Customer
Profitability
How do I know the appropriate amount
of money to invest in existing customers?
Most business
executives agree that maximizing customer profitability is
critical. Disparity often comes in how to effectively measure
customer profitability. Complicating the issue are the two
sides of the equation that must be considered; the revenue
provided by the customer and the cost of servicing and delivering
to that customer.
The first
component, revenue, can be specified in terms (number of products
sold or number of buyers within accounts, etc.) then analyzed
with respect to how it increases or decreases over time. The
second component, cost, should look at how you interact with
customers (how you contact them, how often, etc.) and the
quality of those experiences.
Grading
Not all customers are created equal.
Different customers – even those that look alike –
can have substantially different potential economic value
to a particular organization. When marketers don’t recognize
this, or even when they do recognize it but don’t do
anything about it, they risk over-investing or under-investing
in sets of customers. Over-investing wastes resources that
could be better used on other customers. Under-investing often
fails to realize the potential.
What is grading and why do we do
it?
A grade is not a segment. Grading is the
process of grouping accounts or buyer groups according to
their potential value. Grading is a way to help marketers
vary the investments they make in particular sets of customers
to insure that they neither over nor under invest. Download a PDF article on this subject
Segmentation
What is segmentation and how is it
different from grading?
Segmenting: Defining a group of accounts, buyer groups
or individuals by a common set of attributes.
A segment could be a target; however,
segments are often comprised of multiple targets.
- Segmentation can be based on firmographics
(demographics of companies), demographics, needs, and/or
behavioral characteristics
- The best segments are needs and behavioral
based
- The best attributes (characteristics
of a segment) are “actionable attributes”
- Segments are often based on similar applications
- Most companies segment by some form of
demographics because it is easy, not because it is effective
What is an
appropriate size segment?
It is important to consider the size of a segment.
Some segments are too small to make it worthwhile to pursue
– even if you got 100% of the potential, it may not
be enough to off-set the sales and marketing cost. Segments
can also be too large – not because they have too much
potential, but because the larger they are, the more likely
it is that their needs will be general – watered down.
General needs drive general marketing messages, which by their
nature are not particularly relevant and are unlikely to move
individuals to action. Download
a PDF article on this subject
Core & Common Measures
Across the B2B environment,
a standard set of similar effective measurements and reports
have proven to be effective and reliable. For example:
- A direct mail campaign designed to generate
qualified leads typically includes metrics such as number
of pieces mailed (activity), the response curve or speed
in which the responses occur (process) and the number of
qualified leads and sales generated from the campaign (result)
- Telephone campaigns may have measures
such as number of calling hours, number of contacts made,
number of qualified leads identified, and number of orders
placed and total revenue or sales
- Standard measurements for a web or e-mail
campaign may include number of clicks; messages received;
messages opened; messages forwarded; qualified leads generated;
and sales generated
- There may also be field measures such
as the number of qualified leads sent to the field by type
(grade, industry, region, rep, etc.) and the qualified lead
to close ratio. When designing a measurement system for
a marketing campaign, remember to include measures from
each of the primary measurement types so that you will not
only know where you ended up but how you got there
In each of these sets of measurements, the
balance of activity; quality; and result measurements is critical.
Result measures (such as revenue) without activity measures
tend to be reactive and lack the ability to anticipate and
adjust in advance. Activity measurements without quality and
results measures can actually be DESTRUCTIVE – such
as measuring response rate, without examining the conversion
of these responses to sales.
In the end, the measures used may be less
important than using them consistently across the organization.
Customer profitability will surely improve when an organization
establishes a set of core & common measures, uses them
within every department and across all efforts, and takes
appropriate actions based on their findings. Download a PDF article on this subject
Measurement Framework
We all remember the adage: “you get
what you measure”. This is as true in monitoring our
customer relationships and sales processes, as it is anywhere
else. However, not all measurements are created equally –
it is paramount to not only have measurement, but to have
the CORRECT measurement.
Development of the correct metrics must begin
by first understanding the business results we want to achieve.
The most powerful results metrics are those which are most
closely tied to economic value such as profit, revenue, market
share, share of wallet, etc.
Next, we must understand which of our processes
and activities are most directly linked to delivering those
desired business results. By measuring the activities –
which are linked to the results – we can (1) have a
more near-term, early indicator of the results (since most
results measurements can take longer to ascertain); and (2)
provide measurement results pro-actively, in a manner which
we can take action and course-correct – to drive the
results, instead of merely reflecting on them retroactively.
To maximize the effectiveness of the measurement
framework it is critical that we correctly link processes
and activities to the results they drive. Our objective is
to ensure what we measure is truly predictive of results –
avoiding both “black box” syndrome (too few measures,
resulting in a lack of foresight on where the business is
going) and “white noise” (so many measurements,
that we can not tell the important and indicative from the
less relevant).
Finally, we complete the measurement framework
with the addition of Quality metrics. Quality metrics can
often be the most difficult to define and track – but
are frequently the most powerful in predicting results. Measuring
the number of calls completed with customers (an activity
measure) is good – we know proactive contact is linked
to the result of additional loyalty and revenue. But unless
the contacts have Quality – valuable content and appropriate
service – the activity alone is insufficient to predict
and deliver the desired results.
Together, correctly linked Activity, Quality,
and Results metrics are powerful tools for driving customer
profitability decisions. Download a PDF article on this subject
Integrated Account Management
Business relationships are based on the exchange
of value – exchange relationships. While customer acquisition
is generally a more linear, transaction-based process, Integrated
Account Management is more iterative and relationship based.
Integrated Account Management is not a “plan the work,
then work the plan” process. Planning is used to provide
the initial direction for engaging with the customer. However,
once engaged the subsequent activities will be greatly determined
by the results of that engagement. This approach places a
responsibility on the company to “think on its feet”
and respond to individual needs in real time. The interactive
nature of Integrated Account Management creates value and
contributes to a sustainable strategic advantage by cost effectively
making it easier for customers to do business. Also, it assures
that the offerings and solutions will effectively address
their unique needs and problems.
Functionally, Integrated Account Management
leverages and integrates all of the available media options
for building this inter-dependent relationship between B2B
companies and their customers. Seamlessly integrating e-mail,
mail, phone, etc. to support the field and the channel, Integrated
Account Management provides a cost-effective model for extending
the interactions and coverage we can provide for customers.
In addition, it places at our disposal a wider array of tools
for communicating with customers in a manner consistent with
their preferences and expectations. The net result is a classic
win-win situation: greater value and satisfaction for our
customers, and greater loyalty and revenue at lower cost for
the B2B company. Download a PDF article on this subject |
