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…

Metaphors to sell by

Over the last 18 months have you stopped and noticed how often the news' media brings up how one party or the other has availed itself of an advisor, a word-smithing advisor, who can teach that Party's spokespeople how to achieve its ends through language, through choosing "words that work."

Now stop for a second and think back to all those "lessons" you've been given over the years telling you what to say under what circumstances in order to break down any possible existing or lingering resistance when it comes to your trying to sell something to a potential, existing, or former customer. In other words, how to sell.

Were the words you were taught to use in order to be a better salesman "words that work"? And, did they work long term allowing you to achieve loyal, raving customers, or were they transactional wins that left you having to start from scratch each time you dealt with this buyer? Is there even the possibility that such a difference might exist?

Now stop and think about it for a minute. Have you stopped recently; listened to the language of your sales force and its leaders? How do they frame the exchange of value - product, services, information, etc - that takes place between your company and your intended customers?

(Another complementary issue to contemplate is the fact that the language used by sales, by marketing, your call center personnel, and the other functional areas that are customer-facing may not be the same).

The evidence likely will point to the use of rational argument and battle metaphors. If that is the case, does the language we use when talking about customers, prospects, and our slice of the pie undermine our long-term effectiveness and hurt our ability to form long-term, loyal relationships?

Is the language , the metaphors we use when we sell, unwittingly obscuring a self-reinforcing attitude and set of behaviors that is hurting our long term customer retention efforts?

Are we phrasing our marketing efforts as "campaigns" - miniature battles? When we "penetrate" an account are we blasting through the ramparts in order to take prisoners? and so on.

If we are seeking loyal relationships with our best, core customers, what language should we use, what metaphors should we sell by?

Cognitive scientists such as George Lakoff argue strongly that our metaphors are embodied. Does such embodiment insist that the net new creation of metaphors is highly unlikely, nearly impossible? Let us know your thoughts and let's explore this together.

A 2010 Loyalty CRM Strategy Roadmap, prt 2

A Strategist’s Business Issues

A strategy can only be executed with focus and choice. It must operate with , what Rich Horwath in Deep-Dive calls, “the discipline to intelligently allocate … resources.” Whether the resource is time, money, or people, the optimal allocation of resources is a critical issue, a critical challenge, for almost every business organization that wants to execute its strategy successfully. Since no enterprise has unlimited resources, it is worth investigating how customer relationship marketing models can provide a critical key to unlock the answer to this problem.

In no functional area of business is this resource allocation problem more true than in sales, marketing, and servicing customers and/or prospects – a market-coverage model, if you will. In fact, the search for the optimal allocation of resources in these functional areas is something akin to the search for the Holy Grail.

In business-to-business marketing (B2B) the characteristics of the target customer group can commonly be depicted visually as the familiar pyramid. Largest accounts on top, smallest on the bottom. The shared, common problem of a target universe, the pyramid graphically shows how, in most mature, competitive industries, the sales function (together with service and product marketing) is faced with:

· Price and margin pressure at the top of the pyramid, where the size of the targeted accounts is the largest

· Margin (cost-to-serve) pressures at the bottom of the pyramid, where the largest number of accounts exist

· An eventual overabundance of competition – once all your competitors realize where you are making your money - in the middle, where the most profit is initially available

· A shrinking middle layer

More than a decade ago Adrian Slywotzky suggested in an article that we elevate sales to a strategic boardroom issue. There never has been a more critical time for many businesses to recommit to elevate Loyalty and CRM to the boardroom level.

I do not presuppose a cookie-cutter approach. But, simplistically, I do believe that building a strategic roadmap for CRM in 2010 should be much like the childhood dot-to-dot challenges, which captivated our imaginations for hours. Especially if we guide our thoughts with the words of philosopher, Jacques Derrida, namely “that the answer is always already there.” In other words, through analysis, diagnosis, business intelligence, customer insight, we can uncover the “dots” that we need to connect in order to drive our Loyalty CRM Strategy towards success. Loyalty CRM: doing business with the right core customer. The roadmap requires discipline, focus, choice, and selectivity. Customer insight, business intelligence, process optimization, communications, and training are the primary ingredients the relationship marketing executive adds to the traditional 5 Forces analysis. Judicious use of these tools together with our marketing imaginations will allow us to uncover the roadmap for our particular company and target universe.

