How to Lose Customers in Five Easy Steps What common practices are resulting in anemic customer profits? How can the three I’s of marketing help to maximize customer value? As most marketing executives already know, losing valuable customers is all too easy. After all, organizations engage in a dizzying variety of customer interactions across a broad range of products and services. Combine that complexity with product-centric organizational structures and measures, and you’ve got a recipe for unwittingly engaging in practices that can drive away valuable customers. But it doesn’t have to be that way! Take a stroll through this e-book to learn how smarter customer interactions and more customer-centric measures can help you deepen and grow relationships with your most valuable customers. The five steps to failure Here are five common practices that lead companies astray in the quest to maximize profitability. STEP 1. Don’t collaborate. Let each group worry about its own customer interactions. Traditionally, companies have been “product-out” rather than “customer-in.” Separate lines of business work independently to make their numbers. My success might undermine yours, but I don’t care. Why should product/segment managers care about increasing total customer value across the company, if they are rewarded on how well they perform in their own niche? The traditional business model focuses inwardly on what the bank wants to sell, not outwardly on what the customer really wants or needs out of the relationship. This approach will no longer fly. Thanks to the Web, customers can click to the competition on demand, and they can publish opinions that sway millions of others. You must earn their good will with every encounter. You can’t differentiate yourself on the basis of interest rates, fees and loyalty programs. You have to create a uniquely satisfying customer experience – and that doesn’t happen when the left hand doesn’t know (or care) what the right hand is doing. page 1 of 11 HOW TO LOSE CUSTOMERS STEP 2. Don’t find out what customers value. Just squeeze more value out of them. Companies still count heavily on cross-selling to build “share of wallet,” but they actually undermine value. Sound improbable? This example might look familiar: A major national bank runs a successful credit card direct mail campaign that generates many applications for new credit cards. The very next week, the company’s home equity department appeals to the same customers, urging them to cut up their credit cards and consolidate debt with a home equity loan. Couldn’t happen? Without a customer-value focus, it did. The lack of an enterprise customer view prevented the bank from maximizing customer value. STEP 3. Don’t consider the customer experience. Just push price and product. Business strategists agree that differentiation is key to competitive advantage. Trouble is, traditional competitive strategies based on pricing and product innovation don’t result in sustainable differentiation, for several reasons: • T he company next door can quickly copy your good deal. Product and service lines, however innovative or competitive they may be, can quickly become copied commodities. • N ot all customers are equally price-sensitive. Many consumers are willing to sacrifice price for convenience. Think about valet parking. In any event, do you want to be the bargain brand? • P rice is but one of many factors in choosing a product. Customers really want a sense of familiarity and trust, the sense that the company knows their total relationship and financial needs. You really can’t win on product or price. Your only enduring edge will be your ability to leverage superior customer insights to deliver a superior, value-driven customer experience. STEP 4. Don’t measure anything. After all, marketing is more art than science. In simpler times, if you suggested performance management, a marketer would say, “Hey, I’m all about creativity and concept – and you can’t measure those things – so you have to give me free rein, let me run with my budget, and leave me alone.” That’s a self-destructive attitude to take when CEOs and CFOs are looking at how much money goes to marketing – and how little they can prove ROI from their investment. The quantifiable proof is rarely there. Metrics, where they do exist, often do not favor the marketer. Or they are measures of results outside the direct control of marketing. And they undervalue the “soft” results that marketing does directly influence. page 2 of 11 HOW TO LOSE CUSTOMERS Face it, measurement is inevitable. But it’s not a death knell on marketing budgets and creative latitude. It could be quite the reverse. Rather than being a “CYA” strategy to defend your position, marketing performance management can be a powerful tool to solidify it. You could get richer insights about the real sources of customer value, the real impact of marketing costs, and the future behavior of customers – all of which can be exploited for powerful results. STEP 5. Don’t worry about tomorrow. Just focus on making this period’s targets. Why waste time and resources on trivial accounts? The company is too important to care about low- or medium-value customers, right? Wrong, maybe. The present value of a customer is only part of the picture. The struggling graduate student might someday be a really big