Customer Relationship Management



Think your customers
are loyal? Think again
By Woodruff W. Driggs, Steven S. Ramsey an...
Customer Relationship Management




                                          You’ve gone to great lengths to identify an...
an overall loyalty strategy, but they        ment and pricing, operations, and
lack the nuance that gives compa-          ...
Customer Relationship Management




                                          better delineation of the different        ...
a new home, trigger a reevaluation       not in the sense that they can be
of alternatives?                         counte...
Customer Relationship Management




                                          Shoppers were more loyal to the store      ...
a vendor-managed inventory model,         recently conducted an analysis of
Panasonic has taken on responsibility     diff...
Customer Relationship Management




                                                                   that the brand val...
recent book is Mass Affluence: Seven
ExxonMobil Corporation, for exam-         sions on how customers have acted
         ...
Think Think Again
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Think Think Again

  1. 1. Customer Relationship Management Think your customers are loyal? Think again By Woodruff W. Driggs, Steven S. Ramsey and Paul F. Nunes The psychology at the heart of customer buying patterns is far more complex than previously thought. The different variations of customer loyalty must be understood if a company is to win the long-term battle for customers, increase market share and achieve high performance. 30 www.accenture.com/Outlook
  2. 2. Customer Relationship Management You’ve gone to great lengths to identify and nurture the most valuable segments of your customer base. You’ve closely monitored them through surveys and focus groups, and you know they consistently indicate they are “highly satisfied” with your company and its products. But . . . are they loyal? If you’re like most companies, you don’t really know—at least, not for sure. And that’s a problem. The loyal customer is perhaps the What makes customer loyalty such most elusive subject in all of man- a vexing matter? Some loyalty chal- agement science. And a recent lenges are inherent in the current Accenture customer loyalty study market. Customers, for example, are suggests that the psychology at the harder to reach and impress than they heart of customer buying patterns used to be. Many traditional market- and preferences is far more complex ing channels have been weakened as than previously thought. Different consumers pursue various “market of variations of customer loyalty must one” activities: iPods, video games, be understood if a company is to win movies on demand and personal the long-term battle for customers video recorders that allow commercial and market share. skipping. In the hypercompetitive Internet age, customers also have Loyalty and high performance more pricing information and more Understanding, nurturing and buying options than ever before. ultimately serving these different forms of loyalty is essential to a But a number of misconceptions company’s “market focus and posi- about loyalty have also led companies tion”—one of the three building to make misguided investments in blocks of high performance identi- customer management programs. fied by ongoing Accenture research (see “The right place, the right The notion that loyalty is all about time,” Outlook, October 2005). improving customer “satisfaction” is perhaps the most common mistake. Through their market focus and The frustrating truth is that what cus- position, high performers achieve a tomers say about being satisfied turns kind of strategic decision-making out to be a poor indicator of loyalty. capability that enables them to In fact, a consistent finding from cus- compete in the best markets and tomer research is that 60 percent to maximize growth opportunities, 80 percent of lost customers across without reaching or scaling beyond all industry segments reported on sur- their capability to do so. Companies veys just prior to defecting that they with an overly simplistic view of were “very satisfied” or “satisfied.” loyalty and of their customers are likely to have a misguided market Another misstep is thinking that focus and position, taking them because a company has a loyalty down errant and expensive paths program in place, it is doing all it that can leave them poorly equipped can to improve customer loyalty. to compete. Loyalty programs are one part of 32 www.accenture.com/Outlook
  3. 3. an overall loyalty strategy, but they ment and pricing, operations, and lack the nuance that gives compa- sales and service must all be pulling nies the ability to target the most in the same direction to generate profitable segments. Our research the kind of loyalty that produces has found that loyalty cannot be high performance. sustained by incentives alone. In The true drivers Accenture’s loyalty survey, for exam- ple, only 20 percent of consumers To attract and retain the most loyal said they had switched providers in and profitable customers, a company the past year because of the absence must first understand the true drivers of loyalty perks and rewards. And of loyalty—the customer attitudes just 22 percent said they have stayed that, in turn, drive the different kinds with a provider because of frequent- of behaviors that must be understood buyer rewards. and nurtured. Senior management has also diluted Accenture has developed a loyalty efforts to encourage customer loyalty model—based on our own research through the attitude that “it’s mar- and client experience as well as on keting’s job.” Marketing has a vital leading academic studies—to enable role to play, to be sure. But develop- better analysis of different kinds of ing customer loyalty is a team sport. loyalty drivers. At the heart of the Human resources, product develop- model (see chart, next page) is a The customer experience When marketers use the phrase customer experience, it is not merely a matter of semantics. One of the most important developments in management science in recent years has been the insight that we are in an “experience economy.” Customers are not buying just a product or service from a company; they are buying the total experience around its consideration, purchase, use and service. Companies that master this experience—that can understand it and deliver it better than their competitors—have an edge in the marketplace. Research backs up this point. The Accenture High Performance Marketing study, for example, revealed that a positive customer experience accounts for 33 percent of a company’s ability to achieve strong customer loyalty (see “Marketing mastery matters,” Outlook, May 2006). Outlook 2006, Number 3 33