This approach requires cooperation and coordination across the entire company and your “value chain”. As a Loyalty focused CRM strategist you can create great synergy and operational effectiveness to your Loyalty CRM Strategy by applying the models of customer relationship marketing and knowledge management together with a modified activity-based look at resource allocation – your customers as a portfolio to be managed.

The Thesis for identifying the 2010 Loyalty CRM Strategist’s Roadmap

The planning tools, operational models, feedback loops, and performance metrics of relationship marketing are templates that create optimal resource allocation and coverage models. What follows is a guideline for optimizing the allocation of resources, together with the attendant analysis and implementation.

Why do we need a roadmap?

In order to “keep our eye on the ball”, in order to maintain focus on the desired end-state of our strategy, is the simple answer. The 3 primary results executives should expect from a well executed, loyalty-focused CRM Strategy are: Increased sales Effectiveness and Efficiency; Increased Customer/Employee Satisfaction; Decreased cost-to-serve

In addition to the three key very desirable outcomes that result from a well-executed customer relationship marketing competence, other implicit problems can be remedied:

· Increased sales, both volume, margin, and breadth of offerings

· Increased service levels

· Increased customer and employee knowledge sharing

· Increased customer and employee retention

· Customizable coverage

· Faster product introduction, i.e., speed to market

· More controlled management of product migration by targeted segment

· Decreased cost of doing business as a percentage of sales, i.e., sales expense to revenue ratio (E:R)

Customers as “a portfolio of assets”

We live and work in a time in which each of us faces allocation constraints pertaining to use of money, time, and people. Furthermore, the competitive arena we operate in is wholly unlike that of just a few years ago. We have a rare opportunity in today’s struggling economy if we are disciplined in our choices, focus, and resource investment/deployment.

Consider this quandary: If you have limited resources, where do you invest them, and how, in order to maximize your return? Professor Len Schlesinger – who brought “us” the Service-Profit Chain – used to lecture using a 3 X 3 matrix:

Across the top: LOYAL SWITCHER COMPETITIVE

Down the left side: LARGE MEDIUM SMALL

Using this simple framework, that he called “the Marketing Optimization Model”, Professor Schlesinger would challenge his audience and students to solve the problem all strategists face, the resource investment and allocation dilemma. While a 9-box matrix perhaps overly simplifies the coverage and investment challenge, it gets the CRM strategist thinking in the right general areas.

Our customers represent a portfolio of assets that we must proactively manage in order to maximize shareholder and stakeholder value. A complementary truth is that virtually every organization has limited resources. So it is vitally 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 marketer’s Holy Grail is to get the right message, product, and/or service to the right person, at the right time, in the format that customers have indicated they prefer. In fact, this is the primary goal of an optimal allocation model.

An optimal coverage model would also:

· Support a retention – and loyalty-focused, customer-based business design

· Make effective use of the organization’s limited resources

· Make investment decisions based on reciprocal commitment or mutual interdependence of your Ideal, Best customer and channel partners

· Establish integration and synergy across the three functional areas responsible for servicing the customers: i.e., product marketing, sales, and customer service.

Stepping Back: there are two reasons that customer relationship Marketing is so powerful when implemented properly. First, the firm focuses on acquiring the Ideal, best customer, and, second, the company manages its customers as a portfolio of assets – investing its limited resources proportionately to the level of commitment that customers and prospects make to the organization.

My contention is that there is a fairly well-defined path the enterprise can take when analyzing and assessing its allocation challenges. This path is mapped out through the use of the tools, templates, and planning by the insightful, analytical, data-based, relationship marketer.

Resource allocation must also bring to bear the relationship marketer’s theories about managing the point of contact, managing the customer across their lifecycle of interactions with the company, managing the value of the customer portfolio, and managing knowledge across the company and across the value chain. Fred Reichheld called it “the customer corridor^”: it is really mapping the touch-points between your firm, your target universe and customers, as well as your value chain members. In today’s 24/7, always-on, flat-world seemingly driven by social media, just mapping these touch points and then aligning your company for total cooperation and coordination across the value chain is an immense undertaking. Creating the graphic, however, will serve as a powerful icon inside your firm and will illuminate the challenge of resource allocation relative to your customers’ lifecycle relationship with your firm.

Specifically, there is a spectrum, or “continuum of relevant customer contact activities,” that needs to be mapped to create an optimal and effective resource allocation model.