fish. So might the young medical professional, the entrepreneur and many other customers who look like small fry right now. Companies routinely alienate good customers because they focus too closely on present value rather than potential. Reconsider the traditional focus on past behavior and present balances. It’s time to adopt a comprehensive view of the customer as part of a continuum, not just a sale – and manage the holistic value of the relationship over time. With a customer value management perspective, you would know which customers have the greatest potential value, and which ones will likely never be profitable. Then you’ll know where to focus your actions. Time for a new approach: The three I’s of marketing Redefine how you build value – for your customers and your enterprise. Since the beginning, most business models have been built around organizational structures, management and incentive plans, financial systems and the four P’s of marketing: product, price, promotion and placement. Many companies have professed to shifting their attitudes, claiming to be “customer-focused,” “customer-obsessed,” “customer-driven” or whatever. But even to this day, the heart of most business models remains product-centric. That means companies frequently fall into the Five Easy Steps, whether they realize it or not. If you’d like to get back on track, replace the traditional focus on the four P’s. Instead, coalesce your energies around the three I’s: insight, interaction and improvement. Then exploit readily available technologies to excel in all three dimensions: Gain deeper insight – Understand and predict customer value at a holistic, enterprisewide level. Choreograph better interactions – Engage customers in a way that enhances mutual value. Gain continuous improvements – Measure and report KPIs that matter, optimize investment of sales and marketing resources, and continuously learn from every customer interaction. page 3 of 11 HOW TO LOSE CUSTOMERS Let’s break it down further. What does it actually take in order to achieve these three objectives? Three I’s = One customer-centric, closed-loop business model In order to... You must be able to... Deepen customer insight 1. Manage quality customer data. 2. Predict customer behavior. 3. Profile and segment customers. Choreograph customer interactions 4. Manage and optimize segment strategies. 5. Engage high-potential customers. Gain continuous improvements in marketing performance 6. Measure and report results. 8. Apply lessons learned. 7. Optimize marketing investment. Let’s drill down into the opportunity, the challenges and the key steps associated with each of the three I’s. Insight Deepen customer insight with superior data management and analytics. The opportunity Every interaction with a customer is a chance to get data that leads to deeper customer insight. Never before could you get so much information about customers and markets, transfer that information into usable knowledge, and guide the investment of resources with precision. The challenges Trouble is, data pours in from multiple channels, from incompatible computing platforms, in mismatched data definitions and redundant customer entries. Transforming it all into a clean, analysis-ready format can be a daunting challenge. The key steps Manage quality customer data. Establish a data management platform that integrates data from multiple sources, then cleanses and prepares the data to create a comprehensive view of the customer. page 4 of 11 HOW TO LOSE CUSTOMERS Create customer insight. Most companies have simple analytics that tell you what was and what is, but few have an accurate view of what will be, why and what to do about it. Exploit predictive analytics to truly understand customers – not just past behaviors, but likely future preferences and purchase patterns. Then you can anticipate their needs, improve customer retention and find smart ways to cross-sell and up-sell. Profile and segment customers. Develop effective customer profiles and segments based on customers’ historical behavior, profitability and future potential. Don’t just use segments to support product-push campaigns, but to predict customer needs and respond accordingly. Interaction Choreograph interactions to improve the customer experience at every touch point. The opportunity Customers expect to receive a consistent experience across every channel and the sense that the company knows them, whether they’re interacting via direct mail, the Web, customer call center or in person at a branch office. The challenges With thousands of campaigns to manage, spanning hundreds of customer segments and dozens of media channels and markets, many institutions settle for scattershot marketing. When customer interaction data is scattered around in data silos, it can be difficult or impossible to get a complete view of activities across the spectrum. It’s even difficult to know when not to communicate – when to pull back to avoid potentially alienating the customer. The key steps Develop and optimize segment strategies. What unique treatments should each customer receive? What’s the best bundling of price and promotion? What is the best strategy for up-selling, cross-selling and retention efforts? Armed with richer customer insight and targeted customer segments, marketers are becoming more selective and