‘The Nemesis Engines’ – 100 years ago…
July 14, 2014 by Olivier Blanchard - No Comments
The story so far, should you need to get caught up (recommended):
Welcome to Part 5 of our Social Business Reboot series. Today we will be focusing on how to use social channels to drive customer development.
Customer Development 101: From Amateur Customer to Professional Customer
The concept is simple but many businesses don’t necessarily think about business development in terms of customer development, or if they do, the process is isolated and the follow-up to the customer onboarding process. A sort of customer maturation effect that salespeople drive when the opportunity presents itself. But what does customer development look like? An easy way to map the process is to think of the journey that turns an amateur customer into a professional customer, or a junior customer into a senior customer, or a basic customer into a premium customer.
Not all, but most customers start off as amateur customers. The first-timers. Your marketing worked, or your word-of-mouth program caught someone’s interest, and that individual advanced from discovery (of your brand or product) to first a first purchase. But chances are that your new customer didn’t start out by buying the most expensive product or service you offer. They probably started somewhere towards the bottom, and there could be several reasons for this, the most common being a) the customer is testing the waters in regards to your company, and b) the customer is testing the waters in regards to the product category.
Because I am a cyclist, let me use a bicycle shop to illustrate how this works (though we will also look at other types of businesses later in the post). Most new cyclists don’t start out in the sport by buying a $7,000 pro-level bike and $5,000 worth of upgrades, accessories and apparel. Most new cyclists enter the sport at a relatively low price-point, with equipment that won’t represent a massive financial investment on their part. To keep things simple, let’s say that price range for an entry level road cycling bike is $1,200-$1,500, an advanced level road bike is $3,000, and a pro-level, ultralight, wind-slicing crotch rocket is $5,000. Unless the the new cyclist walking into your store is loaded and spends money frivolously, he or she will generally start at the $1,200-$1,500 range.
Why investing in relationships is a solid business strategy:
Now pay attention because this is important: The smart bike shop owner won’t try to upsell that new customer/cyclist. The smart bike shop owner knows that customer acquisition is only the beginning, and that patience and building a relationship with that new customer will pay off in the long term, because the name of the game is customer development, not simply customer acquisition. For that first purchase, the idea is to find the ideal bike within that price range. Get the customer started. Get the customer in the saddle and on his or her way. What you’re looking for is big bright smiles and a comfortable range of discovery and experimentation and learning. This is the starting point, the first of many milestones.
The smart bike shop owner knows that the more the new customer rides, the more the new customer will notice products that other cyclists use, and the more questions the customer will come up with (about clothes, tires, saddles, wheels, components, training, etc.). The smart bike shop owner knows that every question asked by the customer is an opportunity to build a relationship with that customer. Every interaction is a new cobblestone on this mutual journey, and every cobblestone pays off if the bike shop owner is helpful and patient and has an eye towards teaching and developing that customer.
Before long, the customer will become faster, stronger, more confident, and will reach the limits of his or her equipment. The next step is a need to improve performance. A more comfortable saddle perhaps, a faster set of wheels, a lighter helmet, new pedals… It’s how it starts. The upgrades. That initial $1,500 purchase leads to another $800 in shoes and clothes and a first helmet, then to $2,000 in more advanced accessories. The weekly purchases of hydration powders and socks and gloves are the tip of the iceberg. The real money is in the upgrades, which come and come and come until the original bike is so tricked out that it can’t be improved any longer… but no worries, the customer has now reached a point where that $3,000 bike makes a lot more sense anyway. Whether the original bike ends up on eBay or becomes a foul weather “second bike” is irrelevant. What matters is the customer, through a series of natural but structured interactions, evolved from a beginner to an advanced product user, and the journey is far from over. Come back in a year or two, and that same customer will be sporting $10,000 or more in carbon fiber frames and wheelsets in his or her garage.
Airlines have silver, gold and platinum level frequent flyer mile programs. They have first class, business class, and economy seats. Hotels, resorts and cruise lines have different price-points for rooms and cabins and packages. Breakfast cereal manufacturers have economy, mid-grade, and premium products. Gasoline comes in regular unleaded, plus/premium unleaded and super unleaded. Automobile manufacturers have economy models, mid-range models and luxury models. Even in terms of service providers, there are basic services and products, premium services and products, and some kind of mid range service or product to bridge the gap. Everywhere you look, if you look carefully, you will see it:
Smart manufacturers know this and engineer their product lines accordingly. Many retailers, however, fail to set up their marketing in the same way and tend to focus mostly on product discovery and customer acquisition, and not targeted customer development. Retailers are often left to their own devices to drive customer development as we have outlined it here, which is to say that the smart ones do very well while retailers with no concept of this business development model tend to spin their wheels trying to constantly create customers month after month without much focus on retention, let alone development.
