Follow the money: Growth through targeted customer experience
Finding LeaderOpinionfaster growth: Loyalty and new spendFollow the money: growth through targeted customer experience Share this In Focus
Follow the money: growth through targeted customer experienceNo business that fails todeliver positive customerexperiences can hope togrow for long. Share this In Focus 2
Follow the money: growth through targeted customer experienceThe value of knowing your customer has been a maxim A new perspective on customer value Our customer growth survey is based on conversationsof good business almost since businesses first began – Traditional approaches to customer experience with overand focusing on the most valuable customers a priority. management (CEM) value customers on theIdentifying a business’s most valuable current customers amount they currently spend with a business. 16,000is straightforward enough. Those who spend more are ‘high-value’ customers; those that spend less are ‘low-value’. The problemThe challenge comes is that customers don’t buy products from just one company. Most consumers have repertoriesin focusing on the of brands within any given category. Only by understanding its share of their overall spend in people incustomers who a category can a business understand the true six future value of each customer – and the risks orhave the greatest opportunities that they represent.potential for driving An understanding of customers in context becomes all the more important as consumer choice increases countries for fast food, retail banking and competition for each customer intensifies. and mobile handsetsfuture growth, and At TNS, we have championed respondent-level understanding of market dynamics that reveal strongidentifying the best fluctuations in the share of wallet that consumers give to different brands. A company’s customers importance to future growth, and manage touchpoints to deliver the experiences those customers demand.ways to grow these have varying propensity to churn completely or shift spend to and from rivals. Only by seeing them in Fast food, one of several categories featured in our customer growth survey of 16,000 people acrossrelationships. the context of the market can CEM strategists react effectively, identify the customer segments of most six countries, demonstrates the importance of a respondent-level view. Share this In Focus 3
28%Follow the money: growth through targeted customer experience At risk Ambivalents SecureThe traditional approach to customer segmentation Pinpointing the growth opportunitytreats two men who each spend $10 on their weekly By recognising such distinctions, we are able to divide, Identifying growth opportunities and howvisit to a fast food restaurant as equally valuable. A ‘high-value’ customers that would once have been to leverage themrespondent-level approach might identify one as a grouped together, into ‘anchors’ and ‘growth drivers’. High business relevance High business relevancefather taking small children to the restaurant as a Anchors ‘Anchors’ already giveGrowth proportion of their a high drivers Anchors Growth driversmuch-valued weekly treat, and the other as a student overall category spend to a company and show limitedwho spends a lot on fast food, most which is with a potential for additional growth in this category. In 14% 20%competitor chain. Each has very different needs – and contrast, ‘growth drivers’ have a higher category spend,offers very different growth potential. with scope for the company to increase its share and could still represent further potential through cross-Focusing on the individual, and their total category selling or up-sell potential.spend, takes CEM to a new dimension when it comes Low business relevance Low business relevanceto assessing customer value and managing customer CEM strategists must focus on potential churn threatsexperiences. Whereas traditional measures segment 49% 18% for both groups, but whereas their approach tocustomers based solely on their current value or ‘anchors’ rests on understanding loyalty drivers andbusiness relevance, this approach adds a respondent-Manage seeking to retain spend profitably; the strategy for Incremental Manage Incrementallevel view of future growth potential, based around efficiency ‘growth drivers’ must rest on analysing their use of opportunities efficiency opportunitiescategory spend and projected behaviour. competitors and investing to grow share. Low growth potential High growth potential Low growth potential High growth potential Share this In Focus 4
28%Follow the money: growth through targeted customer experience At risk Ambivalents SecureSimilarly, we are able to establish vital distinctions The US fast food market: a case studybetween currently low-spending customers with The US fast food market has seen growth stagnate The US fast food marketa company. These are divided into the ‘manage since consumers began cutting back on discretionaryefficiency’ segment, with low growth potential, where dining at the start of the recession – and competition High business relevancethe focus is likely to be on managing experiences as for a reduced pool of customers is creating clear Anchors Growth driversefficiently as possible and avoiding over-servicing; winners and losers in the CEM battle. The marketand ‘incremental opportunities’, a potentially valuable challenges are shown by the fact that around half of 14% 20%source of future growth given their high spend on the all fast food customers fall