Re-envisioning Customer Value

Base your valuation of activities on customer value instead of marketing spend, and all of sudden you have marketing as a profit center, where:

  • budgets are based on customer income
  • rate of return is based on returning customers vs. (one time) buyers
  • the cost of money is one variable in the asset/flow of business

A recent paper by the Economist Intelligence Unit sponsored by SAS highlights how social media has made buyers more visible to organizations in search of customers. However, what I'm seeing is still a focus on using these tools as lead generation and acquisition channels.

The potential for companies to build deep and profitable relationships with their most valuable customers on the social Web remains by and large unexplored. As the report states, many organizations are experimenting with new forms of customer engagement.

In some cases, businesses have increased sales, reduced service costs, and improved innovation.

Yet few have moved out of the experimentation stage to implement the kind of enterprise strategy changes necessary to fully realize the business opportunities offered by social media.

The report finds (report points in bold): 

  • Traditional measures of customer worth are at best incomplete and at worst misleading. When businesses focus on what a customer spends directly, they miss how much that one customer (maybe he's not even a customer, maybe he's a fan who has not bought yet) is worth is referral business. When he is a valued member of a trusted network, that customer has more influence.
  • Organizations must learn to distinguish between noise and valuable business information in order for novel forms of customer valuation to significantly enhance their profitability. Are you tracking the right things? This is a sticky point of many strategies: They are more matter-of-fact data points and do not yield behavioral intelligence that could lead to insights.
  • Senior executives should holistically integrate customer engagement across their company’s departments to capitalize on new insights into customer valuation: this requires organizational flexibility and the relinquishing of some measure of control.

For example: At Procter & Gamble (P&G), a consumer goods giant, customers have helped to contribute thousands of new product ideas through its award-winning open innovation programme, Connect + Develop. Over 50% of its products now involve significant collaboration with outsiders.

The company also runs several social media communities built around its products—its mums network, Vocalpoint, has over 600,000 members—and uses customer insights to operate a supply chain policy called “pricing from the shelf back”, whereby it finds out what customers are willing to pay for a product and then works out how to provide it at that price.

None of these interactions would be reflected in traditional customer ratings, but they clearly enhance the customer’s value to the business.   

  • When extracting value from engagement on the social Web, organizations must tread carefully to avoid appearing intrusive or inappropriate. According to  The Institute of Internal Auditors (IIA), only 38% of organisations that use social media have a policy in place to govern activity. And of those that do have such a policy, 71% (still) do not conduct formal training or promote policy awareness. 

Like in many of the reports of this kind, I see no mention of the business itself: How does the business do some hard thinking for itself? What are the processes used to uncover what it has not realized about itself? How does it make better decisions?  How does it do better deals?


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