.
Efficiency, Effectiveness and Experience
One might wonder if the emphasis on customer experience is overstated. However, it is a well-accepted aspect of economic life that economic value is enhanced and products and services are enhanced when services are used to augment even raw commodities. In their 1999 book, The Experience Economy, Pine (again) and collaborator James H. Gilmore make the point that the surest way to convert a product or service into an experience is simply to have a bad one. Have you ever bought a great product but had a problem in purchasing it or in getting it delivered or serviced? You most likely described that as a bad experience; and, more likely than not, it affected your perception of the product, the company that made it and the people who sold or serviced it. Additionally, you told others about your bad experience. Increasingly, we believe that CRM applications which may have simply been purchased by an enterprise to lower costs (e.g., customer service) are being used as much as possible to ensure that customer experiences are uniform and positive.
Our research was driven by the growing realization that the CRM industry had focused a great deal of energy in the early years on making transactions more efficient, but up to that time comparatively little had been invested in the relationship side of the equation. While efficient transactions can show benefits for customers as well as vendors, the principal beneficiary of efficiency tends to be the vendor, which begs the question of what CRM is all about. Also, we were aware that the competitive advantages derived from increasing efficiency would begin to "top out" once a critical mass of automated CRM systems replaced the inefficient manual business processes in quantity, and/or when demand slackened due to an economic downturn.
Both things have happened: CRM is reaching critical mass, at least at the enterprise level; and the economy has slowed and with it so has demand in most sectors. The discussion is no longer about efficiency; it is increasingly focused on effectiveness and how to best service the customers an enterprise has, all of which is driven by the learning relationship and which, in turn, drives customer experience.
The Learning Relationship and the Experience Economy
Pine and Gilmore's work is based on a simple proposition: the customer wants what the customer wants not more, which could be seen as needless embellishment and/or cost, and certainly not less, which might be seen as sacrificing some need for the sake of settling on a "best fit" product. Given the amount of competition for customer dollars in both the business-to-business (B2B) and business-to-consumer (B2C) spaces and the glut of choices and readily available information, customers are less willing to sacrifice than ever before. Not long ago, when information was more difficult to attain, customers often settled for "good" rather than "great" product fit, but those days may be gone forever.
In this environment, obtaining and using information that provides a total view of customer demographics and individual needs takes on major importance. It is only by capturing information about the customer and then using it to enhance the customer's total experience that vendors will be able to maintain the differentiation between themselves and the rest of the market.
Most CRM vendors are still coming around to the concept of the learning relationship and the need to capture customer feedback data to enable them to fine-tune their business methods. The introduction of analytics to many CRM suites and the evolution of customer voice management (CVM) technologies are two encouraging signs that things are changing because each offers a chance to capture an enhanced understanding of the customer.
CVM and TCV
Customer voice management, which contributes greatly to TCV, is a significant improvement over traditional approaches to gathering customer feedback. Harry Watkins, of Aberdeen Group's CRM team, writes extensively on the subject and points out that "... until recently, the emphasis of data collection has been to capture customer and prospect demographics and to profile information about product interests and information concerning online and offline behaviors with respect to the firm, such as buying history, complaints, etc. The problem with this emphasis is that it is inherently historical in nature and backward-looking like steering a tanker by observing its wake."1
TCV on the other hand is more forward-looking. It attempts to gather information from and about the customer that not only helps with a pending sale, but also helps position a vendor for the next sale and the one after that. As a matter of fact, a sale may not even be the objective in some cases. It's not that sales or transactions are no longer important, but building a relationship requires more than a good price. By first understanding customer needs and then proactively acting on them, vendors have the ability to positively affect customer experiences and ensure the experiences are positive ones.
Customer Betrayal and Jealousy
A recent study by marketing professors Fred M. Feinberg and Aradhna Krishna of the University of Michigan Business School provides supporting evidence for the importance of TCV. The study authors discovered that customers recognize that they are sometimes penalized for their loyalty. For example, when a company offers incentives to prospective customers for switching but does not offer the same incentives to loyal customers, the result is bad feeling by the loyal customers. In effect, this practice rewards churn and can have a deleterious effect on a company's bottom line as much as a nine percent decrease according to the study.
Historically, CRM systems have been tuned to capturing new customers and to identifying those customers most likely to churn so that the enterprise can initiate a program to "save" the customers about to become disloyal. Rescue programs and new customer acquisition are among the most expensive exercises companies engage in, and reducing those costs is of major importance and constant management concern.
Pine and Gilmore also see the problem, and their recommendation is to use the customer information collected by companies to randomly reward loyal customers for their loyalty. State-of-the-art systems can now identify customers by their preferences, demographics and other factors to assist in making timely offers during customer interactions, and it would be a minor adjustment to use the same systems and information to spontaneously reward customers for their loyalty. Such programs could be made to be less costly than rewarding "switchers"; and the viral marketing effect would, no doubt, reduce churn and encourage new business.
The learning relationship driven by increasingly sophisticated CRM tools used to gather customer information will have an ever-larger role to play in the experience economy. In the pre-Internet era, relationships were conducted in person or through close surrogates such as live call center-based support. Whatever the communication medium, there was a thinking person representing the vendor organization to the customer; and that person could gather customer information, access company resources on behalf of the customer; and gauge the customer through body language, tone of voice and other nonverbal cues all in the effort to ensure a positive customer experience.
Advanced software has enabled vendors to cut costs by replacing some of their representatives with do-it-yourself sales and service Web sites, automated phone systems and the like. However, while cost savings have been significant, the reduction in, or outright absence of, reliable customer feedback loops has served to commoditize many products. The situation may have been tolerable early on when new customer touchpoints were being introduced. At that point, market share was the name of the game. Because the economy was so robust, customer dissatisfaction may not have been treated as seriously as it is today.
Customer churn in markets such as telecommunications presented the first hard evidence of the importance of understanding a customer's motivations before the customer took action, but initial responses may have exacerbated the problem. In a relatively short time, vendors have come to realize that understanding who the customer is may not be as valuable as understanding why the customer behaves the way he or she does. Understanding the "why" gives the vendor new power in the relationship. Arriving at that larger understanding requires a new perspective and the advanced tools that enable a total customer view.
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