The Only 3 Strategies that Increase Customer Value

March 27, 2012 By Leave a Comment

I am often asked; what is the best way to develop and implement strategies to increase customer value. Assuming you can’t change the fundamentals of what you deliver, .i.e. you can’t change gross margin, there are in fact only three strategies  that you can use to impact customer value:

1. Sales: Increase per customer sales

In short, sell more to your existing customers. The most common tactics used here are the basics of cross-sell and upsell. Both of these are good approaches but there can be a tendency for companies to over use them. This can result in a negative impact on customer relationships.

There are a wide a variety of other strategies that can be used, many ways to implement them, and little need to just focus on cross and up-sell.

For instance a company can also deliver customer value through down-sell and usage stimulation. Consider a Bank that instead of sending more product cross sales offers, sends credit cards customers an offer to increase in their credit limit. They know that, on average, when  a customer’s credit limit goes up they will use at least some of that extra limit. This then is usage stimulation: same product, more sales.

How might you apply this thinking to your own business?

2. Loyalty: Retain customers longer

The second way to increase customer lifetime value is by retaining customers for longer. It is true that it costs a lot less to retain a customer than to acquire a new one so it is well worthwhile to spend some extra effort to retain the right customers.

There are a range of tactics that you can use to retain customers longer:

  1. Customer education of products purchased: customers sometimes leave because they see another product or service elsewhere that has a feature that they believe you do not have, even if you do. If you have an even moderately complex product or service  it can be well worthwhile to simply educate customers about what you already provide.
  2. Saving customers who indicate that they no longer want the product/service: whether you know it or not you’ve probably been through a save team process. If you have ever asked to cancel your mobile phone contract then it is almost certain that you have been put through to another department to process the cancellation. That department is normally a specialized Save team. Save teams are trained to keep customers and often have access to better offers and incentives to help the process along.
  3. Rewarding and recognizing customers for their ongoing business: The use of, the now almost ubiquitous, loyalty program.  Of course you can spend a lot of money and never change the loyalty of your customers so you need to take great care that your loyalty program is delivering a net customer value improvement.
  4. Improve you customer experience: customers often leave because of the experience they receive as customers. Continuously improving your customer experience is a key driver of long term customer  loyalty and starts with putting in place a system to continuously gather customer feedback.

3. Cost: Lower the cost to serve

Lastly, you can simply lower the cost to serve your customers. This again comes in many forms:

  1. Stop marketing to low value customers: ensure that you are not continuing to market to customers who cannot or will not buy more of your products and services.
  2. Move customers to lower cost channels: If done well this can add substantial value to your business.However you should take care because it can back fire badly. Back when ATMs first came out in Australia, all the banks rushed to install them and move as much foot traffic to the, lower cost to serve, ATM channel.This worked perfectly to lower cost but the banks soon discovered that they had also lost a large volume of their cross -sell opportunities. This is simply because when customers come to the branch to perform a transaction they are more likely to set aside time to perform the transaction and so can spend a few minutes discussing other products and options with staff. This is in contrast to outbound contact methods: phone calls and direct mail, which are an interruption in the day of customers and so are something to be disposed of as soon as possible.

Making it Happen

The key to implementing effective strategies for delivering customer value is in selecting combinations of approaches that give you synergistic impact on customer value. For example, combining cross sell, upsell and customer education in one campaign. With a single campaign you can support and enhance the customer perception of your organization and increase customer loyalty.

Key elements that form the foundation for developing and implementing a combination of strategies that deliver customer value are:

Practical Strategies

Select practical strategies that can be implemented by your company and take into account your company’s systems abilities. For example, do not select strategies that require significant investment in systems changes with the associated high costs or long implementation cycle. Rather select strategies that can be easily and quickly translated into initiatives that can be implemented with current systems.

Appropriate timing

Determining the appropriate time to contact customer and selecting the communications channel that is the most appropriate is important. Do not base the timing on what is appropriate for the company, but look at what the customer would want.

Current Spend/Future spend

Ensure that you consider customer value according to their current spend with your organization and also their potential spend, as a low value customer may be low value to your organization, but extremely profitable to your competitor, because the majority of their spend is not with you. This is where the idea of share of wallet becomes so important.

