Customer Experience Articles

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Know Your Best Customers

The Five Keys to Customer Experience - Part 1

By Jeannie Walters

Part 1 - Part 2 - Part 3 - Part 4 - Part 5

There's a lot of buzz right now about the customer experience, but what are people really saying?

By dedicating themselves to a better customer experience, companies can reap many benefits including: higher revenues and retention, happier employees, recognition, and a chance at thriving even when their industry is not. Examples of these companies are seen all over business magazines and they line the business bookshelves of the world. Southwest Airlines, Starbucks, and Whole Foods Market are revered icons of this paradigm. So how did companies like these mold themselves to become the model of great customer experience?

We've identified five keys to achieving a superior customer experience, leading to superior business results. They are:

Know Your Best Customers.
Review Your Customer Communications.
Listen to All of Your Customers.
Create Happy and Customer-Centric Employees.
Reflect Your Brand Values.

It's easy to think this doesn't apply to you - after all, you might be a small, growing company or an entrepreneur or someone who works for a corporate giant - so, what can YOU do to improve the customer experience for your own customers?

Here, and in future articles, I'll address some important things you can do to focus on this integral part of your company's success, including specific action items to improve your own customers' experiences starting today.

When we discuss "the customer experience", people assume we're really talking about two things - face-to-face or call center interactions. And believe me, when people get started on call centers . there's no stopping them! (Note to companies: customers hate dealing with auto-dialer menus that loop or lead them to powerless call center reps. We hate it - with a capital H.)

But I digress.the customer experience is really a lot more than that. It's the series of interactions and exposures a customer has with your company that, cumulatively, creates the customer perception. The customer perception is how an individual customer feels about associating with your company. The customer's perception is the reality of the customer experience, not your intention or assumptions for the customer. Case in point: No matter how many times SBC's advertising tells us they are going 'beyond the call,' we don't believe them as we don't experience it when dealing with their company. Our perception is the reality.

First Key to Achieving Superior Customer Experience: Know Your Best Customers.

Why is finding your best customers so important? It's a fact that 80% of your profit comes from just 20% of your customers. To identify your 20%, you need to know your metrics:

Do you know your customer attrition rate?
Do you know why they're leaving?
Do you know what happens to your bottom-line when they do leave?

Nextel reduced their customer churn by more than 30% by analyzing what was causing customers to leave. (Marketing Sherpa, 8/15/05)

Research and segment your customers to determine the best ways to meet their needs. Change your channels from "product type" to "customer type" for optimum cross-selling opportunities. I hate to pick on the telecom industry but they make it so easy! Have you ever been a customer of the same company, but with several services (cell phone, local long distance) just to find that you are receiving tons of mail from that same company, promoting their various individual products? It's the typical scenario of individual marketing plans attacking you from the angle of the particular product you've purchased, not the bigger picture of who you are.

So, look at your current customers - and then do your best to define the characteristics of your best customers.

Do you have customers who are repeat buyers of the same service or product?
Do you have customers who invest in your company more than others?
Do you have some who are on a regular cycle with you but haven't purchased anything new in quite some time? (Do you know why not?)

Wait a minute . am I suggesting creating a superior customer experience for ONLY your very best customers?

No. Not at all.

Knowing your most profitable customers will help you determine how much to invest in acquiring these customers. For example, if your average customer brings you $500 over their customer lifecycle, then it doesn't make any sense to invest more than that in their acquisition. In fact, it may only make sense to invest, say, 10% in capturing them in order to ensure their profitability. Most companies don't look at metrics in this way. They end up spending more money on capturing new customers, while just as many customers are walking out the door.

Now, Keep Up

Don't just measure revenue growth. Look at your customer lifetime value rates, along with your retention rates, for true measures of success. If you create a better customer experience, customers will stick around. Not only that, but you know those "best customers" -they'll tell you what's important, just ask them.

Action Items:

Review your customer data - do you know your top 20%?
Determine your Customer Lifetime Value (CLV).

Here's a formula* to work from:

CLV

1 + I - R

M = margin or profit from a customer in a certain period
R = your retention rate (most companies are between 60-90%)
I = discount rate (your company's cost of capital, usually a rate of 8-16%)

For example: if your profit from a customer in a year is $10,000, you retain 80% of your customers, and your discount rate is 12%, multiply $10,000 x 2.5 to get $25,000 as that customer's lifetime value. But this changes as your retention rate changes and could have a big impact even at small % retention increases.

*Source: Gupta, Sunil and Donald R. Lehmann, Managing Customers as Investments, Wharton School Publishing, 2005.

Establish your acquisition investment cap. (This should be less than your Customer Lifetime Value.)
Ask your best customers what is important to them, and then act on it.

Next: Review Your Customer Communications

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