  4. 4. Customer Relationship Management better delineation of the different they willing to pay a premium for types of loyalty customers exhibit. the brand? Are they advocates for These types can be understood as the brand with people within their spectrums of attitude and behavior family and social network? Much along three dimensions. as educators have discovered that teaching a subject helps a person Involvement with the understand the content more deeply, product or service category leading companies have discovered How interested are customers in the that the very process of advocating category’s products and services? a brand to others creates deeper Are they active and engaged par- loyalty to that brand. ticipants in loyalty programs? Are they “heavy” users of the category Likelihood to reevaluate and enthusiastic about the category How prone are customers within a in general? particular product or service category to reevaluate their current buying Commitment to the brand choices? What are the most impor- How passionate are customers about tant shopping triggers? What barriers the brands they buy? Do they iden- exist or might be erected against tify themselves with a brand and switching brands? For example, do develop deep ties to it? Do they care changes in personal circumstances, about the fate of the brand? Are such as income level or moving to Tracking attitudes and behaviors The Accenture Customer Loyalty Model enables companies to examine customer loyalty based on an understanding of the attitudes and behaviors of subsegments of their customer base. Functional Category involvement Passionate Low High Uncommitted Brand commitment Committed Low High Passive Reevaluation frequency Active Low High Source: Accenture analysis 34 www.accenture.com/Outlook
  5. 5. a new home, trigger a reevaluation not in the sense that they can be of alternatives? counted on to order their favorite brand of beer again and again, but By analyzing the behavior and atti- in their commitment to a diversity tude indicators of this three-part of experience. Such buyers consti- model, different loyalty segments tute a growing market. In the emerge, each with its own distinct United States, for example, craft- loyalty drivers. Companies that beer output rose 9 percent in 2005, recognize these nascent segments even as production for domestic can improve their market focus and large brewers fell by 2 percent. position by identifying previously unseen markets within markets. They To respond to the unique characteris- can then design marketing, sales and tics of this market, some craft brew- service strategies to deliver a unique ers have begun providing “seasonal” customer experience within each sub- varieties of their beers. The Samuel segment. (For more on the customer Adams brand, for example—owned experience, see box, page 33.) by US-based Boston Beer Company— offers Octoberfest, Summer Ale, Applying the loyalty model White Ale and Winter Lager to meet The following examples demonstrate its customers’ seasonal taste changes. how this loyalty model can help com- This gives the company a better panies compete on customer loyalty. chance of holding on to the micro- brew customers within its overall Variety seekers Samuel Adams suite of brands, even With the equivalent of 238 billion though these buyers technically bottles sold annually worldwide, would still be categorized as having beer is a $413 billion global busi- a high tendency to reevaluate their ness. The marketing efforts of many beer-buying habits. By meeting a of the largest brewers have, for the customer’s need for variety within most part, been aimed at retaining the overall brand, companies can brand loyalists by appealing to build greater long-term loyalty in a their competitive nature, asking segment that might otherwise have them to identify with a brand much seemed to defy loyalty. as they would with their favorite sports team. Using our three-part Habitual buyers loyalty model, this means beer Consider another category of buyers companies have been targeting cus- whose loyalty patterns can fool com- tomers with high category involve- panies: habitual buyers. If your com- ment (that is, they like beer), high pany sells soft drinks or snack foods, brand involvement (that is, they are for instance, you can easily take for loyal Heineken or Kirin or Miller granted the steady business from your drinkers, for example) and a low retail outlets. But as one soft drink likelihood to reevaluate. maker found out several years ago in a spat with Sainsbury’s Supermarkets, Yet a marketing approach targeted the third largest grocery retailer in the primarily at brand loyalists ignores United Kingdom, nothing is a sure a significant subsegment of the thing. Sainsbury’s pulled the brand “high category involvement” cus- from its shelves and substituted its tomer base: drinkers of micro- own private-label brand. Within brewed, or “craft,” beers. These months, the private-label brand was customers are after not only qual- one of the best-selling soft drinks in ity but also variety. They are loyal, the United Kingdom. What happened? Outlook 2006, Number 3 35