 

More Information

Free Download: Customer Lifetime Value Estimation Tool

In addition to calculating the lifetime customer value the Genroe Return on Retention Estimator also calculates impact of changes in customer attrition rates.

Customer Retention Services

Genroe work with you to apply proven customer retention strategies to your business, get funding and coach you in their implementation.

Start on the journey to improved customer retention today.

 

By Adam Ramshaw

 

Filed Under: Customer Strategy

Four Bridges to communicating with your Customers

March 22, 2012 By Leave a Comment

In a world where customers control the relationship, if you want to continue to have a relationship, you need to provide something of value to them and profitable to you. When you communicate with them you need to provide information both relevant to their needs and profitable to you.

To do this you need to cross four bridges: know each customer’s value, identify each customer, understand each customer’s needs and make the communications two way:

1. Know each customer’s value

Differentiating according customer value will enable you to evaluate and prioritise your marketing communications more effectively.

There are three broad value categories:

High value

These are your most valuable customers and they generate the major part of your profit. Your key goal for this segment is retention and delivering integrated communication.

However, delivering an integrated communications plan requires commitment from your entire company. It’s imperative that senior management are committed to implementing this retention strategy across the entire organization including: sales channels, call centers, marketing, and operations.

Oft times I have seen programmes of this type fail because of the inability of functional silos to work together. In convincing senior management of the need for this commitment remind them that your competitors are constantly targeting these people so it’s critical that your communications are effective.

Medium value

Customers in this area have some current value to your business and the potential to move into the high value customer group. Unlocking the true value of these customers through the implementation of a communications strategy that draws these customers into doing more business with you will result in more valuable customers.

Low value

Unfortunately here are always some customers that are unprofitable now and will never be profitable. While some would suggest that the you actively discourage these customers I prefer to suggest that you utilize low cost communications channels to minimise the investment you continue to make in them.

2. Identify each customer

It sounds simple enough but it’s imperative that you know how to contact your customers; including having the correct name and contact details. This may sound obvious, yet many companies still do not have good processes for keeping customer records updated.

Do you actively capture email addresses? What about mobile/cell numbers?

The address problem is rife in email communication. Many companies do not have a system to update email addresses in a timely manner, resulting in the loss of all contact with the customer when their email address changes.

Email address obsolescence can be as high as 30% per year meaning that you have to really work at keeping this data up to date.

Just as harmful to customer relationships are misspelled names, not just once but over and over again. In a customer’s mind, “if you can’t even spell my name correctly how can you have a relationship with me.” It may only be a few letters to you but it’s vital to your customer.

3. Understand each customer’s needs

In order to cut through all the advertising noise, you need to communicate value add information using an appropriate channel for the customer. This can be done by understanding your customer’s needs; then applying the communications tool and appropriate message that meets those needs.

Personalized messages that meet customer’s needs and are appropriate to a customer’s value can be created to enhance your marketing communications. By communicating effectively with your customers, you start to build and nurture relationships with them.

4. Make the communications two way

For effective implementation of integrated marketing communications, customers must be able to communicate easily with your company. This two way communication is a huge opportunity for the company to keep in touch with customers changing needs and expectations.

Enterprise feedback management is a critical tool in understanding what is important to you customers. This is one of the most important ways to make the communications process two way.

Filed Under: Customer Feedback Process, Customer Strategy Tagged With: ,

How to set Net Promoter targets for your organisation and staff

March 20, 2012 By Leave a Comment

Once you have the three prerequisites to setting Net Promoter targets in place you can move on to setting targets for your organisation.

Give local targets not company wide targets

The cultural and industry factors that impact Net Promoter score are wide and impossible to accurately predict. Between similar countries, the same industry can have vastly different scores. Within countries, different industries can have vastly different scores.

To counter this, you need to provide targets at a “local” level, whatever local means in your circumstance. In a global company this probably means not giving each operating country the same target. In a national company this means not giving every operating division the same target.

Use relative change targets

Stop worrying about absolute scores and instead focus on relative changes in scores over time. We know from the Net Promoter research that if your score goes up, then your revenue will probably go up. This is the basis for using Net Promoter as a proxy measure for customer loyalty.

