LogoTechnology Management Associates, Inc., Serving Business Needs in the Global Marketplace

Increased Profitability by Building Customer Loyalty

Line

This article first appeared in our TECHMANAGE newsletter
January 1999, Volume 3, Issue 1

An introduction

You've probably encountered dozens of four-cell grids, such as the one below, that help categorize and assess alternative marketing strategies:

1
MARKET PENETRATION

Existing markets/customers
Existing products/services

2
MARKET INTEGRATION

Existing markets/customers
New products/services

New markets/customers
Existing products/services

MARKET EXPANSION
3
New markets/customers
New products/services

MARKET ENTRY
4

The two categories above the line (1 and 2) focus on serving your CURRENT customers and markets; those below the line (3 and 4) focus on acquiring NEW customers.

This model is helpful in defining relationships between new/existing customers and new/existing products; as a source of strategic direction, this distinction is becoming blurred as competition is forcing us to focus more of our attention on the customer, letting our customers tell us what products and services they want and how they want them delivered. We now recommend a business strategy model such as this:

A
Customer retention ->

(Loyalty)
B
Customer trust ->

(Partnership)
C
Customer acquisition

(Targeting)

where you enjoy repeat business with existing customers (A), provide new products and services to them (B), and leverage what you've learned from your existing customers to expand into new markets along with traditional branding and positioning strategies.

Seeking to grow your business by enlarging your customer base (C) is an important part of ensuring future profitability in a competitive environment. Keeping in mind that the cost of acquiring new customers can reach as high as ten times that of retaining existing ones, we'll start with a focus on picking the "low hanging fruit" of building customer loyalty (A).

CUSTOMER SATISFACTION? CUSTOMER DELIGHT? NO, CUSTOMER VALUE!

How does customer value differ from customer satisfaction? How can you use technology to determine what customers value, and then use technology to deliver that value?

Customer value is defined as that which customers view as being important to them. This is not necessarily quality, or price, or any other factor that YOU think is important or in which YOU have developed a particular competency. It is your customer who defines value. Let's take a look at the ever-present 4-cell grid.

1
NEED TO IMPROVE

High customer value
Low delivery/capability

2
COMPETITIVE ADVANTAGE

High customer value
High delivery/capability

Low customer value
Low delivery/capability

MAINTAIN BUT MONITOR
3
Low customer value
High delivery/capability

REDUCE EMPHASIS
4

WHAT IS OF REAL VALUE TO YOUR CUSTOMERS?

As them, you say? If you've ever done standard surveying, you know that people typically will rank EVERYTHING as being of critical importance to their purchasing decision. Feedback of this type is next of no value to YOU. Of course, they will say price is most important. And delivery, and the birthday card they get from your sales rep, and...

Here are three suggestions. We'll expand on all of them in the next issue.

SURVEY THE CUSTOMERS YOU LOST: they have little to lose; besides, they may be unhappy with their current supplier and want nothing more than to be able to return to your flock.

ENCOURAGE CUSTOMER COMPLAINTS: carefully consider the complaints you get; these are the things that matter! It's often much easier for your customer to just get up and walk away. Negative feedback is far more valuable to you than NO feedback.

DERIVE CUSTOMER VALUE INDIRECTLY: provide a list of issues and ask your customers to assign a number from 0 to 100 for each of the issues so that the total adds up to 100. This method is better than pure ranking (or even assigning a scale of 1-5 or 1-10) for two quite opposite reasons: some will assign numbers arbitrarily or without much thought; others will agonize over ranking when they view several issues as having equal importance. Asking your customers to distribute 100 points over a number of issues allows them to assign equal weights to several issues if they wish.


Our experience with e-surveys goes back several years; whether e-mail or Web-based, both the response rate and the quality of the responses typically is much higher than the mailed variety. We'd be pleased to help identify your customers' values and develop cost-effective strategies for increasing their loyalty.


Next time we'll talk about some ways you can leverage technology to engage your customers and prospects in meaningful dialogue.

Technology Management Associates, Inc.
(312) 984-5050jogucwa@techmanage.com

Copyright 1996-2000, Technology Management Associates, Inc. All rights reserved.