Distribution giants, such as Wal-Mart; financial entities as global as American Express or Mastercard; insurance companies as powerful as Lloyd’s; colossal software and e-business companies like IBM or Microsoft; airlines such as Iberia or British Airways, and telecommunications operators like AT&T or Telefonica have several million customers worldwide. How do companies like this get to know all of their customers? How do they organize themselves in order to know who they are and what the needs are of customers who are increasingly demanding, well-informed, and willing to change providers with increasing ease? Customer Intelligence is becoming the necessary solution for all those companies that want to know who their customers are, how they behave, and what they demand.
Why embark on a segmentation of the potential market, to discover new segments and needs, to take a risk on launching new products and services – with the investment of human and financial resources it demands – when we still haven’t extracted all the potential from our own customer portfolio? “Starting house by house” is, as straightforward as it seems, one of the main premises that underlies advanced customer management; a discipline that places the consumer at the very heart of business growth strategies. The profitability of retaining those more strategic customers over obtaining new ones is obvious: a recent study undertaken by Daemon Quest shows that keeping a current portfolio customer satisfied costs between five and fifteen times less than obtaining a new customer. Therefore, investing in researching those who have chosen us, why they chose us, and what their needs are, can bring us important benefits, all the more when Marketing budgets are tending to tighten.
Example: the all-powerful American gaming industry, which moves billions of dollars each year, recently faced the risk of a crisis, spurred on by the worsening of the competition and, fundamentally, by the appearance of all types of online, cheap, accessible, and more “private” games.
We previously mentioned one of the key factors in segmenting and successfully taking advantage of the customer portfolio’s possibilities: value. Value is not only what a customer perceives of a company, which the company must strengthen, but also those strategic elements that a company receives from its customers, according to which it must learn to classify them in the heart of its portfolio, attributing to each one its distinct value. By “customer value”, we do not only mean the income the company generates – there are some customers who, despite generating large income, are less profitable than others-; by “customer value” we mean the customer’s capacity for a lifespan in the heart of the company; the customer’s referential power; that is to say, their ability to attract new consumers; the probability of them acquiring new services/products...
The concept of “value” is the cornerstone on which any intelligent segmentation of our current customers is based; the only one that offers us a reliable x-ray of who buys from us and recommends us, and who we should treat with special attention. Telecommunications, banking and savings and loans, insurance, large distribution, and pharmaceuticals are the sectors that are ultimately investing most intensely in Customer Intelligence. In Spain, one of the most outstanding banking entities in terms of Customer Intelligence activities has developed one of the most accurate clustering processes based on behavioral criteria, which are extremely useful when approaching its customers with specific financial products or services. This bank divides its mortgage customers into “The Best”, “JASP”, and “Stones”.
The first group includes people who are profitable, well-off, loyal, Internet users, and customers of various products. Less wealthy are the “JASP”, who fit the profile of young, Internet-using individuals, with low coverage, high mortgage and high installments. Finally, the “Stones” are those customers who are not connected to the Internet, with a low income, at an advanced age, not very loyal or profitable, with low mortgages. According to this peculiar segmentation, this well-known entity has decided to offer profitable deposits to its “Best” customers, attractive loans to its “JASP” consumers, and simple insurance policies to the “Stones”. While the terms this banking entity chose are peculiar and original, others such as “premium”, “VIP”, “Gold”, “Platinum”, etc, are more common. Almost all of us, as customers, have felt spoiled by these designations at one point or another. However, that honor is not always deserved. Proper advanced customer management allows us to find out that, in many cases, the customers a company considers “VIP” are not quite so important, and that, nonetheless, in the middle of the information web where information on customers and markets is accumulated, there are hidden “gold consumers” who are not being rewarded adequately, and to whom we are not selling everything we could…
In order to accurately analyze our current customers according to their value, it is fundamental to distinguish between the concepts of “current value” and “potential value”. Let’s think of the first term as the lifespan and behavior that the company expects a customer to develop, based on how customers with similar characteristics have behaved. “Potential value” includes an absolutely key variable in advanced customer management: adding to the “current value” the “plus” of the growth that customer will experience in our company, if we apply advanced Customer Intelligence or Marketing Intelligence strategies to him or her. In this way, a customer can have favorable expectations in the heart of the company, but these expectations can increase geometrically if the company applies intelligent strategies to these high-value customers.
Identifying our current customers in the most individualized way possible; differentiating them by value and needs; interacting with them in order to optimize income and reduce costs, and finally, customizing the organization’s business culture, are inevitable steps in order to successfully apply advanced customer management policies. “IDIC” (Identify, Differentiate, Interact, Customize) are the four cardinal points on which an intelligent customer management must be based.
What company these days has a Customer Manager, whose mission is to directly increase the customer’s value in the company, or what Anglo-Saxons call Customer Equity, and to decisively contribute to the company’s income growth?
A true answer to this question would depress many Marketing and Sales directors.
Increasingly well-known in our country’s business environments, although still not enough, the term Customer Equity is a concept that represents the sum of the value of the commercial life of all current and potential customers. On this concept rests the management of a company’s customer value, since it allows sales and marketing directors not only to optimize resource assignment, but also to fine-tune with sales channel management. In the shorter term, customer portfolio value management quantifies –always in terms of value- those customers who have joined the company throughout a financial year, and those who have decided to abandon it. Both concepts are absolutely key when it comes to maximizing costs and results, but also restoring the customer as the greatest company asset, and Intelligent Marketing as the appropriate instrument to make it grow.
