Unterwegs zur: Diagnostics, Facilitation, and Coaching for the B2B CRM & CEM Strategists

On the way to ....
As I walked in this morning, I saw a large horse fly resting on the sidewalk. Huge, not particularly attractive: it couldn’t possibly fly. When She (sic!) created flying creatures, people asked what God had been thinking to design the horse fly or the bumblebee. After all we know that God has a grand design and all creation fits into the plan according to Her design. In truth, however, God’s design of bumblebees and horse flies has come under question for centuries. As in: what was She thinking? Or, nothing designed that way can fly. Yet, we know that both creatures do fly and do so well. What works so easily for God does not work as well for humans when it comes to successful planning on how to get to there from here.

Getting from here-to-there is always on everybody’s minds; and, getting from here-to- there is always already a clearly visible destination. Truth is, however: often we get lost on the way. [And, no! I really do not just mean driving directions]. I’m thinking more along the lines of the transformation the US now faces as the Tea Party tries to hold the nation hostage and take its citizens back to the 1787-9 period; or, a lot more simple to solve, how to transform a business into a customer-centered, customer-based business.
The challenges are so immense as to risk hyperbole. The missteps made happen so frequently and predictably that there must be a better way.

We no longer can afford missteps in today’s hyper-competitive, always-on, flat world. No, what we need is a way to assure breakthrough performance and to assure creation of a roadmap that outlines our best chance to arrive at the destination, the desired end-state.
And it really is quite simple to effect best-planning and execution of these crucial transformations. The keys are diagnostics, facilitation, and coaching.

Plans, lucid, readable and comprehensible roadmaps are important, nay vital to success: whether it is a “simple” exercise, such as taking your family of 5 to [you fill-in-the-blanks] for a mini-summer vacation, or (more) complex such as planning for your 24 year old daughter’s dream wedding, or compound-complex as in establishing your firm’s new customer centered and customer focused strategy. (Thinking of plans as a type of sentence construction may be a helpful metaphor).

Distractions, unanticipated events, setbacks, life: all these “things” happen and so our best laid plans somehow end up producing horse flies rather than hummingbirds. Problem is our horse flies don’t fly. Our “success” at planning, unfortunately, does not translate into successful implementation and operational effectiveness.

And, so what?! What now? How can your B2B CRM & CEM strategy be implemented successfully, without a hitch? How do we plan for life to happen and keep on the path. As I began to write this paragraph these 2 phrases surfaced: “Seek first to understand.” “Start with the end in mind.” And, yes, both pieces of advice are apropos of this discussion. Do they give a way to find planning and implementation success? I think they do. And, I think they do because they un-conceal what has been hidden or that which may distract.

What is needed is diagnostics, facilitation, and coaching. The process will clearly define 3 critical areas: 1. Where you are starting from: the point of departure or your “Current State”; 2., Where you intend to end up: your destination or “Desired End-State”; and, 3., the stuff that has to be done, accomplished, solved, etc. so that you can, in fact, get from here to there: “the bridging tasks”.

Unterwegs zur…

thought-starter # 3, loyalty versus frequency

Thought-starter # 3: Loyalty versus frequency

“At the core of any successful enterprise, enabling its very existence is the value creation process. Value creation generates the energy which holds the business together… The forces of loyalty are measurable in cash flow terms

because of the linkages between loyalty, value and profits. Loyalty is inextricably linked to the creation of value.”

-Fred Reichheld, Bain

Examining the historical purchase behavior, captured in our marketing database, we can define the value our customers have had in prior years. We can also project out what these same customers might be worth over the next five to ten years. Most of us know this projection as lifetime value (LTV). As we examine

the value of our customers to make the decision to establish loyalty bonds, it’s essential that we recognize three things:

1. LTV is a projection based on historical behavior.

2. LTV has more to do with how we treat our customers after

we have acquired them than how we acquired them.

3. LTV is most effectively measured by measuring the re l a t i o n s h i p

we have with our customers, not with measuring transactions.

Frequency Programs vs. Loyalty Programs

This brings us to frequency programs. Frequency programs are usually transaction-focused, non-selective and often destructive. Most of us participate in a multitude of them. Initiated in the early 1980s by the airlines to entice business travelers, many companies have successfully replicated these once highly successful programs.

All too often, however, frequency programs are created as me-too administrative programs, programs that merely respond to competitive offerings, programs that shift-the-burden away from a true loyalty solution. Following this logic, a poorly conceived or executed frequency program will not help us select the best customers for our business. A frequency program may cause us to acquire customers we cannot service adequately or, even worse, diminish the perceived value of our product offering. In short, frequency programs and loyalty programs are two distinctly different animals.

Executed as relationship-welding, relationship-enhancing efforts, loyalty programs must be derived from the strategic corporate mission. The best loyalty programs aim to create value-based relationships with our best customers. The determinant variables in this equation are:

1. How well do your external service values align with your customers’ needs?

2. Do your external service values align with your core competencies?

3. Do your core competencies rest on a foundation of loyal employees?

Let us offer this simple comparative matrix to allow you to evaluate the purpose of your own loyalty effort.

