It is easy to suppose that anybody, individual or company, who spends money with us, is a good customer; and the more they spend the better customers they are.
Businesses all too often chase numbers – more customers and bigger orders. Both strategies can be calamitous as companies overreach themselves; blinded by the sheer scale of activity, without calculating the costs of servicing ever more customers, and convinced that they can keep discounting for volume and if there are sufficient zeros after the pound sign it must indicate a profit.
Just think back to the internet bubble of the nineties or look at the overloaded call centres of the current decade. Too few businesses stop to consider what makes a customer a good customer.
Given the enormous cost of customer acquisition, through marketing, sales, advertising, direct mail, exhibitions and the raft of other costly activities undertaken with this one objective, it is perhaps time IT contributed to, or even started, this debate.
Why is all this the IT department’s concern? Because IT has the computing power to analyse, profile and identify good customers and good customers take up less computer time in file storage, queries, complaints, call centre records and so on.
IT also has the systems capable of delivering the quality and immediacy of response that the organisation needs to give and the customer wants to receive.
As the offerings to customers become more complex, with ever greater choices, and customers become more sophisticated in the making of their choices, IT can offer the information needed and in an accessible format to enable customer service agents to persuade more customers to become good customers.
Reducing churn, the often unnecessary loss of customers, particularly good customers, is often a matter of ensuring that the system can deliver the responsiveness they require so that their dealings with the company at every point are satisfying.
While IT is part of the interface with the customer (call routing), it is also the driver of the human capability to respond; by enabling customer service agents to access the information they require with ever more refinement and speed.
The best customer is probably an existing customer. Not every existing customer, it is true, but a good many of them. Most businesses invest far more heavily in customer acquisition than retention. Yet, with an existing customer, the cost of acquisition has already been written off and the cost of retention is usually fairly low. Inertia can be a wonderful thing.
Consider our own reluctance to change brand as a consumer or to change supplier as a business, often even in the face of an unsatisfactory experience and attractive competitive offers.
Despite the value and inherent loyalty of the existing customer, we can fall over ourselves to woo and impress the new customer, often at the direct expense of service to existing customers, or even alienation as they get a worse deal than the new customers (just look at the banks and building societies).
Much of the data is there in the IT systems to refine further, to develop profiles of which are the profitable customers. This has to cross departmental boundaries, sales, channel management, customer service and finance.
First you could identify those customers who spend regularly and pay on time. You could probably, with a little work, winnow out those that take a disproportionate amount of time – queries or complaints to the call-centre, disrupting production schedules by changing delivery requirements, people who send things back; all the things that add to the cost of sales.
So, we have the first steps towards identifying a good customer – low cost to acquire or retain, low cost to service and low cost to collect payment. A good customer is a profitable customer and probably a good free salesman for the business too!
If we can identify which customers are profitable, then it stands to reason that we can build a profile of what a good customer looks like.
In a mobile telephone company I worked in, we analysed 400,000 subscribers, across two countries into 54 groups by lifestyle, location, financial data, marital status etc. It took a huge commitment and investment of time and some money. In a purely business to business environment there would be fewer groups. These groups can then be placed in a matrix of good through to undesirable customers.
Armed with this sort of data, the mobile phone company was able to work out which retail outlets warranted most support by catchment area, through to, eventually, pointing customers from high-risk groups to pay-as-you-go rather than contract.
Get the profiling of customers right to know which are good customers. Get the systems right to provide the service they require in terms of responsiveness. Align the systems with their expectations and lifestyle requirements (communication by letter, fax, telephone, email, SMS or combinations of these at times to suit them). You then have a formula for success.
Good, profitable customers are the Holy Grail. So much so that it may be worth considering investing more not only in retention of good customers but in acquiring new products to sell to them rather than in acquiring new customers.
Nick Rowley is managing director of customer service specialists Oceanus