This is also one of the other reasons that running a stable, repeatable measurement process is so important. Cultural and other factors that may skew your overall Net Promoter result are less important if you run a consistent process. This is because the same skewing factors are present in every result. When scores are assessed relative to each other, the skewing cancels out.

The starting point for setting targets using relative scores is to look at history. What has the score been in the last few months? If you can, extend the history out to a year or more. Some industries have substantial seasonality in their scores: low at some times of the year and high at others. If this is relevant to you ensure that you take that into account.

One you have a handle on the starting point there are several ways to set relative targets. The three that I like to use the most are:

Reasonable improvement rates

Generally the lower the current score the easier it will be to improve it. As this chart from”Answering the Ultimate Question” indicates, the lower the NPS, the greater the opportunity for improvement.

Using this approach, different business units or groups within the organisation may have different “relative change” goals. Those with higher scores have less head room and so can expect a smaller change. Those with lower scores have more opportunity for improvement.

Significant Improvement

Harking back to the point that you need to know clearly when a movement in the score is real and when it might be statistical chance; another goal setting approach is to look for “significant improvement”.

This “significant” is in the statistical sense, i.e. you are confident that the change is real. The goal for a particular part of the organisation may be simply to create a significant improvement in the score.

Break down the score

There are several mathematical ways to improve a Net Promoter Score: move detractors to passives, move passives to promoters, move detractors to promoters. Another goaling approach is to select one of these and make that the goal.

So instead of the goal being to change NPS itself, the goal may be to, say, reduce Detractors by 5%, or increase Promoters by 5%, or halve the number of 0’s and 1’s. You can even flip these goals back and forth on a regular basis.

This is another way to target the way the organisation is focused. Focusing on halving the very low sores is, for instance, is a focus on fixing serious process and service or product quality issues. Focusing on improving the number of Promoters is a focus on pulling ahead of your industry in key areas.

If you have uncovered  a particularly good way to set Net Promoter targets please let me know in a comment below.

What is Possible?

[Update 22 March 2012]

After all this you may be wondering just what is possible in terms of turning around your NPS. How about a change from -10 to +30 in two years.

…Whilst their CE programme was multifaceted it critically included changing employee’s measures and making Customer Experience measures account for upwards of 30% of their bonus. In 2 years they have moved their Net Promoter score from -10 to +30.

Lessons in bonusing the Customer Experience measures

More information

For more information on Net Promoter Score and how/why it works download our free Introduction to Net Promoter Score (NPS)

If you are thinking about implementing Net Promoter Score (NPS) in your organisation give us a call. We can help you to implement an effective Net Promoter Score customer needs survey program

 

[2]Answering the Ultimate Question, Laura Brooks

Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.

 

By Adam Ramshaw

Filed Under: Best Practices, Net Promoter Score Tagged With: ,

Surveys: Should you report based on “sent date” or “received date”

March 16, 2012 By Leave a Comment

Recently a customer asked: “In terms of “best practice” do you have a view on whether NPS should be calculated based on the date a survey was sent or the date of the response?”

My response was perhaps not as specific as they had hoped: it depends.

In many ways it doesn’t matter which you choose so long as you stay with the same date. The client was concerned about being “most accurate” when calculating the score but this is a fuzzy concept here. “Most consistent” is probably more useful idea in this case. A consistent NPS data collection process is key in obtaining data that you can trust and action. See this blog post for more on this topic:Three Prerequisites to setting Net Promoter targets.

When running a transactional survey approach, another date that could be used is the order date or transaction date. If you use this date you can potentially tie changes in the customer scores to events in the order or touch-point process. This can be very useful in the root cause analysis process.

Some organisations like to use response date because that means that as of a particular date the reported scores will not change. If you use order date or date sent, the reported NPS for, say, February can change during March if someone fills in a survey in March that was sent in February.

However, because we’re most often talking about email surveys this effect is quite small. Email surveys are normally done within a day or two of being sent so by March 5, nothing will be changing in the February report. That may however be enough of an issue to make you want to change.