  6. 6. Customer Relationship Management Shoppers were more loyal to the store is to embed themselves inside the than to the soft drink brand. supply chain of buyers through approaches like vendor-managed In the context of our loyalty model, inventory and continuous replenish- the brand commitment for these ment. These suppliers restock store customers appeared high, but for shelves (for example, snack foods a substantial segment of the market in grocery aisles) and companies’ it was, in fact, quite low. Because production inventories (say, cooking reevaluation was also quite low, oil) on a continuous basis, relieving it was only when customers were the buyer of the need to constantly forced to rethink their purchase that reorder to maintain supply. Becoming the true nature of this segment’s loy- a quiet but essential player in the alty became apparent. So if loyalty supply chain not only adds value for comes more from purchase habit buyers in terms of ease of manage- than brand preference, what becomes ment, it also avoids the risk of buyers crucial is the third dimension of the rethinking their supplier choices every loyalty model: that is, what the com- time they fill out a purchase order. pany must do to reduce the likelihood of reevaluating. Electronics giant Panasonic has recently instituted this type of strat- One method used by market leaders egy in its cooperative relationship to lower the risk of reevaluation with such retailers as Best Buy. Using The importance of loyalty Cultivating loyal customers is essential to achieving high performance for several reasons. Reliable studies continue to point to the fact that it is far more expensive to attract customers than to retain them. Loyal customers also buy more. In a recent Accenture survey, 81 percent of consumers said they will continue buying from com- panies to which they are loyal, and about half said they would buy more or respond to specials from such a company. In short, customer loyalty provides pricing power in the marketplace and better protection from competitive threats. Loyalty provides a platform for stronger, deeper relationships with customers; it can also increase market share and revenue, and lower the overall cost of customer acquisition. The bad news is that when customer loyalty is measured, the numbers are pretty dismal. The annual customer defection rate has grown from 16.9 percent in 2003 to 19.1 percent in 2005. One study found that, on average, US corporations lose half of their customers every five years. A recent Accenture survey of UK and US consumers— customers across a range of service providers—found that 60 percent of them had switched loyalties in the past year, and 64 percent said they are likely or very likely to stop doing business with a company they currently patronize. 36 www.accenture.com/Outlook
  7. 7. a vendor-managed inventory model, recently conducted an analysis of Panasonic has taken on responsibility different customer churn models, for the inventory of its products in mapping various churn percentages the retailers’ supply chains. Everyone to the number of customer acquisi- wins with this model. The retailers tions that would be required to off- eliminate or reduce the costs of set the losses. The company found owning the inventory but then share that more effective customer loyalty their higher margins with Panasonic. programs were more important than For its part, Panasonic gets an even customer acquisition programs. greater benefit: an end-to-end view of its retailers’ supply chains in real Only by challenging long-held time, enabling Panasonic to better beliefs with hard facts and figures manage its business activities, rooted in the company’s business including production timing. model and financial targets will change be effective. It is absolutely Loyalty engineering imperative that the full costs and Creating the right loyalty capabilities benefits of a revitalized loyalty in a company, and then effectively strategy are explored across all managing customer loyalty, demands aspects of the organization to ensure what might be called an “engineer- that initiatives gain senior-level ing” perspective. That is, it requires endorsement as part of the company’s a data-driven approach that enables overall growth plan. a company to analyze and under- stand the different configurations of Develop a detailed mapping loyalty drivers among its customers, of loyalty drivers and that supports long-term initiatives Understand the different types of to shift and evolve the market focus loyalty that exist within your current and position of the company based on customer base and across the wider those customer configurations. The market, and how each type influ- Accenture Customer Loyalty Manage- ences the risk of defection and the ment Framework (see box, page 38), possibility of achieving even greater for example, combines detailed steps loyalty than you currently have. involving insight, strategy, execution Leverage loyalty driver insights to and measurement, as well as essential plan distinctive customer experiences enablers such as leadership, technol- that create and sustain each type ogy and organizational design. of loyalty. Here are some practical steps for Plan a comprehensive response, creating differentiated customer integrated across all relevant loyalty-building capabilities. dimensions of your company Use an integrated approach to gener- Understand loyalty in the context ating customer loyalty that involves of your business model a coordinated series of initiatives Most organizations continue to place across the following five dimensions. more emphasis on customer acquisi- tion than on customer loyalty. That • Insight. Use sophisticated data can be an expensive mistake. A rig- mining tools, behavior analyses orous analysis of the comparative and external research to under- costs of acquiring new customers stand different segments of the and retaining existing ones can be customer base over time. eye-opening. For example, one • Strategy. Align loyalty drivers to telecommunications service provider the customer experience, and ensure Outlook 2006, Number 3 37
