Monday, September 21, 2009

social media on the farm

How is your company using "social media'? How are your dealers, distributors and grower/producer end-users making use of it? Do you have your Facebook page, your bloggers writing, twitter-followers tweeting? How effectively has your initial forray been?
While, ownership and use of those tools would seem to mean that there is a clearly defined & articulated communications and CRM strategy, intention and purpose, the situation is eirily similar to the introduction and initial use of integrated, data-based, direct marketing and sales in the mid-90's.
I remember asking a client why they were building a marketing database: it was late '94, early '95. His honest answer: "we're not really sure what we will do with it - but everyone else is, so..."
Where does your company stand in adapting "social media"?
Clearly no one can deny its power. Most pundits will also insist that the customer insight must be incorporated into the feedback, learning, crm and customer experience management initiatives that already are in place. They also point out risk: for some, "social media" represents a reincarnation for them of "the wild, wild west."

Thursday, September 17, 2009

12 keys to succesful CRM and database efforts

A number of years ago, I wrote several pieces on what's needed to ensure that database marketing has a solid foundation. I wanted to re-publish this list because I think the principles are as sound today as ever.

1. Understand that successful database marketing is not a technology issue.

2. Draw a picture or process diagram of how the marketing database needs to work.

3. Focus on any output that will be used outside of your direct control.

4. Develop an effective customer contact plan.

5. Do not equate multi-channel, integrated, direct marketing with either direct mail, nor with telemarketing or your social media efforts.

6. Build the database manually first, before you automate it. The history of database marketing and CRM efforts is replete with stories of the best marketers actually using card files before they automated the functions. Strategy, process, metrics and execution are more important than the software.

7. Collect only data that will absolutely be used in the next 12 months.

8. Be rigid, not flexible. Your potential users will come up with many wonderful ideas. Hold firm as you start.

9. Use a simple proven solution: Software as a service (aka, "cloud computing solutions"), for example, may be an ideal vehicle.

10. Centralize all data entry, and validate outside input files.

11. Build and refresh your database on-line with information from your Customer Management Center, your social media channels and customer insight work.

12. Build a prototype -- not a pilot. Leverage the power of naming, in other words. The value is in the learning from this forray into building your database; don't let what you call it give any internal opponents the fuel to jeapordize the outcome.

Tuesday, September 15, 2009

An attempt to define "loyalty" - B2B world

Don’t be misled in thinking of loyalty as a collection of warm fuzziness and good feelings. Neither is it a synonym for customer satisfaction, nor for frequency of purchase transactions (although these are often associated with it). In the business context, "loyalty" measures specific behavioral elements over an extended period of time to assess the quality and durability of the relationship. Examples of these would be willingness to refer others and willingness to purchase again.
Today’s successful marketers must uncover what drives their customers to be loyal to them, and use that information to help increase their loyalty levels to build long-term relationships. These loyalty factors also play a role in whom you target as prospective customers.
The phrase, "you can’t be all things to all people" has never been more true than in today’s business-to-business marketing environment. In fact, those who try are rarely able to provide superior service to anyone. Consider what happened to IBM. As the company continued to proclaim the universality of its marketplace, millions of dollars of replacement part and add-on business went elsewhere. Might not a more focused strategy have enabled Big Blue to retain customer loyalty over the full life cycle of its equipment?
As we enter a new millennium, the single most important set of decisions any business-to-business enterprise can make are those involving selection — both of the products and services you will provide, and of the customers for whom you will provide them. In fact, recent research holds that it is a costly mistake — a diminishing of your resources and skills — to try to retain each and every customer. Contrary to the traditional wisdom of acquiring as many customers as possible, a critical skill we need to learn is how to identify and disengage with customers who are not profitable to serve. Let your competitors have them.

Targeting the right customer in the first place is the first half of the loyalty equation. Some customers are inherently price-driven — constantly on the prowl for a better deal, and ready to drop a supplier at a moment’s notice should someone else shave margins a little more. No matter how hard you try to please these customers, they will never be loyal to any supplier, no matter what value they receive, and are therefore worth very little in the long run in terms of profitability.
Other customers, however, inherently understand the high value of dependable, lasting relationships with key suppliers. Purchases are not random events for these customers, they are planned through long-term partnering, and as such are immune to momentary price advantages. It is these groups that are worth your ardent pursuit.

Selectivity, then, by this definition, requires that you use segmentation to align your core competencies with your customers and prospects. Your "bundle of skills and technologies" must match up to the cluster of accounts already grouped by needs and buying behavior in a way that makes economic sense. It demands that we keep our focus on long-term loyalty between the company and its customers, rather than frequency of one-time transactions. It advocates a "marriage" to a series of one-night stands.
That’s not a strategy that comes easily to people brought up in the older school of marketing, which counts volume of sales transactions in isolation, and measures gross market share, rather than analyzing the lifetime value (versus cost) of each customer. And it can seem especially threatening to short-term thinkers, pressured by the demands of the next quarterly report to stockholders.
Nevertheless, segmentation-enhanced selectivity is essential to a long-term view which places value creation as the fulcrum for ongoing success — especially in a world of parity products, right-sizing and/or consolidation, and easy duplication of product and service offerings.