It is imperative that all companies understand that the customer portfolio is an asset to the company, comparable or superior to any other patrimonial or financial asset. Do you know at how much the food giant Taco Bell estimates a customer’s potential lifespan, considering the customer is always loyal to the company? More than 12,000 dollars. For the automobile company Lexus, a satisfied customer can be worth 600,000 dollars in purchases over their lifetimes. Is it or is it not strategic to know what customers are of greater value for a company and focus the greatest efforts on them in terms of human and financial resource investment?
Statistical and applied mathematics techniques such as Data Mining, commonly used in scientific circles, are those that allow an optimal customer portfolio management. This combination of techniques allows us to sound out enormous quantities of information in order to automatically extract conclusions hidden to the naked eye, patterns impossible for man to detect. The term “mining” was not chosen by chance: in the same way a miner tirelessly searches for the precious metal hidden in the rock, Data Mining allows us to find the “Gold John Doe” hidden among the informational mess. Models, conclusions, correlations, patterns, and trends are automatically and, more importantly, quickly revealed with Data Mining techniques. In this way, the leader of any company can have at his or her disposal scientific tools that assist them in strategic decision-making.
The need to involve the entire organization in this type of Intelligent Marketing strategies is becoming more and more necessary, not only among sales and Marketing directors, but also among the top executives of any company. And if we mention the top management levels, it is because they have all recognized for a long time that the customer is at the center of their priorities and must thus be treated as one of the greatest – if not THE greatest- company asset.
This is proven by several studies carried out in recent months in which it is seen that, among the aspects organizations are most concerned about are obtainment, retention, and customer loyalization. Data gathered by The Economist Intelligence Unit confirms that 56% of European directors list customer service as the most important aspect in obtaining successful results for their business. For that reason, the majority of organizations are making initiatives to equip themselves with instruments that improve this type of relations.
In one of the most interesting and complete reports regarding this question, carried out by The Conference Board, customer retention and loyalization are among the ten basic concerns of international companies. For 41% of the more than 500 representative advisors (CEO’s) surveyed, it is the maximum priority, behind only achieving stable and sustained growth (52%), and speed, flexibility, and adaptation to change (42%).
If the customer is proven to be at the center of all great business strategists’ projections, why are the necessary resources not dedicated to exhaustive customer knowledge? The benefits are immediate. An advanced customer management allows us not only to know what customers are most profitable for a company and to focus on acquiring customers with similar characteristics –the segmentation of the current customer portfolio is a great help in future segmentation of the potential market - , but it also facilitates the retention of the most strategic customers, the progressive reduction of the segments with less profitable customers, the application of cross-selling and up-selling strategies, the strengthening of a company’s referential power, and the drastic reduction of marketing and sales costs.
Recently, the American courier decided to analyze the performance it got from 30 “large accounts”, which generated 10% of its total revenue. After discovering that several of these supposed “VIP customers” were not generating enough business to “deserve” their negotiated discounts, FedEx dared to propose drastic increases in their rates, which in some cases reached two digits. FedEx slightly reduced its market share, but it made its cost structure more efficient. This intelligent strategy for customer portfolio differentiation is what SEUR, the absolute leader on the Spanish urgent transportation market, has carried out just as successfully. A pioneer in applying Customer Intelligence techniques in our country, today SEUR possesses an exhaustive knowledge of its customers, which allows it to daily reinforce its growth and leadership position in the sector.
Another relevant example is that of the no less well-known travel agency, Thomas Cook, which divided its customers into “A, B, and C”, by order of the income they generated for the company. To its surprise, the agency discovered that 80% of its customers belonged to the “C” category; that is to say, to the least profitable one. Thomas Cook undertook a new and rationalized customer management, which reduced the time spent on “C” customers and demanded a $25 deposit of them each time they asked for laborious research on a trip they were not sure they would take. Every three months, each Thomas Cook agent receives a list of the company’s best customers and the income each one of them generates, which allows them not only to better attend to them, but also to engage in cross selling activities with them; that is to say, offering them new services and products that adapt to their characteristics. These and other initiatives have allowed Thomas Cook to experience a growth of 20% in its “A” and “B” customer segments”.
The advantages shown by this example illustrate one of the maximum benefits of an advanced customer management: assigning human and financial resources, as well as the most favorable sales channels, to the appropriate customer segments. This concept, known in Customer Intelligence circles as customer allocation, allows a very refined optimization of sales and Marketing costs, a considerable increase in customer satisfaction, and therefore a big improvement in business profitability.
Let’s imagine a telecommunications operator, with more than two million customers in its portfolio, hundreds of available products and services, and a sales network made up of about 1,000 representatives dedicated to personal visits, as well as various telemarketing platforms. Applying an accurate Customer Intelligence strategy will allow it to detect its most valuable customers and assign its best sales reps to visit them, as well as assigning them product packs specially designed for the customer’s needs, or attractive discount policies, to name only a few examples.
Applying tailored customer allocation strategies is one of the big advantages that advanced customer management brings, but it’s not the only one. In an increasingly competitive environment of increasingly restrictive sales and Marketing proposals, and of pressing sales goals, the solution is not necessarily found in the exterior. Looking at the customers a company already possesses and intelligently extracting the most from the current portfolio results in tangible benefits for the company and its customers.
It is urgent for all companies to understand that strategies based on Customer Intelligence are not a luxury, but rather a necessity, without which its commercial stability is in danger. As Michael Porter declares: “Within five years there will be two types of companies: those that know their customers and those that are lost”…The choice is clear.