into the ‘manage efficiency’category as a whole. CEM strategies for ‘incremental segment, loyal to particular brands or restaurants butopportunities’ must focus on the question of why they rarely visiting them. The relatively small number ofcurrently prefer competitive offerings, and whether ‘anchors’ (loyal, high-value customers who visit theinvestment can realistically increase a business’s share same chain regularly) shows the dynamic nature of Low business relevanceof their spend. Previously, this group would have been the market. Competition revolves around the fifthdismissed as simply ‘low value’. of customers who are ‘growth drivers’, with high 49% 18% potential value that no single brand has been able toBesides fast food, the global survey applied this lock up entirely, and who currently spread their weekly Manage Incrementalsegmentation approach to the retail banking and visits across several restaurants. efficiency opportunitiesmobile handset markets. In all three cases, the results Low growth potential High growth potentialdemonstrate how seeing customers in context provides Within this challenging environment, we find starkfar greater insight into their true value. And as the differences in performance when it comes to managingfollowing example from the US fast food category the experiences of the most important customers – andshows, these insights enable precise recommendations see these differences reflected in the changing fortunesabout the CEM measures that will help to drive growth of rival brands.most efficiently. Share this In Focus 5
Follow the money: growth through targeted customer experienceBrand one: positioned for growth The strength of customer relationshipsThe most successful brand achieves a customer loyalty Totalscore of 86, significantly above the category average. 86 TotalHowever, the real key to this organisation’s success is itsability to deliver strong positive customer experiences 86for its most valuable segments. It scores 101 amongst‘growth drivers’ and 104 amongst ‘anchors’, securingcurrent revenues and maximising potential for growth. Low customer 70 80 90 100 High customer retention retentionWith a score of 81, the ‘incremental opportunities’segment also provides a healthy channel for increasing Low customer 70 80 90 100 High customer retention 80 81 101 104 retentionrevenues – and as with growth drivers, that increasein revenues will come at the expense of rival fast food Manage Incremental Growth drivers Anchors 80 efficiency 81 opportunities 101 104brands in these customers’ repertoires. Manage Incremental Growth drivers Anchors efficiency opportunitiesThe strong position revealed by the loyalty score isreflected in the fact that this brand has doubled itsnumber of outlets in the past 10 years, and currentlyopens between 1,000 and 2,000 new restaurants Loyalty Growth Segments Percentage of entire customer baseeach year. Loyalty Growth Segments Percentage of entire customer base Total Share this In Focus 62 Total 6 62
Follow the money: growth through targeted customer experience Loyalty Growth Segments Percentage of entire customer baseBrand two: revenues at risk The strength of customer relationshipsIn contrast, brand two demonstrates the danger of Totalfailing to satisfy the customers who are best-placed to Total 86deliver forward momentum for a business. Not onlydoes its overall loyalty score of 62 lag behind that of its 62rival, but its satisfied customers are largely restricted tothe ‘anchors’ category, with limited potential for futuregrowth. A score of 65 amongst ‘growth drivers’ and Low customer 70 80 90 100 High customer retention retention41 amongst ‘incremental opportunities’ provides thebrand with few opportunities to increase its share of Low customer 40 60 80 100 High customer retention 80 81 101 104 retentionpromiscuous customers’ fast food spend. Manage Incremental Growth drivers Anchors 41 efficiency 60 opportunities 65 80Companies should be scoring 70 and above amongsttarget segments to be in a position to retain existing Incremental Manage Growth drivers Anchors opportunities efficiencycustomers and drive growth. Loyalty Growth Segments Percentage of entire customer base Loyalty Growth Segments Percentage of entire customer base Total Share this In Focus 62 7
Follow the money: growth through targeted customer experienceWhen we overlay an understanding of the business segment are classed as ‘secure’ and over a quarter range of food and drinks and they come across itsvolume generated by brand two’s different segments, are classified as ‘at risk’ from rival brands. Brand two restaurant locations often enough to make themthe picture becomes more worrying. ‘Growth drivers’ urgently needs to improve customer loyalty amongst its easy to visit. Service is quick and efficient enough andaccount for the largest share of its current revenues, most important customers or it risks losing out to rivals there are no major problems on the atmosphere ofhowever fewer than half of the revenues from this who are more effective at delivering the experiences the restaurants or their child-friendliness. those customers demand. Poor retention leads to insecure business Yet these strengths are being undermined by under- From precise insight to actionable strategy performance in other vital areas. ‘Growth drivers’ Growth drivers In developing an actionable strategy to manage those may like the taste of the food but they don’t rate the experiences, it is again important to go beyond the cleanliness and