What characteristics, identifiable from a distance, let you flag potentially loyal customers? That will vary, of course, depending on the profile of your business — your core competencies, goals and service philosophies. But the likelihood is great that many of them will look a lot like the firms who are currently your most valued customers.
The planned process begins with defining your business design: What products and service values are you set up to deliver efficiently and effectively? Within the broad universe of potential customers, which are the most logical targets for this set of capabilities?
Next, you can define the word "customer" to incorporate a quantifiable concept of profitability. In this context, a "customer" is a company that does X $ in volume with you, which includes Y number of different products, within Z time duration.
The next two steps are segmentation and grading. The two are entirely different processes which together create a very powerful economic model for customer selection, the purpose being to invest an appropriate amount of resources relative to profit potential.

Needs-based segmentation is the clustering of customers (and later, prospects) according to common sets of needs and purchasing behaviors as they relate to your organization’s external service values. Define the four to six reasons that most customers buy from you (which typically account for 80 percent of all decisions to purchase from your company). You then list the external service values which are most important to each customer. With this input, your marketing database can divide your customer list into one or more segments, each consisting of a group of customers who share a common set of needs and way of doing business.
Ideally, grading is done only within a segment; it’s the realization of economic value within that segment. It’s also a means of estimating the revenue available from that segment, and of understanding its unique needs, so you can talk to them as a group, via the lowest contact medium within the grade. There is, however, significant value in grading your entire customer file and investing in them proportionate to their level of commitment to you and potential revenue.
Finally, you need to analyze the lifetime value (LTV) to you of customers in each of these segments of your market. Within this, understand that LTV has more to do with how you treat your customers after you’ve acquired them than with the method of acquisition. Given what it costs you to acquire, supply and service this customer, the anticipated length of time you’ll retain its loyalty, the revenue that this will generate, and how much profit will it bring to you over the next X years (expressed in Net Present Value terms)?

With this information in hand, you can identify the types of customers who currently provide you with the lion’s share of your profits — and, by extrapolation, which characteristics you should look for in acquisition targets to achieve maximum profitability. This will then allow you to make intelligent decisions about resource allocation to acquire and nurture more of this kind of business.
A loyalty focus suggests that customer selectivity should be a matter of building up, rather than cutting back. Start with your best, most loyal customers (in terms of dollar volume, relative to wallet share; variety of product offerings purchased; and number of purchasers with whom you deal at the account). Fence these off and concentrate on understanding their needs and what constitutes value for them. You are now well-positioned to focus on them, opening a dialogue, and creating a "learning relationship" in which there is both an economic and an emotional benefit.

Database marketing provides the tools to find these answers. Marketing databases are designed to help you understand as much as possible about your customers, so you can build sustainable, mutually profitable relationships with them. Such databases are also the repository for "institutional memory," recording all contact and transaction information as it occurs. This allows account histories and resulting insights to be built on and shared throughout your company, far into the future. Compare this to the proprietary, fragmented possessions of many diverse individuals. When individuals depart, so does the customer information they hold.

The other half of the loyalty equation, of course, depends on what you do to earn it. Customer loyalty is most often a response to perceived value received. What creates that perception can vary from one group of customers to another — and indeed, from one individual firm to another. Until you know how various types of customers define that "value," understanding both their priorities and their concerns, you’re flying blind.
Relationship marketing demands ongoing dialogue with your customers — especially with those who have demonstrated long-term loyalty. Note that complaints can be at least as valuable to your long-term success as praise. Armed with such information, you are able to do less of what aggravates your customers, and more of what pleases them — targeting specific activities to various segments of your market, and sometimes even to markets of one. The most successful companies have long known this intuitively, and acted upon it. But now, with database marketing in place, that process can be managed far more effectively — though it will always be 75 percent art and only 25 percent science.
Providing outrageous, "knock-your-socks-off" product/service delivery to these top-tier, most loyal customers will strengthen your internal service values. Your employees will feel better about themselves, and begin delivering higher levels of service, even beyond top-tier customer groups.

A note of caution: Be careful about basing your acquisition strategy primarily on price concessions. If that’s your definition of "value," it’s likely to become theirs as well. Ironically, in some industries programs designed to target "ideal" customers have, themselves, converted those customers into undiscriminating price-shoppers. An extremely practical tool by which to judge the appropriate investment into so-called ideal customers is to perform defection analysis.
Consider the airlines’ "frequent flyer" programs, aimed at lucrative business travelers. Initial introductions were enormously successful as relationship-builders. But as "me-too" programs proliferated, any competitive advantages in terms of customer loyalty evaporated — leaving only the liability of a lot of free travel vouchers. The lesson to be learned is that price-cutting is a game everyone can play (and probably will, once someone else initiates it).

