Dare to Be a Customer-Smart Company

Businesses have long realized that not all customers are created equal. But thanks to digital processes technology, they are now beginning to measure, in real dollar terms, just how unequal they really are.

Let’s consider just three broad segments of customers:

• The first segment comprises customers who shop strictly on price. This behavior may be driven by economic need, or it may be part of their personality and style (or both).
• Next are customers who demand a lot of attention and maintenance. This behavior may be driven by their relative lack of knowledge about how to use the product, or it may be just part of their personality and style (or both).
• And third, consider a segment of customers who are relatively easy to please and don’t require a lot of handholding. This may be because they can afford to pay a premium for convenience (they may place a high value on their own time), or it may be just part of their self-reliant personality and style (or both).

When companies invest the time and energy to identify the third category of customers and successfully attract and retain them (by making it easy for these customers to do business with them), some incredibly powerful things happen:

• Customer-smart companies enjoy a superior profit advantage over their competitors, who sell to and service all three types of customers. Unlike the competition — which never really knows which customers are more expensive to acquire, which switch brands when the price changes, or which are more expensive to service — customer-smart companies enjoy much higher profit margins due to the behavior of their client base. Customer-smart companies have lower attrition/defection rates, which drive down average customer acquisition costs. Conversely, their retention rates are higher, which drive up average customer revenue.
• Customer-smart companies have greater productivity and higher efficiency. Because these companies have lower defection rates, higher retention rates, and higher profits to reinvest in systems and processes, managers and employees focus more on working smarter (instead of just harder). This in turn improves employee morale and reduces turnover. All of these factors lower recruitment and training costs and raise employee productivity and efficiency.
• Customer-smart companies enjoy greater brand recognition and reputation, through word of mouth and favorable publicity as a superior industry performer. Customers tell their friends and neighbors good things about the customer-smart company, which helps attract more of the same type of loyal customers. Greater profit performance drives up the shareholder wealth, which in turn lowers the cost of the company’s capital. Wall Street analysts are quoted all over in the media about what a great investment the company’s common stock is. This positive press leads to more positive press, helping pave the way for greater positive mindshare and reputation, which in turns build customer goodwill — the single most important asset any organization can have.

Sounds too good to be true? It isn’t. According to industry research, service leaders enjoy 100 percent better profitability than their respective industry averages.

Even merely getting a complete view of customers is seen by some researchers as a competitive advantage. According to Gartner Group, “Through 2005, enterprises able to synchronize customer-facing interactions across channels will outperform competitors with siloed channels by 20 percent.”

If this fact is so well known, why aren’t companies running out to do this? As you might imagine, it’s the usual suspects: budget constraints, cultural resistance, and fragmented technical infrastructures in which customer data is held hostage in different “islands of computing.”

But the real issue? I suspect it’s that old villain: the FUD factor. Given the failed promises of quick and easy profits from implementing sales automation, call center, and customer support software packages, many management teams are locked into fear, uncertainty, and doubt about customer relationship management (CRM). Without a strong belief in the benefits of being a customer-smart organization and the vision and strategy on how to do it, most organizations are taking a “wait and see” approach — playing it safe.

And in this hypercompetitive, ever-changing global economy, playing it safe may be the riskiest strategy of all.