A Few Thoughts on Customer Equity: the 20-200 Rule

The value of our business is the sum of the value of all our customer relationships

The value of your company is equal to the sum of all the revenue from all of your customers. Not exactly the textbook definition. Your CFO, without much grumbling, will allow it, however. Most of us are aware of Paretto’s Law, which would suggest that 80% of your profits come from 20% of your customers. A more startling rule is what Kaplan and Cooper call “20/200 Rule.” 20% of our customers return 200% of our profits. While you recover from the shock this statement presents – and, it is verifiable! – it is more important that we realize that there are proven fact-based approaches that lay down a roadmap that allows you to optimize your customers and mitigate the rules.

Like your other assets managed in your portfolio, your customers can be viewed as a portfolio of assets, which you can manage proactively. Successful management of your customer portfolio brings a serie s of cascading benefits to your firm. The primary benefits are your ability to maximize shareholder and stakeholder value; and your ability to optimize your “market coverage strategy.” The latter benefit is vital, since virtually every organization has limited resources. So it is critically important to invest those limited resource in direct proportion to the return we expect to receive from our investment in our primary assets - our customers.

it IS what you hear

Saturday note:

It IS what you hear. I'm not trying to beat a dead horse or plug someone's book, but this simple concept, one we all forget, truly is a lesson to be held close each day. We see examples of how language "works" in our daily public lives . Just consider the raucous behavior and emotional manipulation connected with such publicly debated topics as Health Care Reform; sending more troops to (or, the withdrawal of all troops from) Afghanistan; or the effect that cap and trade legislation will have on farming or our everyday lives. Language works in our lives: it gets things done; it produces results; it exerts an influence.

Whether it is my awkward attempt to talk to my 13 year old daughter about boys or acne or ?; or your time with a counterman at the dealership; or, your conversation with your spouse, remember this simple fact: it's not what you say it's what they hear.

Put yourself in their shoes. Seek first to understand. Stop and think. Be civil, respectful, and honest. Be open. Use language designed to build conversations and relationships.

Or, put this advice into your own words and add your own "rule".

What do you want your customers to hear? Given who they are, however, how do they hear, and translate, the words that you say?

Try this exercise in a "safe environment" (say with your "bride"). Ask your listener to "play back" to you what they heard. Were you understood? What affect did your words have?

Finding words that work, however, isn't the entire story. Listening, asking for clarificaton, seeking to understand: these are additional, critical elements of conversation. Conversation is what we want between ourselves and those who matter in our daily lives, as well as between ourselves and our customers.

For those of us deeply concerned about the customer experience, loyalty and customer relationship management, distracted by the pressures of business or life, we often can overlook how language shapes our results and the relationships we have with our listeners, our customers, friends, family.

If you want to analyze the underlying issues, go ahead. It could be the result of the Fall of the Tower of Babel or the speed of change in our world or careless use of "the Mother tongue". Let me know what you think. Thanks.

If "It's what people hear"...?

How often do you listen well? How well do you listen to your customers and prospects? Better yet: How well do you hear yourself?

If you are in sales, marketing, customer service, or another "customer-facing" role, what could word-choice and your use of language have to do with your success; with your customer acquisition and loyalty efforts; or, with the entire concept of customer relationship and customer experience management? Any? None? My guess is most of us never think deeply about it? Perhaps we should.

Preparation, research, scripting, and rehearsal are important parts of our pre-call planning, before meeting, or talking, with customers and prospects. If you’re in AG, you know the facts: "stuff" such as, acreage, crops planted, inputs and equipment: heck, you many even know the dog’s name. Does it matter in some way, when you talk with these customers, if you’re waging a “campaign” or having a “conversation” or developing a relationship?

it's what people hear

"Nostalgia", that longing for something out of the past. I keep thinking that with the speed of change and the increased complexity of technology and life, we have given up more than we realize. This can be true especially in our selling efforts and our relationship management initiatives.

When I look to where the world has sped these last 10 years, I long for a return. It could be my age. It could be what my advisor was trying to reveal when we read Ibsen's, "The Master-Builder" in grad school. Whatever the cause, I often wonder what we may have lost on the human side of our CRM efforts, given the speed of our world and the increasing complexity of our business models.

Needless to say, much of today's CRM technology is "mind-blowing" and "awesome." The systems we have today really are amazing. The depth of data we now can plumb astounds me, especially when I stop to compare what could be recorded and excavated (data-wise) a brief 20 years ago. As the kids would say, "OMG!".