Loyalty versus Frequency Focus
Loyalty Focus Frequency Focus
Recognizes: Heterogeneity Homogeneity
Employee Contribution Responses to Mailings
Value-Added Transaction-Based
Customer-Focused Competition-Focused
Needs-Based Incentive-Driven
Relationship Focus Payout Focused
Two-Way Dialogue One-Way Communications
One Size Fits One One Size Fits All
Mailing List Bias
Outside-In Focus Inside-Out Focus
Focused Targeting Indiscriminate Targeting
Measures: Share of Customer Response Rate
Share of Requirement RFM
Duration of Relationship Cost per Response
Expense: Revenue for Customer Expense: Revenue for Mailing

Sustainable competitive advantage in wooing customer loyalty demands deeper understanding of what those customers really want — and then responding to their concerns by adding customization, convenience, and solutions relevant to them.

From that beginning, as a natural offshoot, your service delivery system will improve for more and more of your selected customers, present and potential. You will be investing necessarily-limited resources where they will have the most powerful impact on your future profitability — and in proportion to the level of commitment those customers have demonstrated to you. Our experience has been that using the preferred medium within a segment often improves the perceived level of service delivery while decreasing the cost of doing business as a percent of revenue. Your employees and channel partners will experience renewed enthusiasm as they find themselves increasingly able to provide true value, on their customer’s terms. And, you will be well-positioned to segment your universe of potential customers, pursuing like companies to build a growing base of loyal customers.
This strategy, mightily enhanced by the insights database marketing provides, is at the heart of building customer loyalty.

What's happening in distribution?

I talked with 2 friends today.One has been in animal health distribution for “all his life”; the second teaches at “The B-School”. The subject with both was the role of distribution and the inevitable tension that exists across the channel, sometimes “exploding” into what is best termed “channel conflict.”

Our conversations were peppered with words such as “trust”, “consolidation”, “role”, “going direct”, “distrust”, etc. All signs of various levels of nervousness or fear; mistrust and apprehension: the realization that the world is much different today than when I was a kid 50 years ago. I was a B2B distributor early in my career. I “get it.” Emotions are roiling; it’s time for a change: it’s time to establish a new covenant among and across agribusiness partners – a customer-based, value-focused covenant. The battle is over familiar topics: who “owns” the customer? Who is “our customer”? What role will our channel partners play going forward? And so on. Sounds all too familiar, doesn’t it?

“The Channel” has played a pivotal role in agribusiness over the last century. Sadly and with the excitement of great potential, the role of the channel is changing dramatically.

Changes not withstanding, distribution has played, and has the opportunity to continue to play, a unique role in the United States. The channels’ processes and the roles of the players, off-shore, don’t “look” the same nor provide the same services nor do they offer the-potential-to-add-significant value, which our channel partners can play in North American agribusiness. Distributors, retailers, dealers, vets, agents and advisors all play critical roles.

Roles bring with them responsibilities and the concomitant obligation to give back and add value moving down the channel to the end-user. Each of the players in this distribution game understands their position and the reality of the changing world of agribusiness. Hence the growing distrust and channel conflict – all over customer knowledge and who owns the customer, it would seem.

A good Dealer or Distributor partner is invaluable: in the past, they were guaranteed the financial success they sought[1]. North American “Distribution Systems”, my academic friend reminded me, traditionally “owned” certain responsibilities:

a. Sales,

b. “Demand fulfillment,”

c. Physical distribution,

d. “Product modification and after-sale service, “ and,

e. “Risk assumption.”

In everyday language, the agribusiness “OEM”’s rely on their channel partners to be just that: “partners”.

Distribution is asked to generate demand, to sell their manufacturers’ products and to negotiate pricing; we ask them to run a business, stocking their shelves with inventory from our “plants” and at the same time to train their people to support us (and, we want them to support only us, knowing full-well they are, in most cases, multi-line outlets); we ask them to move product around the system and to customize it in the fields or barns; we ask them take on some major risks: inventory carrying, customer credit, investments in their own place to support the specific distribution and support of our products. We ask a lot. Good distribution partners give a lot – in some cases even more than we might have dared to imagine.

Those comfortable halcyon days of agribusiness have been disappearing ever since the mid-90’s. Information, transgenics, the power of the internet and the flattening of the world seem to be among “the root-causes.” There has been a blurring of roles, a continuing shrinkage in number of outlets there is also the threat – real or perceived - of manufacturers cutting out the middle guys, and a growing need to transform producer and grower data into actionable knowledge used sensitively to create a competitive advantage and noticeable point of differentiation.

[1] I recognize that there are different naming conventions by industry: if we’re talking about the distribution value chain for seeds, crop chemicals, pharmaceuticals, etc. For ease, I’ve opted to use neutral words that work across multiple scenarios.