scientific about where they invest resources – and, in some cases, which customers they will even accept. Engage effectively with customers. Naturally, marketing success stems from targeting the right customers with the right offers at the right time – even in real time – while prudently avoiding spending on unprofitable prospects. With deep customer insight, you can effectively manage the customer dialogue across multiple products and channels, balancing the realities of budgets, sales capacity and other constraints. page 5 of 11 HOW TO LOSE CUSTOMERS Improvement Don’t just defend marketing performance; actively and continuously improve it. The opportunity The results of every campaign can be captured to help refine customer segments and marketing activities the next time around, for a continuous cycle of improvement. Furthermore, spending that shows proven results gets budgeted again, gets applied wisely where it will deliver optimum returns, and then is more likely to be increased. The challenges Measurement and accountability are hard sells in creative organizations. But the only way to be sure you’re on track is to prove it. Even when marketing appreciates the need for measurement, it isn’t easy. Marketers are often forced to cobble together data from sales, marketing research, syndicated databases and other fragmented sources just to create a composite view of what (you thought) was happening. And it is usually a rear-view effort to support the annual plan, not a tool to guide real-time course improvements or to show credible ROI. The key steps Meaningful and ongoing improvement requires excellence on three fronts: Measure and report on all aspects of the marketing organization to align activities to strategies and goals, and to improve performance and accountability. Optimize investment across direct and indirect marketing. Analyze and optimize marketing mix elements, such as advertising, promotion and pricing; media plans by medium and market; and customer segmentation and treatment strategies. Continuously learn and improve through a closed-loop system – leading to a knowledgebased relationship with your customers that will differentiate you from the rest. How do you get there? Start small. Assemble an integrated technology platform. Evolve in stages. You don’t have to do a flash cutover to a new business model. You can implement technologies in low-risk stages. Each investment builds on the previous one. You can test pilot programs within a single department or customer segment – and then roll them out more broadly as they prove their value. Integrate technology into a whole. You’ve gathered by now that the holy grail of customer value depends on big-picture perspective. If you want customers to place more faith (and dollars) in your company, you have to understand and manage the total relationship – spanning contact channels, products, related entities and time. So the last thing you want is niche software components that don’t play well with others. page 6 of 11 HOW TO LOSE CUSTOMERS With today’s technologies, function-specific components can be integrated into a single, synergistic system. Information flow then transcends functional silos, organizational boundaries, computing platforms and specialized tools. Decisions can be made rapidly with full knowledge of underlying context and hidden interdependencies. Let’s take a closer look at the integrated technologies needed to realize the full potential of the three I’s. Technologies that enable a best-practice approach Customer insight is about deepening your understanding of individual customers and treating customers as individuals. It requires technologies to integrate and analyze data across products and channels. To maximize success, you need tight integration between your customer insight and customer interaction technologies. Enabling Technologies – Deepen Customer Insight Data integration lets you pull data from nearly any source and applies proper data quality techniques to ensure customer information is in the best possible state. Online Insight helps you get the most out of your e-business channels and improve the effectiveness of your marketing campaigns. Forecasting allows you to identify previously unseen trends in customer data – helping you to make marketing decisions accordingly. Customer profitability analysis lets you associate costs with revenue and actively manage profitability down to the customer or individual transaction level. Customer Analytics provides descriptive and predictive insight through response models, churn analysis, customer value analysis and more. Credit risk analysis and assessment capabilities help you develop and track accurate credit risk scores. Customer interaction is about managing customer dialogue. Interaction technologies include marketing mix optimization, behavioral triggers, digital marketing and real-time decision making (to name a few). These interaction technologies are only as good as the customer insight that fuels them – which leads us back to the integration imperative. page 7 of 11 HOW TO LOSE CUSTOMERS Enabling Technologies – Choreograph Customer Interactions Campaign management technology can help you produce and manage more intelligent lists so you send the right offers to the right customers across your channels. E-mail/mobile marketing delivers large-scale