Switching Costs & Customer Lock In

20 07 2009

In the day and age of increased competition and homogenus services, what are you doing to maintain your customer base?  In the past, the camera guys were able to get you to lock into their brand by giving you the body of the camera while charging higher fees for the different lens.  Because the switching costs were so high, they essentially we able to maintain their customers.

Look at frequent flier mile programs.  They are basically taking a similar service and creating customer lock in to make sure that customers maintain their status.  If the airline industry can do it with all their issues (lost luggage, long lines, delays and cancellations), why can’t you do it?

  • Do you have a marketing program aimed at creating this type of loyality or lock in?
  • How does your program compare to your competition?
  • Could you do something differently?
  • Do you offer something that is bought in quantity by your customers?  If so,  how can you leverage it more?
  • What is the cost of acquiring a new customer?

Often we think about creating new features to bring in new customers, while we try to force our existing clients to repurchase.





Key Risk Indicator (KRI): Customer Abandonment

1 07 2009

How often do you look at the indicators that a customer is thinking about leaving you?  Do you have a process around this, or do find yourself saying “why did this customer leave us?”

What are the possible indicators for a customer leaving:

  • Time between purchases
  • Decrease in volume
  • Time to Pay bills
  • Increase/decrease in calls to customer servicce
  • Temperature of calls into customer service
  • Longer sales cycles
  • Time between customer visits

Some of these may be difficult to quantify, but are well worth understanding.  I would venture a guess the cost to replace that customer (including lost opportunity value) is less than the effort to put a process into discussing customer abandonment.

If you have stories on how you track customers, or customers you lost and how you should have known, please share them.





Business Modeling

30 06 2009

We spend a tremendous amount of resources on preparing financial models for the company.  Which is absolutely necessary, but we also need to model the operations as well.  For example, if we model the customer lifecycle we can begin to better understand each of the subprocesses within.

This leads to many different insights into the business:

  • Critical transition points within the process – target higher impact performance areas
  • Segment the customer by value – thus better alignment of product and services
  • Better communication of value to stakeholders
  • Enhanced sales negotiation

If we can build the formula around each of the key business processes, then we are providing more tools for the organization to use to focus resources and priorities.





Data Warehouse Design

24 06 2009

One of the main problems with Data Warehouses is that they are designed to answer any question.  The problem is that they usually fail to answer the one someone is asking.  DWs are usually good for referencial information – meaning I can answer questions like “how many customers do we have that have spent over $100,000” or “which customers bought the blue widget.”

There are a number of points of failure that hamper DW projects:

  • They are usually complex and very costly
  • The business changes (regions, product lines, sales heirarchies, etc) in the middle of the process
  • The end use is not well defined
  • Lack of analytical skill and knowledge of data structure in the business users to get the right data
  • The end result is too complex for the users to understand where to go to get the right information
  • No one tells the organization “thou shalt” use the data warehouse – so people get data from all different sources making a common version of the truth difficult to get to
  • There are often no rules of engagement for how to use the environment, or data in general

If organizations only use 6-10% of the data they collect, how do you design the DW for greater adoption?

For starters, understand the common business questions and the potential levers that can be pulled. For example, one of the areas that always surprises me is the lack of information around the success of marketing campaigns. Marketing campaigns and price are really the only levers we can pull in the short term to increase revenues. What we often fall back to is the sales whip – where we put more pressure on the sales team to perform. This is a strategy of hope (which is not a recognized as a successful strategy practice). We apply the pressure without providing much in the terms of support.

Instead let’s say we are ending the 3rd quarter and our numbers are a little behind and the pipeline is not as strong as we would like.  We know we have some time, but the programs have to be very tactical to find low hanging fruit. Instead of reviewing the potential marketing programs or trying something new, we cross our fingers and yell at the sales team. We could cull the DW to find large groups of customers who had not bought specific groups of products and offer incentives for them to buy.  We could identify the groups/verticals of customers with the shortest sales cycle and build a promotion and program for them as well.

Yet why do we not do this…we typically lack the information in a format we can use in a timely manner.

So if we design the data warehouse (or perhaps data marts) around specific business levers we stand a better chance of answering the one question we need. We just might trigger some very interesting questions about our business.