  8. 8. Customer Relationship Management that the brand values are consistent • Enablers. Build technology capa- with the needs of targeted customer bilities that enable data mining segments. Define loyalty metrics and cross-organization integration. and who owns them. Align leadership, culture and • Execution. Implement customer values toward a customer-centric treatments across channels, orga- approach. Put in place governance nizational boundaries and tech- and journey management cap- nologies. Make sure that a abilities to ensure that silo-based rewards-based loyalty program turf warfare does not derail the delivers clear business benefits necessary change. and that it is flexible over time. Appoint a clear owner of the Test new loyalty-building entire “customer experience.” programs before scaling them • Measurement. Track loyalty across the company measures at each customer touch A common practice among loyalty point. Proactively address the leaders is to pilot loyalty-building causes of excessive customer initiatives to prove their value and churn. Make sure that loyalty gain broader organizational buy-in programs have a clear purpose before making sizable investments within the loyalty strategy and in long-term programs. The key is to that the return on investment for start with a high-impact first phase such programs can be measured. and then scale quickly. Engineering loyalty into CRM The Accenture Customer Loyalty Management Framework helps engineer loyalty into CRM efforts by creating a sharper focus on the distinct business capabilities in the marketing, sales and service functions that focus CRM on customer loyalty. Compelling value proposition Branded customer experience Loyalty insight Strategy • Brand value measurement • Marketing mix (service, channel • Loyalty and treatment strategy • Customer profitability analysis • Loyalty driver analysis and advertising) • Measurement strategy • Customer segmentation • Propensity modeling • Customer proposition (offer, brand) Enablers • Loyalty program engine • Customer data management • Reporting and performance • Campaign automation management platform • Analytics and decision platform • Human performance management Measurement Execution • Sales and service excellence • Loyalty index measurement • Loyalty program design • KPI reporting • Campaign and treatment delivery • Financial impact and customer • Loyalty program delivery • Campaign ROI measurement • Offer and brand enhancers profitability analysis • Loyalty program operations Source: Accenture analysis 38 www.accenture.com/Outlook
  9. 9. recent book is Mass Affluence: Seven ExxonMobil Corporation, for exam- sions on how customers have acted New Rules of Marketing to Today’s ple, used a pilot approach to test the in the past, which is often not the Consumers (Harvard Business School potential of its Speedpass system, best predictor of future behavior. In Press, 2004). which is based on a small key-tag the end, companies may find that device that customers pass in front the loyal customers they seek have paul.f.nunes@accenture.com of a reader at the gas pump to expe- been there all along, hiding in plain dite their purchases. With more than sight, simply waiting to be identified, Naomi Kasolowsky, a London-based 7 million users, Speedpass has created understood and marketed to in the senior manager in the Accenture a loyal subsegment within the com- right ways. Customer Relationship Management pany’s customer base, and is helping service line, contributed to this article. to drive additional revenues. Exxon- About the authors Mobil continues to improve the Woodruff W. Driggs is the managing Speedpass system by pilot-testing partner of the Accenture Customer related programs. Relationship Management service line. A comprehensive approach Previously, he headed the Operational CRM practice within the global CRM Loyalty is the result of multiple service line and established Accenture’s factors involving brand, customer Sales Transformation practice. Mr. Driggs characteristics, category involve- spent 17 years in the company’s ment, cultural issues and a myriad Communications & High Tech operat- of other considerations. Companies ing group, focusing on enterprise-level that continue to base their market application delivery and serving as focus and position on a monolithic managing partner of the group’s SAP and overly simplistic view of cus- practice. He is based in Wellesley, tomer loyalty may be investing Massachusetts. in the wrong things for the wrong reasons. Even well-intentioned woodruff.w.driggs@accenture.com loyalty programs can hamper com- petitive effectiveness if they are Steven S. Ramsey is a Chicago-based not based on the right customer partner in the Accenture Customer loyalty drivers. Relationship Management service line, responsible for leading the Marketing The advantage of the approach to & Customer Strategy practice. His building customer loyalty recom- primary areas of focus are related mended here is that it integrates to helping companies with sales, strategy, analytics and measurement marketing and customer service go- to quickly put into practice the to-market issues, helping them drive strategic changes that can have the higher return-on-marketing and greatest impact on business perfor- CRM investments. mance. By using this approach, companies can shape and deliver steven.s.ramsey@accenture.com optimal customer experiences based on the unique loyalty characteristics Outlook Senior Contributing Editor of a complex customer base. Paul F. Nunes is an executive research fellow at the Accenture Institute This approach can help companies for High Performance Business in better understand what their cus- Wellesley, Massachusetts, where he tomers are thinking and what moti- directs studies of business and market- vates their purchasing decision—and, ing strategy. His work has regularly thus, can help companies keep those appeared in Harvard Business Review profitable customers. It’s a far better and other publications. His most method than basing strategic deci- Outlook 2006, Number 3 39

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