More Information

For more information on Net Promoter Score and how/why it works download our free Introduction to Net Promoter Score (NPS).

If you are thinking about implementing Net Promoter Score (NPS) in your organisation give us a call. We can help you to implement a best practice Net Promoter Score program for your business.

Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.

By Adam Ramshaw

Filed Under: Best Practices, Customer Feedback Process, Net Promoter Score Tagged With: , ,

Three Prerequisites to setting Net Promoter targets

March 13, 2012 By 3 Comments

What gets measured, gets done, or so the saying attributed to the great management guru Peter Drucker goes. At some point in your best practice Net Promoter implementation you are going to want to, in fact need to, start setting NPS targets for your staff and organisation. This is not a trivial exercise.

Before you can set targets there are three prerequisites you need to meet. When you have those in place you can look at setting improvement goals for the organisation.

1. Build trust in the measurement system

In simple terms people need to believe that the system delivering the measurement is accurate otherwise they will refuse to be held accountable.

For this reason you need to ensure you have a stable, repeatable Net Promoter measurement system and everyone knows how it operates.

I’ve written before about how the survey approach and type can impact on the score that you generate. Your measurement system must stable, repeatable and consistent for every survey and for every recipient. Comparing a last month’s email survey results to this month’s telephone results is not reliable.

Your process does not have to use any specific medium or survey questionnaire; just make sure that you don’t compare results from different mediums, survey questionnaires, etc.

When building your system try to ensure that it cannot be easily “gamed” by staff. For instance having staff select, directly or indirectly, who will be surveyed is open to abuse. Somehow the email addresses of unhappy customers are mis-entered more often than happy customers.

When you design your data collection process look out for situations like this where the process can be manipulated by unscrupulous employees. Ensure that you design out, as much as is possible, these situations so that everyone has confidence in the system.

Remember that the process must not only be fair but it must also be seen to be fair.

As with any new system it may takes several months, or even longer, to build trust in the measurements. Don’t try to set targets before you have this basic element of trust in place. If staff do not trust the score, they will not be motivated by the score.

2. Understand what is a real variation and what is noise

Ensure that everyone in the organisation understands what variation constituents “real” change in the underlying score.

From a scientific perspective, measurement is a “quantitatively expressed reduction of uncertainty based on one or more observations” [1]. Almost everyone has heard of the statistical terms “sample size” and “margin of error”. Generally, the larger the number of responses collected (sample size) the more confident you are that you know actual value of what you are measuring.

Importantly for NPS the sample size for a given confidence level is larger than other survey types. This is because to calculate NPS you subtract Promoters from Detractors and each of these measurements has uncertainty. So you need to take even more care with the statistics than normal.

3. Create line of sight from actions to outcomes

People need to believe that they can have an impact on the thing being measured or they will not be motivated. In the Net Promoter context this means that you staff must know what they can do and control to the affect the Net Promoter score.

In essence you must have done some root cause analysis or identified some explicit cause and effect linkages between NPS and each person’s area of responsibility.

This is not a trivial exercise but is a core step in the Net Promoter process. If as an organisation you do not know that is driving NPS, then you will not be able to methodically drive positive change in the score. Your NPS targets will be nothing more than lotteries, and lotteries are not a good way to run a company.

On a side note: there are two general types of NPS survey approach: Business and transactional. Creating line of sight can be much more difficult when dealing with Business level results. With the large number of organisational units, staff, products and processes in most organisations, understanding how each is impacting on NPS is a difficult task.

On the other hand transactional surveys lend themselves more strongly to gaining insight into what drives scores. This type of survey can be tied back to a specific transaction type or process and so the root cause analysis can be much easier.

More information

For more information on Net Promoter Score and how/why it works download our free Introduction to Net Promoter Score (NPS)

If you are thinking about implementing Net Promoter Score (NPS) in your organisation give us a call. We can help you to implement an effective Net Promoter Score customer needs survey program

 

[1] How to Measure Anything, Douglas Hubbard – by the way I heartily recommended this book as a general view on measuring business factors that seem to be unmeasurable.

Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.

By Adam Ramshaw

Filed Under: Best Practices, Net Promoter Score Tagged With: ,
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