But as I look at what CRM has done for our relationships with clients, prospects, the various constituents, I wonder if in our race to keep up if we haven't lost the essence of building loyalty with our customers. Consider the driving metrics for our sales, service and marketing contacts with our customers. I wonder if we haven't lost something, perhaps a certain "civility" in customer interactions. Is one way back, a constructive look in the rear-view mirror, simply to ask ourselves: How well do we ascribe to Stephen Covey's adage, "Seek First to Understand".

Or, maybe it is to think hard on Dr. Frank Lunt's words: "it's not what you say; it's what people hear." How well do we incorporate that simple advice into our daily customer interactions?

The Story of Babel.

All too often we, myself included, fail to realize the power of language in our daily personal interactions. Seemingly, if we stop to think about it at all, we tend to reserve a different style for certain situations versus others. The motives are varied: perhaps we believe that certain occasions, settings, circumstances require more conscious, formal and deliberate language, while others don’t need the precision or effort or . True enough I suppose.

Yet if you stop to listen to conversations, even our own, often words no longer mean what they once did: denotations, connotations, and the satellite of associated images no longer are as rich nor as nuanced. The end-game for casual substitution of one word for another with completely different sense would be a re-enactment of the myth of Babel.

With the fall of Babel, god left confusion: confusion that carries over in our marketing, sales and service language and CRM efforts. In the words of Willis Barnstone , “…God dispersed the word, gave us tongues and the solitude of difference, and also the impossible but pleasurable duty to repair our separation.” Translation necessarily must be a key component of our relationships and conversations. Translation is an important tool with which we can rebuild a new tower of Babel. Barnstone believes “it is an impossible task”; and, I believe it is one that clearly haunts our customer relationship efforts.

The challenge is when one word is substituted for another or mistranslated in the mind of either the speaker or listener. The slippery slope here would results with words in casual conversation having lost their precision; they no longer would retain the power of their meaning; and, eventually one word could be substituted for any other with impunity. The crime of being careless and imprecise eventually could bring about the demise of language. In all words would become the same.

Communication, as Lakoff & Johnson point out[1], “is based upon the same conceptual system that we use in thinking and acting.” When trying to build a loyalty relationship with your targeted and best, core customers, what metaphors does your organization use in its conversations with others: customer, business partners, suppliers, employees, investors, etc.? Two metaphorically structured concepts to think about are:

ARGUMENT IS WAR (think about that next time your group talks about its “campaign”).

Or,

THEORIES (AND ARGUMENTS) ARE BUILDINGS

Such mental frameworks do color our efforts to build customer relationship management and loyalty. There are a myriad of other examples about how language shapes our reality and relationship, such as: “orientational metaphors” such the special concepts “virtue is up; depravity is down” or Rational is up; Emotional is down”

In truth however, language is one of our most powerful tool in building relationships. We live according to the metaphors of our daily exchanges. The simple fact is “our ordinary conceptual system, in terms of which we both think and act, is fundamentally metaphorical in nature.”[2] Are we overlooking the power and value of crafting consciously the metaphors that shape our attitudes, demeanor and behavior? Our assumption is that looking at these questions squarely in the face might do more for our relationship and loyalty efforts than we previously have given credit.

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[1] Cf. Metaphors We Live By, Lakoff & Johnson.

[2] Ibid.

Reputation and Brand Image: using Voice of the Customer in your CRM

"Risk" is all over the news. In business Risk and Crisis Management are critical skills. Process-wise, nowhere in your business model is more suited to support risk and crisis management than "voice of the customer work." In today's world, when often the first thing people do is "to google" a subject, what does the world see about you? when the subject of that google search is The Company, what first impression does the web present; and, what problems are made evident that call into a "shadowy realm" either your Brand or your Reputation? Actually, there is, in all likelihood, a wealth of opportunity in that evidence. Evidence to be mined and tested and acted upon in your customer relationship management communications efforts.

We believe that the best CRM initiatives help to monitor in near-real-time that treasure of opportunity and use their customer insight work to connect back to the marketplace so as to manage the language of the marketplace and ensure that the company's values align with their targeted audience and customers to demonstrate evidence.

Companies must use their customer insight and "voice of the customer"and other market research activities as a vital, living, actionable and connected part of their CRM initiatives. In today's world, "the winners" will use their CRM projects to ensure that "voice of the customer" work is fed back into the knowledge management and activities of day to day business. These same companies will go the extra mile to ensure that their corporate values are aligned with the values of their key stakeholders. These companies will be able to align the softer elements of business: values - culture - brand- reputation- and customer experience. Coordination and cooperation across all functional areas will grow more critical.

For more than one pundit has concluded that "companies that do the best aligning their corporate values with key stakeholder values will rule the marketplace."