Companies throughout the world recognize that to survive in the increasingly global and competitive marketplace, a strategic focus on the customer is critical.
In a recent survey by Anderson Consulting, more than 200 leading executives worldwide said that changing customer demographics and needs and the pressure to customize will have a profound influence on their business strategies.
This marks a dramatic departure from the relentless expense-slashing approach of the 1980s and early '90s. And even though companies have restructured, leveraged and slashed their market share, profits have not kept pace. Products have come more into parity, and prices among those parity groups have melded together to form a bland and indistinguishable image. To make a profit today, the distinctions must be made with brand and how a company treats its most valuable customers.
There are no unprofitable customers, only poorly managed companies. Firms must model customer behavior, turn analysis into action and constantly revise to maximize each customer's profit. To support customer needs, today's static, data-oriented customer relationship management systems must add action-oriented analytics that can calculate the investment needed to retain the best customers.
In addition to the new Internet channel, customers themselves have changed significantly. Customers have grown more sophisticated and discerning, more interested in innovative and customized products and services and more unpredictable in their tastes and needs. Heightened competition also has given customers tremendous freedom of choice — a freedom they are increasingly willing to exercise.
All of us working at breakneck speeds in business units around the world will be glad to know there is software coming to help us out. The challenges will be to find out what these new tools do; who will understand how to employ them across the entire enterprise; and how can the price be justified in terms of productivity, return on investment or cost savings.
Interestingly, these future tools may not fit the definition of CRM but may be part of a broader umbrella concept called customer management. Customer management, of which CRM is a selective segment, may be the better solution because it fits best within the entire enterprise, does not exclude one department over another and has shared open-system technologies.
But it all comes down to customer profitability. Software and hardware solutions don't drive the profit train. Profitable customers do. The typical approach to looking at a business model gets very confusing for the dot-coms of the world. Their focus is on acquisition, regardless of the profit delivered by the customer. The dot-coms believe that profit will happen sometime in the future, so they don't bother with it now.
The adoption of customer profitability metrics is the heart of the matter. Traditional firms roll up their sleeves, measure product line profitability by customer segment and blast it into the ledger. Their typical customer analysis begins and ends in very broad strokes.
Future success will require a microanalysis of each customer. There are good reasons why analytical approaches are falling behind. Service costs vary wildly among customers. Even customers with identical revenue potential differ greatly when it comes to acquisition and service costs. Yet few companies use activity-based cost data to distinguish expensive-to-maintain customers from quietly profitable ones.
Customer behavior changes over time. The customer life cycle varies constantly: Children go to college. Careers shift. Illness occurs. Aging parents move in with their grown children. Yet most of these events are unknown to the firms that track customers. Demographics predict poorly. Customers in similar income ranges respond differently to price cuts or increases.
Convenience sometimes drives decisions with the result that a 25 percent discount has little perceived value, while in other cases, the same demographic-characteristic customer in the same segment may switch products because of a 2 percent discount.
While customer acquisition is critical, especially for dot-coms, the keys to success are managing attrition, having a firm grip on your database, knowing your customers and their relative value to the organization and employing the right technology to keep the system working.
Of course, only a fully implemented, integrated and optimized database marketing program can give the complete benefits of advanced customer management. It's even possible that such a program would truly provide the insurmountable competitive advantage that its prophets predict. In that case, any half-measures would ultimately prove useless. But for now, even a less-than-complete commitment to this new way of business opens some interesting and practical alternatives for companies that are willing to take a chance.
Companies that have made a commitment to customer-centric management have more sophistication, faster technology, greater access to information and more talent than ever before. There's no excuse to run just the same old program.