In this process of evaluating customers and trying to learn more about them we often turn to a research company called Message Factors. In hundreds of Value Analysis studies in fields including B-to-B, B-to-C, financial, food service, and health care, their research shows that the average company has customers who can be defined in one of three ways:
Loyalists (31 percent),
Content (21 percent), or
At risk (48 percent)
The Message Factors’s Value Analysis has identified four types of issues that make the difference between loyal customers and those at risk.
Basics: A set of standards expected of every company in the category; things you must do satisfactorily. For example, a bank must be safe; a restaurant must be clean.
Value issues: Where the company goes beyond the basics and gives their customers something more that they value. Value issues may be financial or nonfinancial in nature. Value is what leads to differentiation and customer loyalty, and is based on customers’ perceptions of what is given up for what is received. There are three drivers of value:
Quality includes quality of products, merchandise selection, quality of staff, physical environment, and additional services.
Price includes everyday pricing and sales prices.
Convenience includes overall convenience, the ease of shopping, and location.
Irritations: Issues on which customers are dissatisfied, but aren’t very important; these things won’t drive them away. Certainly one of the greatest aggravations for customers is having to punch in a long series of numbers on the phone to get served by interactive voice response systems. Federal Express built a business by eliminating customers’ irritation: Mailers could never know when a package sent through the U.S. Postal Service would arrive at its destination; FedEx guarantees a set time for delivery and offers a tracking service for delivery confirmation.
Unimportant issues: Things companies do that their customers don’t care about. In many cases, customers are not even aware of these issues. For example, one supermarket doubled its budget for floor cleaning so they could claim the cleanest floors only to learn that customers didn’t care; they expected the floors to be clean.
For CRM it was enough to concentrate on only the value issues. These issues are still vital for CMR, but the irritations are also just as important to focus on. Even though these dissatisfactions may not be driving customers away, they still offer giant opportunities. The Great Indoors used their early conversations with the customer to understand exactly what frustrates her about shopping for home d cor, and then built their business around removing those annoyances.
Even the unimportant issues need to be examined. If a company is spending money on services or other activities that customers don’t care about, the opportunity is there to transfer funds to changes that will make customers’ lives easier.
The Message Factors’s three-part segmentation of loyalists, those who are content, and those who are at risk is a good place to start, but within those groups it will pay to probe more deeply into the kind of questions discussed earlier. We need to know which customer segments offer the greatest chance to change customer behavior, and then how best to influence and empower the individual customers in each group.
Who are the occasional shoppers with whom we can increase frequency? That was enough to ask when we were just using the information to target cross-sell offers. To gain the benefits of empowering the customer we have to drill down to learn why these customers are only occasional shoppers. What can you change in the relationship process to make these customers’ lives so much easier by shopping with you that they will become regular shoppers?
Who are the best customers and what are the methods of communication that will enhance relationships with them? This question is still valid for CMR but you must go beyond the question of what communications are best and ask what actions can we add (or subtract) to give these customers more power.
What are typical cross-category shopping tendencies and how can you maximize these opportunities? Just because you are trying to turn power over to the customer doesn’t mean you don’t want to sell more. The new question is how can you make cross-sell and up-sell of more value to the customer.
Who are the cherry-pickers who buy from you only on promotion? It’s probable that you can’t turn too many of them into great assets for the company, but what can you do about reducing the frequency and range of communications to them to reinvest these expenses into relationships with higher value customers?
Can you use customer information to improve merchandise assortments? One-to-one experts think of this as customization, but it can be more than that. Often in our work with clients we see them eliminating slow-turn or low-margin products or categories without checking to see who is buying them and what else those customers are buying on the same shopping trip. At one time a major department store decided to close its fur department in a suburban branch because women were buying furs in the downtown store and returning them to the suburban branch resulting in an unprofitable branch department. The branch manager was wise enough to check his customer database to learn that these customers were not only some of his best but were, in fact, spending large sums in other departments each time they came in to return the fur they had purchased downtown. The store made the wise decision to retain the fur department in the suburban branch and avoided what might have been lost sales.
As this is written, Sears has made the decision to drop its cosmetic category completely. If they are wise, they have already checked the shopping habits of the customers who counted on them for cosmetics—they won’t be making those customers’ lives easier.