multimedia messaging capabilities – including e-mail, SMS, MMS and WAP – within single-channel or multichannel marketing campaigns. Event triggers send alerts to let you know when it’s most appropriate to reach out to your customers. Real-time decision making improves revenue and retention by optimizing every customer interaction through real-time delivery of decisions and recommendations. Optimization enables you to maximize overall value by determining which offer to send to each customer while considering factors such as contact strategy, budget and channel constraints. Improving marketing performance is about measuring and reporting what matters. It’s about aligning organizational activity around actions that create value with the customers that matter most. It’s about integrating the learning that occurs with every customer interaction – which again leads us back to the integration imperative. Enabling Technologies – Continuously Improve Marketing Performance Marketing performance reporting surfaces specific metrics based on individual user needs and allows you to drill down for a deeper understanding of performance and any other potential issues. Marketing mix optimization helps you track and improve the effectiveness of your marketing investments – and quantify the ROI of marketing activities. Marketing metrics and scorecards ideally offer prebuilt marketing KPIs incorporating marketing best practices in areas such as business/finance, marketing program, customer and marketing processes. page 8 of 11 HOW TO LOSE CUSTOMERS Summary: Better approach ... better outcomes What to do: What you’ll gain: Deepen customer insight. • A 360-degree view of customers spanning all contact channels, products and services. • Accurate customer segments (the basis for “treatment tracks”) and foreknowledge of customer behaviors. • Accurate assessments (and scoring) of present and lifetime customer value. Choreograph better interactions. • Steadily improved returns from marketing campaigns with each iteration. page 9 of 11 • Marketing programs synchronized across units, product lines and channels. • Triggered in real time by various customer milestones or behaviors. • Profitable interactions. Measure to gain continuous improvements. • Campaign results automatically plowed back into ongoing improvements • Quantifiable proof of the results from marketing spending. • Optimized ROI, given available budget, channel capacities and other constraints. Integrate technologies and processes. • A cohesive, enterprisewide marketing platform that spans customer groups, products and channels. • A foundation for customer-centricity even in the most product-centric organizations. HOW TO LOSE CUSTOMERS Learn more! Customer-centricity is a journey. Please visit www.sas.com/solutions/crm to access the following suggested white papers and Webcasts. They are a good source of ideas on how to get going, how to avoid obstacles and how to keep detours to a minimum. White papers: Competing on Customer Intelligence Building Competitive Advantage Based on the Three I’s of Marketing This white paper discusses how to build a more durable and profitable customer base and provides a road map for integrating technology to achieve competitive advantage. Customer Experience Maturity Monitor The State of Customer Experience Capabilities and Competencies This research report from SAS, Peppers & Rogers and Jubelirer Research provides insights into building authentic and profitable long-term customer relationships. The Total Economic Impact of SAS® Marketing Automation This study illustrates the financial impact of implementing SAS Marketing Automation in the credit/ debit cards business, in one European country, for a global retail and commercial bank. Webcasts Tips from the Trade – How to Execute Campaigns That Deliver ROI In this Webcast, we explore how successful companies are enhancing their approach to campaign management to operate more effectively, including segmentation techniques, contact policy management, and using predictive analytics to drive decision making: Tips from the Trade – Competing on Web Analytics This Webcast features a panel of thought leaders who will discuss best practices in online analytics. It explores how a successful online analytics strategy is built upon specific key performance indicators, integration of online and offline data and appropriate use of social networking sites. Stop Guessing – Start Knowing: Strategies to Optimize Your Marketing Campaigns Our expert guests will tell you how integrating customer value into your business model can improve both short- and long-term profitability – and why customer value management is so critical to your organization’s long-term success. page 10 of 11 HOW TO LOSE CUSTOMERS About SAS SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions delivered within an integrated framework, SAS helps customers at more than 45,000 sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world THE POWER TO KNOW ®. www.sas.com SAS Institute Inc. World Headquarters +1 919 677 8000 To contact your local SAS office, please visit: www.sas.com/offices SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ® indicates USA registration. Other brand and product names are trademarks of their respective companies. Copyright © 2009, SAS Institute Inc. All rights reserved. 542514.0709