Loyalty Focus Frequency Focus

Recognizes… • Heterogeneity • Homogeneity

• Employee contribution • Responses to mailings

• Value-added • Transaction-based

• Customer-focused • Competitive-focused

• Needs-based • Incentive-driven

• Relationship-focused • Payout-focused

• Two-way dialog • One-way communications

• One size fits one • One size fits all

• Needs-based • 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

• E:R for customer • E:R for mailing

Loyalty Management and Customer Experience Management at their foundation use the best tools and practices of the data-based, integrated, direct marketing practitioners to build, develop and foster relationships and loyalty where appropriate. Always based upon the delivery of value. Data-based relationship marketing affords you the opportunity to redefine the traditional “value chain.” Today’s loyalty-based marketer is more about building community: mutually interdependent alliances of stakeholders including employees, customers and vendors. All predicated on delivering value to the relationship and relevance in each and every individual contact. Fully recognizing that value changes with each new touch, or contact, between your customers and your company.

Customer Retention Strategies and Tactics

Thought-starter # 2, the calculus of loyalty

Thought-starter # 2: the calculus of loyalty

There is a calculus of loyalty. Experience, coupled with the latest findings published by Bain and TARP, now demonstrate this. In business, as in our personal lives, loyalty (etymologically related to the Latin lex or “law, faithfulness”) has definite rewards. The single most compelling reason for a business to exist is to create value for its customer community. If your purpose in life (for your business) is to create value, you’ll prosper and grow and loyalty will be the single largest contributing factor. If not, you’ll be out of business in the next five to ten years.

Until recently, the rewards of business loyalty were understood only intuitively. It made sense to us as marketers that loyal customers bring with them greater profit over time. In fact, the original frequency programs were designed to capitalize on, and are direct evidence of, this intuitive knowledge.

Frequency programs and frequency measures may be destructive, however, unless the economics of loyalty are taken into account.

Loyalty reliably measures whether superior value has been delivered. Most of

us now recognize that “value” is completely customer-defined. The equation might look something like this:

your customers’ expectations for the experience – “the actual”

VALUE = ____________________________

Cost

When our customers experience continuous, reliable, and increasing value we know that they will be Loyal. Loyalty brings with it a series of second-order economic effects, which cascade through the business system:

1. Revenues and market share grow through repeat sales,

purchase of other products and referrals.

2. Costs to acquire and to serve existing customers shrink.

3. Profits go up.

4. The company culture change.

A self-renewing, continuous improvement process installs itself. Employees have increased job pride and satisfaction. Employees stay longer while customers come back.

In achieving customer loyalty, the single most important decision any company can make is selecting its customers. We can neither serve every customer well nor be all things to all customers. It’s a costly istake, a diminishing of our resources and skills, to try to retain each and every customer because, quite simply, not every customer is worth retaining. In fact, we need to learn how to identify and disengage with customers who are not profitable to serve.

To wrestle with the subject of loyalty, it’s vitally important that we define who a customer is and then define their lifetime value, expressed in net potential value (NPV) terms.

Then, we must understand how much of the customers’ “share of wallet” belongs to us today and how much of their wallet we can earn. We can then make intelligent decisions about how to invest in our current and potential customer audiences based upon their reciprocal commitment to us (as demonstrated by their pocketbooks).

What Variables Do We Me a s u re ?

We define a customer by at least two variables; e.g., a customer is someone who buys X number of dollars worth of my products over Z period of time. We can add dimension to this definition by expanding the definition;

e.g., someone who buys X number of dollars of Y number of products over Z period of time. Finally, we would want to add the contribution margin of that customer and/or net profit dollars.

Share of Customer and Lifetime Value

While this is an important step in all forms of marketing, in the business-to-business environment we further need to understand how much our customer spends on competitive products That is, the share of wallet (share of customer). For example, if Sue Ann buys $400 of our widgets and a total of $600 of widgets, her loyalty coefficient to us is much higher than if she buys a total of $7,500 worth of

widgets. (Note, however, that some buyers may have constraints on having a single source for any product family; the realization of this “truth” and including this variable in our understanding helps flesh out the calculus.)

In addition to understanding the value of our customer, it is essential that we define the rate at which we lose customers — the defection rate — as well as how many customers we acquire during a given year. Caution is called for here: a greatly skewed picture of the value of our customer community will result if we average the defection rate out, e.g., over 10 years. That’s because most companies report their defection rate is highest over the earlier years of a customer’s lifetime. Any loyalty valuation must recognize this.

I know that many of us see the admonition to “define who a customer is” and laugh or belittle the maker of the statement. But keep in mind the fate of IBM — while IBM touted the fact that everybody was their customer, millions of dollars of replacement parts and add-on business went elsewhere.

