Manage customers like a stock portfolio

Long-term customer value must outweigh a company's desire for fast cash, according to a noted CRM consultant. Martha Rogers kicked off the Smart CRM West conference with a prescription for getting a better return on a customer investment.

SAN FRANCISCO -- Author and CRM consultant Martha Rogers kicked off the Smart CRM West conference by comparing

customers to stocks. They're both worth something today and their value will increase or decrease over time, she said.

The author of five CRM-related books and founder of the Norwalk, Conn.-based consultancy Peppers and Rogers Group challenged companies to manage customer relationships like successful investors oversee their portfolios: with individual attention.

Doing so, Rogers said, will maximize long-term customer value, or a company's return on its customers. Customers are the "one slice of revenue that companies have or ever will have," she told attendees.

"Every management decision should be made based on how it impacts customer equity," Rogers said. That

Is it possible that revenues this quarter are not the only thing we should be looking at?
Martha Rogers, Ph.D., CRM author and consultant,
includes decisions on developing a new product, opening a new plant or merging with a competitor. It also means rewarding and punishing executives based on how decisions they make today affect customer relationships tomorrow, she added.

To offer this personal care, companies have to know exactly what their customers demand. Rogers advocated an information-gathering technique she called "drip irrigation," in which customers are asked questions over a period of time and their answers are compiled in a form that a business can act on.

She cited an example of a shopping bag provider that learned which stores in a particular chain used which types of bags and how each outlet preferred to receive deliveries. The company then tailored its service to the store, enabling it to charge 7% more than its competitors without losing business.

The concept that customer knowledge increases revenue resonated with attendee Kevin Donovan, manager of online sales and service at Delta Air Lines Inc. in Atlanta. He said that Delta has invested heavily in analytics and has rolled out a new data mart to integrate information from its SkyMiles frequent-flier program with behavioral customer data.

"We are accelerating our effort to understand our customers," Donovan said.

If a better understanding of customer behavior can indirectly drive loyalty, so can certain products. Those that do should be inexpensive and viewed as a way to retain customers rather than a means to make a quick buck, Rogers said.

One example is the voice-recognized speed-dial feature from cell phone operators, which requires users to spend a lot of time programming individual phone numbers. Changing carriers would require them to go through the hassle of reprogramming.

"How much cheaper would someone else's service have to be for me to switch?" Rogers asked.

Historical challenges

Businesses are evolving, but history isn't on their side. In the past, companies and their customers were often adversaries; corporate goals typically weren't aligned with customers' needs, Rogers said.

She mentioned the less-than-inviting buzzwords that businesses have typically used to describe customer interactions: promotion schemes, share wars and customer segmenting.

"Segmenting -- it's like machetes falling out of the ceiling," Rogers quipped.

In fact, some businesses still employ what Rogers called "finders-keepers marketing," trying to profit off of customer ignorance. That includes one airline that generated 8% of its revenue

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off customers who didn't know how to get a refund on e-tickets. Other businesses alienate customers in the long term by challenging regulations such as the "do not call" lists, which are enormously popular with consumers.

"Is it possible that revenues this quarter are not the only thing we should be looking at?" she asked.

Different customers, different value

Before businesses can get a greater return, they have to understand that some customers are worth more than others, Rogers said. Companies should devote more resources to these high-value customers. They should also spend more money on keeping valuable customers than on attracting new ones.

Cell phone providers make a big blunder in this regard, Rogers said. They lure new customers by offering cheap phones, but force existing customers to upgrade their coverage plans to get the same phone. Customers interested in getting an inexpensive new cell phone can likely do so more cheaply if they jump ship.

In a real-world success story, Rogers mentioned a hotel that discretely captured data about its customers -- information such as whether they arrived toting golf clubs or the type of bed they prefer. In some instances, they offered new services, such as booking tee-times or placing monogrammed bathrobes in rooms. In other cases, they simply avoided asking repeat customers the same questions over again.

The result: a 55% increase in repeat guests over two years and a 15% increase in average revenue per stay.

The same advice about maximizing return on customers is applicable outside of the corporate world, Rogers said. Government agencies should apply it to their citizens and non-profits to their donors.

Sara Stoll, associate director of marketing at San Francisco's Golden Gate University, hopes to get more return from her customers -- the college's students. Her aim is to increase student satisfaction rates and enrollment. Getting more from existing students, who eventually become donating alumni, is part of the plan, she said.

"We're very interested in implementing CRM as a program and not a project," Stoll said.

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