NACCM 2010: Estimating the ROI of Customer Centricity

Note: This presentation by Kunal Gupta of Burke at NACCM 2010 echoes the sentiment you’ll often read here on the Waypoint blog. Followers of this blog know that everything we do is linked to profitable growth (money!), so I especially enjoyed Kunal’s presenation. Read on for a summary of what everyone should be doing in their VoC program:

Show me the money.

If you think of yourself as a CFO, where should you invest? It is critical to measure success in business terms: metrics aren’t sufficient as executives speak the language of business.

The Good: Marketers have had it good for a long time! Customer-centric initiatives haven’t really been questioned. But – the Bad – because the metrics weren’t linked to the bottom line, marketers rarely got a seat at the table. This results in the Ugly: credibility is likely to erode. Executives want you show them the money. So any metric you present needs to articulate a “return on marketing” as a financial metric.

Example: In 2009 the Manufactures Alliance – companies > $1B – found that less than half their members have linked customer satisfaction to business results. Those that did measure this found higher profits (22%) higher sales (22%), and increased assortment of products purchased (9%).

Traditional customer satisfaction starts with the customer and measures satisfaction. But Kunal contends that it is more important to improve the satisfaction of your profitable customers. He recommends reversing the causality: segment customers into profitable vs. unprofitable, and then focusing satisfaction improvements accordingly.

Since this makes sense to most, why do companies not establish this financial linkage? Excuses include:

• -Scarcity of organizational data to support the effort: More and more data is being collected every year. If you cannot put it to use then stop collecting it.
• -Inconclusive past evidence: ACSI has found that a 1% increase in satisfaction, shareholder value improves by an equal amount (1.02%). Reichheld found that a 12% increase in NPS doubles growth rate. Etc etc…The point is there has been quite a significant body of work published that proves the case.
• -Lack of leadership support: Churn is inevitable, but you can minimize churn by keeping customers happy. The cost of acquisition of a new customer varies by industry, but is much larger tan retaining an existing customer. Executives care about customer centricity.
• -Organizational aversion: It’s not about the math – get some c-level support by sharing some alarming statistics (internal or external) for not being customer centric. Then enumerate the benefits, including the ability to compute ROI. Cross-functional participation is critical.

So where to begin?

• -Start small. Success breed momentum.
• -No black box – make it transparent and focused on business, not statistics
• -Remember that the “art” is as important as the “science” – make sure the message is supported by the data.

Some example data to present

• -Average customer revenue by level of loyalty: “High Loyalty” customers often buy more.
• -Contribution of Customer Loyalty to higher cross-sell rates
• -Analysis of projects that require investment against the projected revenue impact

The bottom-line: If you believe that happy customers are worth more, go out and prove it.

This blog was written by Steve Bernstein and is co-posted with the Customer Insight = Revenue blog.