Customer management looks set to be one of this year’s hottest topics, with many consultants predicting that the market for customer-focused solutions and strategies is going to grow significantly.
Indeed, the idea that customer information is vital to attracting and – more importantly – retaining existing customers is one with which few companies would argue. But is this mere lip service?
KPMG Consulting has been looking at the current state of play, in terms of how companies now use customer information, and it has published findings on how this resource could be better exploited.
In the study, 89% of companies said they consider customer information to be extremely important to the success of their business. The identification and retention of profitable customers, and the reduction of customer turnover are considered – rightly – to be primary marketing objectives.
These same companies, however, have yet to put the processes in place to facilitate this: for example, only 16% of respondents thought their companies were fully exploiting customer information.
Even basic information, such as the ability to segment the customer base, eludes many companies, while some 12% find themselves unable to say how many customers they have.
This failure to capture the most basic information about customers has worrying implications for firms. Given the difficulties associated with acquiring new customers, particularly in the face of increasing competition and possible economic downturn, it will become harder to replace those that have been lost. In addition, selling to new customers can be up to ten times more expensive than retaining existing ones.
This demonstrates the importance of being able to understand the principal causes of customer churn and identify those customers at risk of defection.
Our recent research shows that a high proportion of companies can do neither of these things – 43% of companies say they are unable tell why they are losing customers, with 49% unable to identify customers at risk.
Of course, it does not have to be this way. One of the most effective ways of reducing customer turnover is to monitor customer satisfaction for signs that a regular customer may ‘churn’. For example, unresolved complaints are a common cause of customer defection. A systematic approach to dealing with these can reduce customer churn quickly and easily.
Competitors often poach customers by entering the market with special offers and deals, which effortlessly win over dissatisfied customers from rival companies.
Companies that are aware of such pre-emptive strikes can devise a proactive, rather than reactive, strategy and hang on to their vulnerable customers. Similarly, not enough companies monitor usage patterns in a coherent way, so abnormal patterns or a reduction in use are not investigated. These are simple means of identifying customers who are at risk of defecting, but companies seem to be unaware of them: of those companies in our survey that claim to monitor satisfaction, most do so mainly through personal contact with the client via the sales force or call centres. It is, therefore, not surprising that our research showed that, even after customers have been lost, almost half of companies are unable to analyse why.
So why is it that so few companies take a systematic approach to reducing customer churn, even if they can identify what causes it? The value of such an approach lies not only in reducing the flight of existing customers, but also in building future selling opportunities.
By monitoring customer satisfaction, companies learn about the real needs and preferences of their customers. This information is key to building customer value profiles that can be used to tailor additional or future services and ensure that customers actually get what they want. The initial outlay by companies is therefore rewarded through the retention of existing customers, more successful cross-selling and the attraction of new customers.
It is obvious from this that customer management is about far more than simple ‘customer retention’.
Customer management can aid many core business processes, such as sales and marketing, but customer information is not being used effectively to aid these activities. For example, cross-selling – for which customer information is vital – should be a high priority.
Our recent survey showed, however, that just 13% of companies feel their sales department uses customer information effectively to cross-sell, falling to 8% in the finance sector. In addition, less than a quarter of companies feel that customer information is being used effectively to target and acquire profitable customers.
Marketing departments are also failing to grasp the value of customer information. Only a third of company marketing departments use customer data to design campaigns and match products to customers. Without a profile of the ‘typical customer’ in each segment, marketing departments cannot be expected to work effectively to build customer loyalty and meet customer demands.
As with customer satisfaction measurement, if the majority of companies do not have a clear picture of who their customer is, it may be because there is no structure or coherence to the way in which their customer data is stored. Worryingly, only 5% of companies have fully integrated customer databases.
The majority of sales and marketing departments still have separate databases, as do many finance and customer services departments. Access to customer information is limited between departments, thus restricting the extent to which the data can be effectively exploited.
In this way, companies are unable to build up a coherent, complete picture of any given customer; instead, each department understands and has access to a mere piece of the puzzle. In such circumstances, any attempt to use this information for, say, cross-selling or targeting purposes, will be, at best, unstructured and, at worst, downright irritating for the recipient.
It should not be thought that tools associated with managing customer data, such as data warehouses, will in themselves ease the flow of information around a company. Our research shows that, even where companies do use the technology available, they are failing to do so imaginatively. For example, while call centres are increasing in popularity, most do not have access to customer information held elsewhere and, more importantly, they are being used reactively. The bulk of functions currently covered by call centres are devoted to dealing with inbound calls, from providing technical support to dealing with information requests and bill payment enquiries.
This shows that, in many cases, the reasons for poor customer management in the UK are principally cultural; ‘silo thinking’ prevents the cross-functional sharing of information. Even basic sources of information, such as accounts, billing and complaints, are not shared. For example, it is likely that a customer who takes the trouble to complain will be at risk of defecting. If this complaint is not resolved, the risk doubles. But most companies do not even record complaints and only a fraction use them to identify those customers at risk.
Therefore, while many companies appear to have grasped the importance of customer information and a sense of the benefits that harnessing this resource can bring, most appear to have yet to implement processes to enable them to realise this goal. Those that are successful in unlocking the value of the information they possess will reap the benefits; those that fail may see their customers snatched from under their noses, without ever knowing why.
As consumers, we have all become aware of heightened competition on the high street. For example, greater efforts from supermarkets to sign us up for in-store loyalty schemes, and to cross-sell us non-core products such as financial services, writes Liz Loxton.
But in terms of retailers using the vast amounts of data that they hold on their customers, these schemes are just the beginning.
Philip Walker is director of Pricewaterhouse Coopers’ Retail Solutions Centre, an interactive shop, warehouse, head office and customer home complex, based on a fictional store called T&K.
According to Walker, retailers are excellent at product management, but many of them struggle to acquire and make sense of customer information. Although retail data warehouses record millions of transactions, stores generally use the information for little more than driving mailing lists.
The first issue with data warehouses – mining them for information – is a technical issue which has largely been overcome, says Walker. However, even some of the major players have shown themselves to be novices when it comes to manipulating the data.
The trick is to find ways of identifying loyal customers, or ‘creating hypotheses’, which can then be used to query customer data.
Often it is retailers who have already put loyalty schemes in place who are finding novel ways to learn more about consumer behaviour. ‘They recognise that there are interesting questions to ask of their data,’ says Walker.
These second-generation users will, he says, make more and more radical changes in how they manage their customers.
‘It could represent a fundamental shift in how people sell their products.
As soon as you start managing your customers, things that seemed uneconomical make sense.’ Arranging to make a single trip to deliver a single item makes sense if the customer can be identified as loyal, regular and high spending, he goes on.
But Walker is also keen to remind people about more straightforward approaches.
‘Retailers are data-rich organisations. But people skip over the most basic research,’ he says.
Tesco’s continuing success may well be partly due to keeping in touch with staff and customers via weekly in-store focus groups. Steve King is a partner with KPMG Management Consulting
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