Continuing with our bike shop example, good bike shops will make a point to develop a relationship with their increasingly loyal customers, while others will focus on the sale or transaction without really paying attention to the long term journey and relationship of their (not particularly loyal) customers. If you have ever walked into a bike shop and felt “not pro enough” to interest one of the sales associates, you were probably in the latter type of shop, where “can I help you?” tends to mean “can I sell you something? If not, I’ll be over there looking very busy staring at a shelf.” If, however, you walked into a bike shop and felt welcome and encouraged even though you hadn’t ridden a bike in years, you were most likely in the former. In that instance, “can I help you?” tends to actually mean “no really, how can I help you make one of the best decisions of your life today? I’m actually here to help.”
Connecting the dots: Customer development, LTV, Social Media and Good Business Sense.
The difference between customer acquisition and customer development should now be very clear. Customer acquisition drives new business. Customer development drives not only continued business but deeper business. It drives recurring revenue and increases LTV (customer lifetime value), as customers don’t just keep coming back but evolve from basic products (less revenue) to premium products (more revenue). The object of the game is to move a customer from, say, an annual spend of $2,000 with your business to $3,000/yr with your business.
But what does this have to do with social channels? If you use social channels properly, a lot of those interactions can take place online instead of in the store itself, and that’s assuming you even have a store to begin with. For most businesses, a social/digital presence will help complement the in-store relationship. It doesn’t replace it. It adds to it. It solidifies it. But for businesses that don’t have brick and mortar retail environments, a social presence can take their place. While it isn’t a seamless substitute for a friendly smile and a real handshake, it is better than nothing, and can make a tremendous difference in the type of relationship a customer feels they have with a company. Create opportunities for relationships and real engagement however and wherever you can.
You could be a restaurant, a gym, a cable company, a car dealership, and airline or a services firm. It doesn’t matter. The idea is to use social channels to interact with existing customers in a way that drives their development from basic to premium users, and in many cases from casual customer to preferred customer.
How is this done? Outside of writing a long and detailed book to outline in minute detail how this company and that did it, and how many almost did it but fell short, the kinder option is just to give you a few key basics, so here we go:
1. Understand.
Awareness of the customer journey is the foundation of this process, with or without social channels. If a business doesn’t start there, none of the rest will work. So step 1 is to take a few steps back and map what happens to your best (and ideal) customers. What separates a new customer from your best customer? How does a customer get from that first milestone to the apex of their customer journey? Plot the milestones, reverse-engineer the interactions and drivers that move customers from one to the next. Learn to understand that process.
2. Measure.
Validate the importance of customer development. Here are several ways of doing this, and you should do them all:
– Measure the yield (average transaction value) of a new customer vs. the yield of a mature/premium customer.
– Take those two numbers and insert them into the LTV formula. (You should find that mere customer retention without customer development will cost you massive amounts of revenue over the lifetime of a customer. Companies that don’t take the time to properly develop customers are throwing massive amounts of revenue away each year. It helps to see how much money that is. Big light bulb moments can be triggered by just a few short minutes of basic math.)
– Proper customer development builds value in a customer’s relationship with your company and products, which helps drive long term retention. Measure the difference in annual erosion rates between new customers and premium customers. How much more revenue could you be seeing each year if you increased retention and development by only 5%? For you MBAs reading this post, this is pretty much an opportunity cost calculation.
However you choose to validate the concept and attach numbers to it is your business, but don’t just take my word for it. Play with the math. In addition to giving you a much clearer idea of how much money a deliberate customer development program could be worth, it will also help you set targets, establish budgets, calculate the ROI of such a program, communicate the value of your program to the organization in a way that even the most bitter skeptics will be able to understand, and so on.
3. Hire and train.
Make sure that your culture is right for this type of customer engagement. If it is, great. Carry on. If it isn’t, there is no shortcut or cheat. You will have to make changes to your culture and personnel. Two major buzzwords in social media circles these past few years were “engagement” and “conversations.” This is where the rubber meets the road. If your customer-facing employees and managers (online and offline) are friendly, helpful and sold on the value of this type of customer development strategy (and rewarded for their ability to drive it), you will see amazing results. If, however, your customer facing employees and managers couldn’t care less, or don’t plan to be there for more than six months, or aren’t happy, forget it. You will not be able to pull it off. Hiring the right people and establishing the right goals are the two most crucial elements in any attempt to build a truly customer-centric organization whose principal mission is to drive customer development. The right attitude is everything. You can’t fake this.
