In today's digital world, performance metrics are essential to understand the efficiency and effectiveness of your marketing budget.
However, they assume something about the customer that can have unintended impact on the business' profitability.
This deck outlines how you can flip this to your advantage by overlaying one important measure. The link is here and opens Slideshare in another window.
Not every customer is your best customer, and some might even be costing you money so, the first step is to determine which customers are the best, which are the worst and which lie somewhere in between.
Your best customers might frequently spend significant amounts with you on high margin products and services through digital channels. They are loyal to your company and proactively rate you highly on feedback and influence on social media. Your bad customers might only make one-off, low-margin purchases in high-cost channels, switch to your competitors, default on repayments, are vocally dissatisfied, and/or use a lot of customer service time.
Once you know who your best customers are, the next step is to define strategies to align your resources and propositions to:
Maximising the lifetime value of your customers can drive the greatest return on investment, contributing to increased profitability and business growth.
Sales volume? Conversion rate? Cost per sale? These are good for efficient use of budget, but they ignore the profit potential of the customer so, you could be wasting your acquisition budget on easy to win, low-value customers and missing better customer opportunities for value-growth;
Sales value? Big ticket sales are good for revenue, but don’t always contribute the most to profit so, can erode your margin;
Retention rate? Some of those customers you are retaining may not be worth the money and effort you put in to saving them so, you could be wasting your retention budget on low-value customers and have nothing left for the ones you really want to keep.
Whilst decisions can be made at the product, channel or service level, this assumes all customers are equally profitable, but each customer consumes and uses products and services in different ways that have differing impacts on your revenues and costs. If you are in business to make profit, then the most important metric for understanding and managing customers should be their expected profitability.
How much positive cash flow a customer could generate provides context to every decision and action to ensure their profitability is maintained or enhanced. Individual customer profitability is typically expressed as the customer’s lifetime value (CLV), which is the net profit attributable to the customer over the duration of their relationship with you.
CLV creates a common currency that helps your business understand which customers are profitable and which are costing you money. Being armed with this information means you can better decide how much to invest in acquiring the right ones and retaining the best ones to ensure a commensurate return on investment. It also encourages better proposition design that is centred on meeting customer needs and enhancing profitability. It also helps you measure the effectiveness of your customer engagement strategies, whether through digital or offline media and across the entire customer relationship.
Some of my recent blog entries around the evolution of marketing effectiveness capabilities collated and published in an eGuide.
The link is here and opens SlideShare in a new window.
Some of my recent blog entries around best practice in customer engagement collated and published as an eGuide.
The link is here and opens SlideShare in a new window.
Having a business strategy that centres around the customer is great, but only when the whole organisation believes and lives this ethos does it truly drive customer engagement.
World-class businesses have a mind-set of providing great experiences for their customers. This mind-set permeates the entire organisation from their front-line operations to the back-office processes and throughout their propositions and services.
They embed their customer-focused vision and strategy into their business culture so that it influences everything they do to best engage with their customers. These businesses recruit and retain the right people that best fit with their vision and values to build high-performing teams that are empowered to do what’s right for the customer. Ultimately, every business decision and customer action is framed in the context of how it aligns with the vision and delivers the strategy.
In essence, their ethos is their competitive edge in the marketplace and maximises the opportunity to engage their customers.
When it comes to marketing strategy, every business is different. You have to be: It’s a key part of your USP. However, some businesses are better than others in applying the marketing process because of their focus, how evolved their capabilities are, and the level of resources they make available.
From experience the most effective marketing businesses are the ones that focus on the customer, use insightful data to inform every decision and invest resources to exploit opportunities that best meet their customers’ needs. They have evolved their marketing capabilities to enable them to engage their customers with the most relevant products and services through the most appropriate channel at the most opportune time that yields the best result for both the customer and the business.
Getting to this level is not an easy journey. Established businesses may have amassed years of knowledge, skills and capabilities, but ensuring their data, legacy systems and thinking stay ahead of the game takes significant investment. Younger businesses might be able to leap-frog straight to the latest thinking, but the experience to truly exploit it doesn’t come cheap.
First steps: Direct Marketing and Automation
Businesses often start out with simple direct marketing techniques to select lists of prospective or existing customers that meet a short-term demand to drive (e.g.) increased sales. These lists can be produced using simple database tools and specialist technical resources, but as the number, complexity and speed of discrete campaign requirements grow, it quickly becomes a difficult problem to govern and remain agile so, marketing effectiveness can plateau.
The first major evolution is to invest in fit-for-purpose marketing automation tools that increase efficiency by helping the marketer to govern the overall activity schedule, embed test and learn techniques to help improve future targeting effectiveness, and manage the creation and execution of multiple, simultaneous activities to keep up with demand from whichever parts of the business are shouting loudest to meet immediate targets.
