This piece by Eddie Yoon of The Cambridge Group over on the Harvard Business blog makes an interesting point. In any product category, roughly 10% of the consumers account for more than 50% of the profits. The principle that, with any product or service, there is a core of customers or users that interact more, contribute more, consume and buy more, is not new news.

 
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On the web we understand this as the 1% rule. But the assumption is often made that this characteristic somehow makes these highly active individuals a unique species, one whose appetite is already sated and whose behaviour will teach us little about the needs or desires of more casual customers, thus steering insight investment towards more inactive customers. This, says Eddie, is a mistake. Companies that listen to their most actively engaged customers ultimately grow sales and margins across all segments: "Invariably, acting on the insights from those consumers who spend disproportionate time and energy in the category uncovers insights and innovations that encourage trade-up behaviors across other segments as well."

In his presentation on social media ROI, Olivier Blanchard makes the simple but powerful point that ROI is a business metric, not a media metric. It is 100% media agnostic so measuring digital, or social media in isolation doesn't work, and media metrics mean nothing if they don't deliver against the business objective (like sales). The non-financial impact that always comes before a financial impact is important, but is not where ROI lives. And ROI comes in many forms, not all of them obvious. Like not having to spend as much acquiring new customers because your existing customers are happy, and are advocating for you.

For his excellent IPA paper, Chris Stephenson surveyed 18 brands that accounted for a communications spend of £380m, and found that an average of 78% of budget was spent with the specific intention of acquiring new customers. Marketers, says Chris, are often "hooked on the immediate fix" of acquisition targets, aspirations around a growing number of new customers, cost per acquisition metrics: "we're investing pound after pound in inefficient aqcuistion-based advertising that - at best - does nothing for exsiting customers, and at worst actively alienates them."

It never ceases to amaze me the cycle that many organisations are willing get into - a cycle of acquiring new customers, then offering them such poor customer service that a proportion of them leave, then relying on the inaction or lassitude of those remaining before spending more to acquire yet more new customers. I don't think I'm alone in thinking this. Everyone has their own personal examples of poor customer service and poor communication (much of it automated), and the same names often crop up.

Inertia is not a sustainable business model. But self-interest is. I believe that the interests of a business are best served by working to fulfill the interests of its customers. Peter Drucker said that: "The purpose of business is to create and keep a customer". The word he chose was 'create' rather than 'acquire'. Establishing what the customer finds valuable is the most important question companies can ask themselves. To draw a parallel with content owners - analytics will only take you so far. You might know what these people do, but you know very little about why.

Several people have recently made the point that social media is a restrictive term. I agree. Much better to talk about social ideas, social marketing, or even social business. For me, this is not about a marketing tactic, and it is more than CRM. The Japanese have a word: Nemawashi (HT to Alan Moore). It refers to a informal process of "quietly laying the foundation for some proposed change or project, by talking to the people concerned, gathering support and feedback", and it is considered an important element in any major change. It's a word that is difficult to translate effectively, because it is tied so closely to Japanese culture itself. I look forward to the day when it becomes hard to effectively define social media, or social marketing or whatever we want to call it, because it is tied so closely to business itself.

Original Post: http://neilperkin.typepad.com/only_dead_fish/2009/12/customer-relationship-metamorphosis.html

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