As to the online engagement team, this is one place where outsourcing is generally ill-advised, unless the community managers and other social engagement teams employed in this endeavor are properly trained and managed. Your relationship with the agency providing headcount for this type of program will have to be much more involved than you realize, to ensure that you aren’t just paying for a group of glorified and disinterested social media interns who are already juggling a dozen other accounts. Every customer touchpoint MUST be hand-picked for a positive, helpful attitude, properly trained so they will be knowledgeable in the right areas, and carefully managed so the customer always feels a little wowed when they interact with them. If your employees don’t love what they do or don’t love delighting their customers (and they should), they had better be extremely good at faking it.
You know companies that do this. You know companies that don’t. You already understand the effect caused by one type of brand experience and the other. The impact on loyalty and wallet-share doesn’t have to be explained.
4. Establish the right processes.
Process will vary from company to company, as will directives like “the customer is king” or whatever works. Some companies will fare well with a loose, general sense of “just be helpful.” Others will want to establish clear and detailed hierarchies and internal partnerships (say, between community managers, salespeople and customer service representatives). Whatever works is whatever works. Experiment, learn from what works and doesn’t work, improve the system at every opportunity, and don’t be afraid to recruit your customers in the process. Ask them what you could do better, etc. The military uses a concept known as Commander’s Intent, which becomes useful when units are cut off from the chain of command and are forced to make decisions on their own. Commander’s Intent is simply knowing what the desired final outcome is. If a happy customer who will keep coming back is the main desired outcome of a business, it doesn’t really matter what specific path or procedure was employed to get there. Point your employees in the right direction, reiterate your Commander’s Intent as often as you need, help them do their job when they need help, but mostly just get out of their way. Remember that the absence of process can be a process in and of itself. If you hired right and trained them right, most employees and managers driving customer development won’t need much of a process.
5. Use the right tools.
In terms of tools, you will have guessed that any kind of Customer Relationship Management (CRM) system will be helpful to your customer development process, especially if you can tie it into your digital and social media communities (sCRM). Forget for a moment the importance of being able to quickly look up a customer’s history to see what their preferences and habits are. (For a bike shop, it might be that they prefer one brand over another, or are training for a particular type of cycling challenge, or have unusually long femurs – which can be significant for apparel and bike geometry. For a cable company, it might be that they purchase 20+ on-demand movies per month. For an airline, it might be that they are a loyal and frequent passenger, and that most of their flights are between JFK and ATL.) Being able to pull up a customer profile on the quick is pretty helpful, especially when your customer community is 100x larger than your customer-facing team, but there is a more important use for CRM and data in general that I need to bring up now, and it touches on identifying clusters of customers at various points along their journey, in order to be able to target them properly.
At any given time in the year, you should be able to dig through your customer data and look for specific types of patterns. For starters, try this: looking at all of your active customers, identify which among them are basic customers, which among them are intermediate/advanced and which among them are premium customers. Once you have done that, look for customers who have remained in the basic and intermediate batches longer than they should. This creates an opportunity for you to perhaps nudge them upward a bit. Without pushing, of course, as not every customer will want or need to advance (yet or ever), but x% of them should be susceptible to an upgrade of some kind. At scale, this could be done with a targeted campaign (to upgrade a bike or test a more advanced product, or enjoy 6 months of the next level of service at their current pricing/rate). On a more one-on-one level, this could take the form of a simple conversation. A soft little push. “Still happy with xyz? Ready to try something a little more advanced yet? Let me show you what you might be missing.” A little charm goes a long way, but a good rapport goes even further. This doesn’t happen overnight, but the investment in time and relationships is well worth it.
Using data properly, a business could use a customer development strategy to help identify and craft targeted campaigns and direct engagement to drive specific business development outcomes within their existing community of customers. Do the math: how much would it worth your company over the next 12-18 months to move just 3% of your existing basic/entry-level customers to your next service/billing tier? How much would it be worth your company to get just 2% of existing users of last year’s intermediate-level product to upgrade to next year’s premium product? We already established earlier in the series that targeted marketing, combined with friendly, helpful day-to-day engagement and genuine relationship-building over time, is cheaper and far more rewarding for most companies than a constant focus on customer acquisition. Using data and simple technologies (all of them now available in the cloud, making them accessible to any size organization) with the right goals in mind can make this process relatively easy to build into any company’s customer development program. There is no need to guess anymore, or spend a lot of money on marketing that won’t tug at the right triggers, and most importantly, there is no reason to let customer erosion and customer inertia bleed your company of precious revenue it shouldn’t be losing in the first place.
Do a little math, give this a little thought, and look into ways of applying what we discussed here to your business. If you can manage to do even a fraction of what was outlined here today, I can almost guarantee some pretty concrete results. At the very least, you will be impressing the brass with your ideas, approach and promising outcomes. Now get to work and let me know what you come up with.