Companies need to focus less on transactions and products and more on measuring and building long-term relationships.
Posted Feb 14, 2006
Companies are failing to show customers the love needed to build long-term, valuable relationships, according to Customer Experience Management 2005 study "No Money, No Love," released today by the Strativity Group. The results indicate that the company-customer relationship is deteriorating, with 46.1 percent of executive responders saying that they believe their organizations deserve loyalty based on the value they provide. Roughly 90 percent of respondents are unaware of the cost of a complaint, the cost of a new customer, or the annual value of a customer, according to the study.
Execs say that their companies take any customer that is willing to pay (42 percent). Lior Arussy, founder of the Strativity Group, says he is not surprised that about half of the respondents do not consider their companies to be committed to customers or conduct real conversations with them. "In the absence of these financial drivers, companies simply could not justify the investment in customer strategies. If executives cannot see the money, they cannot justify the love," the report states.
These sentiments emphasize execs' failure to understand the economics of customer relationships, and show that companies are thinking from a transaction-based, product-focused business model, instead of focusing on value. The mind-set ultimately will hurt businesses, according to the report: "This type of mass marketing approach often leads companies to take on unqualified customers who then become unprofitable and put a strain on the company's customer service resources, creating a negative impact on the company's bottom line."
There exists a group of inherently unhappy customers that uses a disruptive amount of an organization's resources; if companies can flag them, firms may decide it's more cost-productive to send these customers to the competition, Arussy says. "Companies are running the risk of a contaminated database of customers," he says. "The unprofitable ones will be getting service they're not paying for, and the profitable customers will be underserved."
Businesses must benchmark the cost of customer relationships and the total value associated with long-term relationships, and share that information throughout the enterprise. "We've mastered the source of operational excellence, and yet a simple approach to managing the value and costs of those things is not available," Arussy says. "Even if they exist in a business analytics report, if they never leave the heads of executives, they're not part of the strategic business decision."
There are a few steps organizations can take to turn words into results: Take executives on the road to show customers love, and not only the customers that already love them; create a real conversation with customers and transfer the discussion into measurable actions; empower customer-facing employees to deliver the customer experience.
The average CSR will serve 10,000 customers a year, amounting to potentially millions of dollars in impact, Arussy says. "When companies consider technology investments associated with customer relationships, they have to give the same thought to the operational power and people, and invest equally in that and make sure the people are ready, willing, and able to deliver the results expected from the technology."
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