A customer, then, is someone who buys X-number of dollars of Y-product offerings in Z-period of time. That is, we define a customer by the dollar amount, the penetration or depth of products purchased, and the factor of pertinent recency.

Finding "Words that work" for your customer-facing roles

"English...tends to ambiguity and obscurity of expression in any but the most careful writing."

Robert Graves, the great English poet, mythographer and translator, wrote these words in his 1943 book, The Use and Abuse of the English Language. I can only imagine how Graves might react to the language of 21^st century sales, marketing, and customer service efforts. If our written language is imperfect, what indeed can be said about our verbal skills?

For Customer Experience Management and CRM proponents, our message is this:

- there is a vital connection between your company and your customers that is forged at, and across, each touch point with them, as they move from suspect, to prospect, to trial user, to customer, and finally either to loyal customer advocate or to the position of terrorist, whose attitude threatens your reputation.

It is clear that we - each of us in those roles - must take more care, be more clear, be more precise, and more completely understandable as the company providing the service, products, solutions, and answers than our customers need be. Our front-line personnel can often feel besieged, if the customer is upset. Emotions can get in the way. In those "moments of truth", to borrow Percy Barneveld's phrase, when our frontline personnel are telling the product story, resolving an issue, or trying to sort through a complaint, the reputation and image of your company are put at risk.

Most of us understand this reality. Many of you have tried to communicate, train, and monitor your front-line people. Yet, all too often, it is the linguistic part of the interaction that causes the breakdown. I am not advocating scripting. I've never really liked the idea of any customer-facing representative having a script. I do advocate, however, guidance and planning: training, role-playing, on-going communications, and (perhaps even) a company-specific, conversational "dictionary" as actionable tools that each front-line, customer-facing individual can absorb and personalize.

In today's economy, our customers are looking for openness, resolution, and consistency. While words alone will not save or protect your reputation, words alone can sink your Customer Experience Management Efforts.

an education challenge for all in agriculture

Like many of us, I am deeply bothered by the current public debate about food, food production and safety. The traditional, and newer "social" medias have taken this very, very complex issue and lumped together factoids about "feeding the world", "clean air", "global warming", "genetically modified crops", and the very sustainability of our planet. Doing so only made things worse and certainly more confusing for most listeners. A great deal of positioning; a good deal of shouting; not much listening and working together going on there, so far, in this public debate.

Agribusiness cannot allow itself to be dragged into a public brawl such as the one we've recently watched - and still are watching - about Health Care Reform and The Public Option.

These issues surrounding agribusiness and farmers, are among the most important topics of today because we all are involved in food and clothing and environmental issues. Yet, journalists such as Michael Pollan, Paul Roberts, and notable world citizens, such as Vandana Shiva, are inciting their audiences and special interest groups, mostly through fear and "adjustment" of the facts. In contrast to these divisive voices, Peter Senge, of Fifth Discipline fame, offers a much more tempered approach, deeper and more thoughtful and quite a bit more challenging to each of us in his newest book, The Necessary Revolution.

Crafting a sustainable solution - just to guide the public debate - can, and will, not result from singularly slanted, or otherwise distorted preaching. These interrelated problems can only be corrected through a creative learning process. Rather than creating an atmosphere in which a true long-lasting solution can be crafted, these activists see only one way: their own. Instead we need to work together. Education and communications will play a huge role in shaping the outcome for many of us. It will take hard work.

We lose all chance to shape the future, however, if we allow those outside agribusiness to shape the public debate or if we yell and/or complain about what they are doing.

We need to listen. We need to practice what Stephen Covey suggests: "seek first to understand, then to be understood". We also need to build a dictionary that guides this conversation and mutual learning. All of us need to shape the language and use words that work and metaphors that reach across the gap between sides, pulling them into our conversation.

Keep this truism on a Post-It: "...those who define the debate will determine the outcome" (c.f., Frank Luntz,What Americans really want ... really).

It's time to re-tell, or to tell anew, the story of farming, of how the world is fed and clothed - and what it will require when there are 9 Billion people on earth. It is time for us to educate the rest of the world about farming, agriculture, tillage practices, land and water conservation, seeds and chemicals. If we shape the conversation, without rancour and with a complete and easy-to-comprehend story, which helps reveal the truth in its complexity, everyone will come out ahead. Then we can move ahead proud of our stewardship and assured of a sustainable future. But remember, "It's not what you say; it's what they hear" that matters

If agribusiness addresses these same sometimes-difficult-and-admitedly- complex subjects through education and communication - the ones the extremists have distortedly made visible - so that our fellow citizens of the planet can help better understand the reality, the rancorous, drama can subside; constructive conversation, dialogue and trust can be built; and, we can craft a sustainable future together.

That future will renew the social contract. Then we can walk our talk proudly.

- old consultant adage, however: easy to say, harder to accomplish.

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.

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.

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.

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.