tidiness of the restaurants they eat it traditional average view of customer needs. Only by in – and they don’t find the staff particularly friendly looking at the key drivers of satisfaction for specific or helpful. They harbour some serious doubts about customer segments, can we identify the measures the quality and freshness of ingredients as well. 45% that will deliver most value in terms of securing revenues and driving growth. In our fast food So, in this scenario, there are clear and immediate example, a close look at the touchpoints of greatest measures that brand two can take to stabilise its 27% importance to brand two’s ‘growth drivers’ shows revenues amongst its most important customer how competitive strength on several key areas has segment, and start leveraging its advantages on taste been undermined by weaknesses in a few critical and value to take share from rival restaurants on its 28% touchpoints – and how remedying these can deliver customers’ menus. Staff education and employee significant and immediate returns. engagement is the number one priority, likely to reward any investment in training and communication with ‘Growth drivers’ actually rate brand two’s taste and strong returns in customer satisfaction and increased At risk Ambivalents Secure value for money (two of the most important factors spend. On the quality and freshness of ingredients, for customer satisfaction) very highly. They like its brand two can choose to invest in fresher produce, Share this In Focus 8
Follow the money: growth through targeted customer experienceguided by clear insight as to the additional revenues Once customers’ true potential to a business is revealed, Above all, though, it requires a clear understandingthis is likely to generate. Alternatively, if the problem is the key to realising it lies in aligning business strategy of the true current and future value of each customerthat consumer perception of the quality of ingredients and KPIs around the key drivers for the most valuable to the business – and the importance that should belags behind the reality, then it can focus marketing on segments. Only by investing in the touchpoints that will attached to meeting their needs.addressing this issue. deliver increased satisfaction for these groups can CEM help to secure and grow revenues efficiently. Doing soCEM as a growth channel requires engaged employees (as our fast food exampleThe analysis of the two rival brands’ positions shows) and touchpoints that are carefully aligned toilluminates how customer-centric strategies can both customer expectations and internal processes.contribute far more to a business than simply thedefence of existing revenues. Many of the customerswith the highest growth potential for any company arealso the customers of competitors, and part of theirdefinition as high-growth potential is that they currentlyuse that company’s products and services less thanthose of others. Increasing share of wallet amongst‘growth drivers’ and ‘incremental opportunities’ is oneof the most direct means available of taking share fromrivals. And when customer-centric strategies are gearedto the most important touchpoints for these groups,they become powerful and immediate channels fordriving growth. Share this In Focus 9
About In FocusIn Focus is part of a regular series of articles that takes an in-depth look at a particular subject, region ordemographic in more detail. All articles are written by TNS consultants and based on their expertise gatheredthrough working on client assignments in over 80 markets globally, with additional insights gained throughTNS proprietary studies such as Digital Life, Mobile Life and The Commitment Economy. About the authors Susanne O’Gorman, Global Director, StakeholderAbout TNS Management, is responsible for building stakeholderTNS advises clients on specific growth strategies around new market entry, innovation, brand switching and management expertise, best practice and knowledgestakeholder management, based on long-established expertise and market-leading solutions. With a presence and portfolio management at TNS. With over 12 years experience in stakeholder research, she joined TNS in 1998in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands as Account Director for a large multinational client, thenindividual human behaviours and attitudes across every cultural, economic and political region of the world. the Stakeholder Management team in 2004 focussing onTNS is part of Kantar, one of the world’s largest insight, information and consultancy groups. customer experience management and employee research. Susanne has a PhD in Sociology from Regensburg UniversityPlease visit www.tnsglobal.com for more information. and a postgraduate scholarship at the London School of Economics.Get in touch Charlotte Nau joined TNS as a consultant in the StakeholderIf you would like to talk to us about anything you have read in this report, please get in touch via Management team in 2012. She specialises in email@example.com or via Twitter @tns_global and tactical customer experience and corporate reputation management research. Charlotte is involved in the development of TNS’s flagship solution TRI*M and provides worldwide consultancy in designing and implementing projects in this area. She holds graduate degrees in Media and Communication Studies from Johannes Gutenberg University Mainz, Germany, and the University of Memphis, USA. Share this In Focus 10
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