Undervalue the Consumer and Your Firm Will Underperform

We Can't Optimize Just Single Campaigns or Media, We Must Grow Customer Value from an Enterprise View

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As any parent with a smartphone-equipped teenager knows, while it's never been easier to reach consumers, it's never been harder to engage them. Multiply that sentiment by a million when you factor in unlimited texting plans.

The solution to this conundrum is often framed as a matter of technology: all that 's needed are the ability to provide a consistent personalized experience and data that properly value each marketing touch. Both are essential, but even with these, firms will underperform if they are wrong on customer strategy.

Firms make a mistake when they optimize just individual campaigns, channels or media. What really matters is growing the overall value of each customer relationship. That's what I call "solving for the customer."

I know what you're thinking . . . thanks for sharing the obvious. Of course, customers are most important -- everyone already believes and acts upon that , right? But there's a paradox: companies will declare that customers are the greatest asset, yet marketers regularly underinvest in nurturing their value. Research shows that 60% of companies spend 20% or less of their marketing dollars on customer retention. Over half of the brands cannot identify their best customers, and fewer than 10% use data insight to personalize loyalty-program rewards and offers. This, despite widespread evidence that it is far more profitable to retain or expand an existing relationship than to acquire a new one.

The stakes grow ever higher as consumers increasingly flex their power with new media: Internet searches, Facebook status updates, comments about products or service, views of YouTube videos. Investing just 20% in a customer portfolio that has an Internet-fueled megaphone is not consistent with placing customers first.

The impact of underinvestment is considerable. For most brands, trust and esteem have been steadily in decline with an alarming impact on margins and loyalty: the Accenture 2011 Global Consumer Research Study points out that just 25% of consumers say they're "very loyal" to brands. The same percentage says they have "zero loyalty."

Why don't more firms "solve for the customer"? For one, most are organized around channels or media. A generation of marketers and vendors is wired to drive functional excellence and operating efficiency for a specific outlet. Wealth is created, reputations established and processes engrained, all in the name of making a given channel or medium perform better.

Many years ago, I worked for a company that loudly proclaimed NIMITOC (Nothing Is More Important Than Our Customers). The cynics among us reframed it as NIMITOMS (Nothing Is More Important Than Our Measurement Systems). When key performance indicators and, more importantly, compensation, emphasize new accounts, channel results or media performance, that 's exactly what you'll get. These are important indicators, but when they are the ultimate measure, value is compromised. What's needed is a focus on increasing the value of your customer portfolio. All else is subservient.

Obsessing over customer-portfolio value is highly dependent on information systems and strategy. The goal is to invest proportionally to projected lifetime value. The best projections are based on multiple dimensions, integrating factors like purchase behavior, stated intentions and preferences and external measures, such as share of wallet and influence, across channels. Strategically, it's crucial to view customer information, particularly customer value, as an enterprise asset. This not only fuels a customer-centric strategy; it is essential in providing an objective view of performance.

With objective measures of media and channel performance, marketing performs better, typically in the range of 15% to 30% better. By investing proportional to customer value, firms can see a 10% to 15% improvement in gross margins. Firms are better able to defend pricing, typically 5% to 7% margin points better.

"Solving for the customer" is not meant to dismiss of customer-acquisition initiatives; rather, it provides a framework to prioritize and fund these initiatives. In the era of the empowered consumer, most firms are far better off optimizing the value of their customer relationships and then tuning acquisition efforts around those who act, look or think like their best customers.

ABOUT THE AUTHOR
Tim Suther is chief marketing officer and senior vice president of Acxiom.
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