Why go beyond Customer Experience?

Apr 26, 2016

Establishing a long-lasting competitive advantage through advanced segmentation: from data to insight and impact

Customers want services to be flexible and want to receive these services through various channels. Competition is getting tougher all the time, and margins are under enormous pressure.

Today’s retail landscape is fraught with challenges, that much is certain. Research by Gartner and Forrester pinpointed the crux of the matter: no less than 80% of your customer database is unprofitable or at break-even point and is therefore not generating any value for your business. At the same time, businesses are spending up to 50% of their marketing budgets on unprofitable customers. In other words: capturing the right customer insights and segmenting your customers through advanced methods will improve your sales and marketing efforts tremendously.

Gartner and Forrester also revealed that while up to 90% of businesses are aware of the importance of these customer insights, only 16% actively do something with this information. High time for a change in the retail mindset!

Addressing recent issues faced by businesses

Many retailers still base their marketing and sales decisions on traditional parameters: from generated sales and product profitability to brand equity and market shares.

However, none of these parameters address the issues faced by businesses in today’s climate:

  • Who are your top 100 customers most likely to purchase your product today?

  • If you were to increase your marketing budget by 10%, which marketing mix would maximize the impact on your customer lifetime value?

  • How to reduce your cost-to-serve without diminishing the customer experience?

Finding a balance between customer experience and customer profitability

Models aimed at maximizing the customer experience are the holy grail in the world of business. However, these models more often than not turn out to be not so profitable after all. Global players such as Sony and 3Suisses are currently abandoning their own e-commerce platforms due to unprofitability and the vast complexities behind them. This is exactly what it’s all about: the search for a perfect balance between customer experience and customer profitability.

Businesses are introducing RFM analyses, churn analyses, etc., which have already led to a series of useful insights to help map consumer trends.

On the next level, customer profitability data must be added. Traditional profitability analysis reports fail to fully reveal the link between customer behavior and customer profitability. In-depth calculations are required to translate the positive and negative characteristics of customer behavior into euros. This way, the financial impact of complex customer behavior can be incorporated into the analysis.

On the final level, further analysis takes place based on value creation. Customer insights are translated into long-term added value, meaning that you will be looking for those customers who add profitability and help secure the future of your business. Only at this level do we obtain the information needed to improve the efficiency and effectiveness of retention and recruitment campaigns.

Identifying valuable customers

Businesses who best know their customers and prospects and know what to do with this information will have a competitive advantage. It also comes as no surprise that advanced customer analyses are ideal for getting to know your customer base. However, if you wish to use your business data to its full potential and want to optimize and (re)align your marketing efforts, then follow these steps:

Abandon traditional parameters

Segment your customers based on ‘value creation’. The key question is not “Who are my (potential) customers and how do I use this information?”. Instead, as a business, you should askyourself “Which customers are most valuable to my business and how do I maximize their potential in the short and long term?”.

Draw conclusions through a value-based management mindset

Last year, when we calculated for one retailer that 56% of their total customer value was generated by only 1 of their 20 customer clusters, they immediately knew which customers to focus their marketing efforts on in order to create long-term value. A traditional approach would have allocated yet again a considerable portion of the marketing budget to unprofitable and less valuable customer clusters.

A number of pioneers are currently lifting the quest to find the optimal balance between customer experience and customer profitability to an even higher level by driving customer value in real time. Talk about achieving a long-lasting competitive advantage!

Author: Sven Arnauts. You can follow Sven on Twitter (@svenarnauts) or connect with him on LinkedIn