An old business proverb states, "Customers are the most valuable part of any business." Assuming the proverb is accurate, wisdom dictates that businesses would succeed by investing in those customers — both the existing and the prospective ones. In most sectors, however, companies have been focusing their marketing dollars on two areas:
- expanding the customer base (or replacing customers that have fled to a competitor); and
- retaining customers that are threatening to defect.
Organizations continue to assess their CRM investments — and most are finding this approach fails to deliver the expected returns. Leaders, in terms of profitability and customer satisfaction, have reshaped their customer investment approach and have begun splitting their marketing budgets between developing new customers and developing engaged ones.>
The ability to engage with customers comes through understanding each one's various needs and motivations. As business and markets have evolved, CRM systems began filling the relationship gap with customers, unifying the organization's knowledge of the individual customer, allowing company agents to understand the pertinent details of that customer. In other words, businesses chose to invest in CRM systems that centralized customer information, improving not only the service provided each customer but also the effectiveness and consistency of the company's management of those relationships.
What has become obvious is that customer insight is not enough. It is imperative to be able to define actions — or, more to the point, interactions — with customers that are personalized for each individual within the context of the relationship.
For the customer relationship to last, it must be a positive and rewarding experience for both the consumer and the business. This implies that programs designed to develop long-term customer relationships must encompass two key perspectives:
The Customer Perspective — At the most basic level, the individual consumer must be open to a "relationship" with the business that extends beyond the "next-best" price offer or the next minor issue that arises. These customers will be advocates for the business, contributing value well beyond what they spend themselves. In return, these customers believe they have received additional value from the business and anticipate that they will continue to do so.
The Company Perspective — The company must recognize and acknowledge the value that "loyal" customers contribute to the business and be prepared to deliver additional value to those customers, providing an enhanced experience including attentiveness to individual needs, discounts, or value-added services.
Businesses must not view customers simply as accounts and transactions. Instead, companies should assess each customer as an individual and each interaction (and transaction) as an opportunity — and part of a longer dialogue — to deepen the customer relationship.
The customer lifetime value management approach provides a practical means of improving your bottom line by correctly aligning your investment in every customer.
In order to shift toward customer lifetime value management, the business must be in a position to answer two questions:
- "Do I want a long-term relationship with this customer?" and
- "Is the relationship worth additional investment?"
As markets continue to evolve and customers' opportunity for choice continues to expand, a new approach to building lasting and mutually beneficial customer relationships is beginning to emerge. This new approach focuses on the effective measurement and management of a customer's value to the business measured through a key set of metrics including:
- profitability, not revenue;
- consistent and frequent interactions over time, not just the duration of the relationship;
- relational/social (word of mouth) value, not simply individual customer activity; and
- potential value of the individual customer throughout the lifetime of the relationship
To help companies truly maximize existing customer relationships, CRM initiatives must expand beyond merely managing the customer relationship. These initiatives must also provide mechanisms to assess the value of that relationship — leveraging the above metrics — and to facilitate meaningful interactions with top customers. Where legacy CRM solutions provide a solid information foundation, incorporating customer lifetime value management brings life to customer relationships and enables CRM initiatives to achieve their proposed value.
About the Author
Ronald Ramsey (email@example.com) is a principal in the communications, media, and entertainment consulting practice at Infosys. In his work with service providers, he focuses on the design and implementation of innovative solutions that help deliver on customer experience promises while maximizing not only the lifetime value of those customers, but also the value of each customer relationship.
Please note that the Viewpoints listed in CRM magazine and appearing on destinationCRM.com represent the perspective of the authors, and not necessarily those of the magazine or its editors.
You may leave a public comment regarding this article by clicking on "Comments" below.
If you would like to submit a Viewpoint for consideration on a topic related to customer relationship management, please email viewpoints@destinationCRM.com.
For the rest of the March 2010 issue of CRM magazine please click here.