It is at this point that many businesses find their marketing effectiveness reaches another plateau and they get stuck just keeping up with business-as-usual. Marketing automation tools are good at ‘pushing’ campaigns that are driven by the business’ agenda and marketing calendar, but they’re not so good at being customer-friendly – e.g. was there a missed opportunity to do something better to engage the customer at a more opportune time and maximise customer value?
Being more customer-centric: Decisioning
To evolve further means overlaying a ‘pull’ approach where activity is driven by customer need and behaviour. Business rules and predictive analytics are applied through a decision engine to determine which, of all possible actions, is best in any given situation, often in 'customer time' during a transaction or interaction.
This personalisation process usually considers, for each individual customer: whether they are eligible for the action; whether it is the right timing; whether it’s the right level of relevance and appropriateness; whether it would generate the right outcome; and what the relative priority is in achieving the business goal.
Consequently, businesses tend to arrive at the third plateau of marketing effectiveness when the complexity of managing this decisioning process becomes too great: The number of different situations or actions has grown significantly, or overarching goals and constraints such as budgets, capacity or targets are inappropriate to apply at a customer level.
The next generation: Optimisation
The last evolutionary step is to optimise each decision to maximise the overall objective, such as return on investment and profitability, while satisfying all constraints, such as budget spend and enhancing customer engagement. This involves sophisticated algorithms to trade-off the different decision factors in each action to determine which best meet the overall objective while satisfying the constraints.
This might sound complicated…and it often is, but the pay-off is the business performance uplift it can provide, which can be significant. It also provides true, top-down control over marketing activity so, for example, flexing the decision factors provides an opportunity to explore different ‘what-if?’ scenarios and see which gives the best mix of business and customer benefits.
Keep moving forward
Whilst making optimal decisions could be the ultimate evolution, marketing effectiveness can still reach a plateau because your data, predictions and actions can quickly go ‘out of date’ in today’s marketplace: Every customer is different and has constantly evolving needs and interests that someone will be able to satisfy.
Consequently, the most important tools in your toolbox are insight and agility: Continually testing new ideas, actions and situations with customers to learn what works and what needs refining (or discarding) and then quickly adapting the capabilities of the business to generate value for your customers.
Real customer value is created by constantly listening to customer needs and adapting the business to deliver them.
Leading organisations constantly explore new ways to develop insights across customers and markets, pushing boundaries by creating value propositions around their ability to truly understand the customer and identify real life problems to be solved efficiently. They do this by continually testing different ideas on different customers and measuring the effect on a variety of dimensions such as customer relevance, opt-out, satisfaction, revenue, utilisation and churn.
Measurement enables these businesses to learn about which ideas work best for each customer and which do not. These learnings are used to refine their ideas for the next testing cycle and continues the thirst for knowledge about what resonates best with each customer to maximise their value and engagement.
This continual test-learn-refine methodology is central to their business credo and permeates everything they do, including their thinking, product design and manufacturing, customer relationship management (CRM), sales, analytics, service and marketing.
Personalisation is much more than just getting the customer's name in the copy, it's customising the whole experience for each individual customer.
World-class businesses embrace this principle by personalising every interaction or communication with each customer, turning the traditional approach of “I’ve got a campaign, now find me customers to send it to” on its head and instead, asking “I’ve got a customer, now what’s the best thing I can do for them?”
They exploit all available insight to inform and drive the right engagement strategy for each customer, which might include selecting the most appropriate product offer, the type of message, the tone and style of content, when and where it is used. They derive insights such as descriptive segmentation and predictive models that help to guide and select the best, next course of action for each and every customer based on their unique status, situation and behaviour. For example, it's so much easier to select the next action when you have each of the potential outcomes mapped out with their likelihood of success in achieving the desired objective. So, if retention is the objective, then using a set of predictive models that score the likelihood of each action keeping the customer and at what cost, would enable the best to be selected by trading off the relative costs and benefits.
Personalisation also means having all the different variations of product, message, content and other elements to be created, managed and implemented ready for selection. This is no small task and, to deal with the scale and complexity of this process, these businesses use sophisticated automation tools to customise each interaction, often in real-time and always with the customer objective in mind.
Customising these experiences and interactions enables world-class businesses to deliver the best possible value and experience for each customer that maximises their engagement.
Consumers are savvier: Digitally educated and able to actively avoid irrelevant marketing efforts by, for example, skipping past TV commercials, opting out of marketing, screening their calls, using ad-blockers and filtering spam.
World-class brands ensure that everything they do is relevant to ensure they reach each customer in the most effective way.
They start by listening to what their customers are saying and observing what they do and how they do it, which they garner from deep insights they have access to within their business and market.
These insights provide them with full understanding of the unique circumstances, behaviours, needs, wants, interests and other characteristics of each of their customers in the context of the market and the abilities of the business.
This deep level of understanding enables them to predict the influence of different actions on each customer, adapt their marketing strategies accordingly and then create the most meaningful content and messages to engage them.
Finally, all marketing activity and outcomes are tracked in detail to ensure correct attribution of success to the original investment.