The first step many organizations will need to undertake is to conduct an audit of their marketing, sales, and customer service activities so as to surface the key interdependencies between them, as well as with site logistics. Think of it as “the programming” phase of dealing with an architect. The Master Builder will want to know how you want to live and function in the new space. The audit seeks to:

· Make visible and apparent where integration between the functional areas is necessary

· Make apparent where non-discretionary accountability must reside

· Revisit the current account selection process

· Revisit key account management practices

· Objectively verify whether an account is relationship – or transaction-oriented

· Assess the skills, training, and behavioral components of the relevant customer contact people in each of the functional areas

· Assess degree of cooperative, cross-functional teamwork along with supporting account planning, communications, and contact management tools

The Determinants

What is needed is a framework for determining how to allocate resources. There are a great many steps involved, yet, in some ways, creating this framework is much like connecting the dots.

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.

"Sustainability", a distinctive definition

“A new and distinctive definition of sustainability.”[1]

How do you feel about how the Health Care Debate and health care reform have been handled so far? Personally, I’m fed up with, and a bit confused by, the “public conversation” over Health Care Reform. Personally, I can’t help but believe that the public is being too confused to decide, and the roots of the confusion were the words chosen by certain groups in order to make their point. The next public debate is going to be about creating a sustainable future. The multiple threads of the conversation are already glistening, popping out for examination. Among the threads we can already identify: global warming, carbon emissions, cap and trade, waste, water, soil, food, and so on. And so, as with many people, I am trying to wrap my head around the term “sustainability”.

I do not want to fall victim to lobbyists, or industry positioning, or vitriolic posturing by a faction with an axe to grind. I’ve seen how damaged the public conversation can be after witnessing the debacle over Health Care Reform. Believing that, if I read enough and talk to enough people, I can come away from these educational moments with a more balanced, more rounded, and a more thoroughly informed understanding, I set out to investigate the challenges that accompany the theme of sustainability, and how to guarantee a safe, prosperous world for our children and their grandchildren.

My educational journey has permitted me to experience the poetry of Wendell Berry and the anti-Capitalist rantings of Vandana Shiva. I’ve allowed myself to be captivated by Al Gore’s visuals; and, I discovered that I don’t have patience for the alarmists who produced Food Inc. I found E.O. Wilson too ephemeral, too “airy-fairy” for action; and I found Peter Senge’s The Necessary Revolution challenging me (and each of us) to make a difference and to help the wave move out from its center.

I was drawn to John Ehrenfeld’s deeply philosophical book, Sustainability by Design, for his definition of “sustainability. Ehrenfeld is an industrial ecologist, a systems thinker, and, philosopher. Throughout the book he makes use of the now-familiar-to-many causal loop diagrams, system archetypes, and mental maps made popular in Senge’s phenomenally successful book, The Fifth Discipline.

Ehrenfeld throws down the gauntlet by offering provocative assertions, while continuously using Senge’ Causal Archetypes as framing images, metaphors, and mental maps: Fixes that Fail, Shifting the Burden, & Limits to Growth in this profound questioning of our current situation, which he labels “the global crisis”.

“To create sustainability, we must first adopt new meanings for the words we use to tell our stories.” I certainly agree that language and the metaphors by which we live (write and speak) are more powerful than we normally realize. And, in our use of language we do have the power to shape the future. Just think for a few minutes about the language sales and marketing uses to talk about the people who buy and use your products and services. “Campaigns”, “account penetration”, - we display our cultural values through the language we choose.

Storytelling will have an important role in the public debate. We will have to decide as “The People” how we want to, and will, shape the future of our planet. Ehrenfeld points out “in the environmentalist’s conversation, we almost always speak only in terms of problems to solve, and rarely in terms of nurturing possibility.” He goes on to say: “Something is missing here. Better, many things are missing here.” Using words and causal loop diagrams, Ehrenfeld’s mantra is we need to create a new future (italics mine) because what we have been calling “sustainable development” is just painting the pig, dressing up a problem with a fix but never solving the problem with a creative solution.

His definition of “sustainability” is “the possibility that human and other life will flourish on the planet forever”. He then goes on to add that “flourishing is the key to a vision of a sustainable future, and this way of conceptualizing sustainability connects to every kind of audience.” In other words, this definition works for marketing, for sales, for scientists, etc. as well as for solving such issues as creating a sustainable future. Does it connect with you?

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[1] Sustainability by Design, pg. 6, John Ehrenfeld, Yale Press, 2008

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.

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.

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.