Pain Mapping

21 06 2009

What is the value of Strategy & Operational Performance Management?

  • What if we were to fix a couple critical customer value processes by 5%?
  • If you decrease your discounting by 5% what is the value to the organization?
  • What does it cost you to continue to serve unprofitable customers?

Below are a couple of maps to identify where things begin to break down and how understanding where to start can create the best path to solving the problem.

StratMgt Pain Map

If we understand our pricing and discounting policies and proceedures we are better able to enhance the negotiation process by arming the sales force with additional material.  We stand a far better chance to negotiate on value, not just price.

Price Disc Pain Map

By understanding our cost to serve our clients we are putting in place critical analytical models about resource allocation.  We understand our good customers and our bad and use these in negotiation or plans.

Cost to Serve Pain Map





FGO1

11 06 2009

A friend of mine was the marketing guy for a major shoe company.  I was giving him a hard time one day about the quality of his shoes and he called me a FGO1.  As I was buying time to figure it out, he said “Let me guess, you play basketball twice a week, and buy a pretty good pair of shoes every year or two.”

I nodded and he continued “We have kids buying a pair of shoes every week.  That is my market.  You are a focus group of 1.”

  • How often do we make judgements based on our personal bias?
  • When was the last time you ran a focus group to understand what the market really wants from you?
  • Do you understand your target market, and do you appeal directly to that market?
  • Can you confidently ignore a segment of the market?




Focus on Operational Performance Management

26 05 2009

When was the last time you discussed how your customers were performing?  Do you have a formula to determine their lifetime revenue potential?  And what it costs to serve them?  Does this determine how you segment and market to your customers?  Do your sales people use this value as a tool in the negotiation of price?

Basically how do you manage customer performance?

One of my clients was a credit card processing shop and what we found was that they were spending $4 for every $1 they were collecting from bad debts.  While it was not the whole story, it was evident that we needed to better understand the customer lifecycle.  This client did have specific marketing programs and processes, but they had not been challenged in quite some time and were common industry practices.  

What we find out when we look at commonly held beliefs is that their assumptions are no longer (if they ever were) valid.  We get into a groove of momentum that we find difficult to change our beliefs and behaviors.  We also lack a mechanism and the focus to understand which processes to look at.  One of the most critical to me is around customer performance.  

Ask yourself if you know which customers are driving profits and which are destroying them?  If not, this might be the best place to start thinking about improving insight and process improvement.





Customer Lifecycle Value

1 05 2009

Depending upon on how well your know your business, a great discussion to have somewhat regularily is whether or not the customer lifecycle value is increasing or decreasing.  To achieve this we need to know a few things…

  • How much has the customer purchased from us?
  • How long are they likely to stay with us?
  • What does it cost us to serve them?

None of these are necessarily easy questions to answer, but that does not mean we should not talk about these items. Worst case, you should at least be looking at the average revenue and cost per client and see how those are changing. They are probably pretty good indicators of lifecycle value.  If we look at the trends of our revenues, costs (COGS & SGA), and profits per customer this should certainly indicate if we are doing better or worse.

While most of us do this to some degree, we probably also throw in a great deal many more variables and business rules and end up discussing various concepts. What about once a month or once a quarter getting all the department heads together and discuss progress on only these items.





Align to Customer Value

16 03 2009

On thing to consider in terms of developing KPIs (Key Performance Indicators) is how they are aligned to the customer’s wants.  All to often we ignore this perspective, yet it is perhaps one of the most important factors.  

For example, one of the growing cost saving tools companies use is call automation services.  “For sales, press 1.  For customer service, please hold while we test your patience.”  

Companies do this because they are measuring cost per call, or efficiency.  What the customer really wants is a convenient resolution to their call, or effectiveness.  Clearly these goals are working against each other and in most cases destroys customer loyalty and brand value.  

In the end, we need to balance costs with value, and we need to understand customer and corporate strategy.  Are we focused on customer intimacy as our core business focus, or operational excellence?  Are we measuring the business in a manner that reinforces our business model and customer value creation, or strictly by the bottom line?