Thanks to the Internet, the way consumers and customers are buying is dramatically changing. Rating sites, expert reviews, social media discussions are making several established ideas and theories about marketing redundant.

One key change that marketers need to recognize is that customers previously had to rely solely on the manufacturer for information about the product and brand (through advertising and PR exercises). However, today customers can easily access information about products and brands from experts, friends, colleagues, users of the product across the world, thanks to the internet. This means that brand as a surrogate of quality is becoming irrelevant, what this also means is that customer expectations are far more realistic before buying a product or service. It must be mentioned here that brand would still be relevant in several other ways – as “badge” value, as a manifestation of trust and in the consumer goods sector.

Another important change that the Internet and technology has brought about is the ability to capture, store and analyse large amounts of customer information at low costs.

Given these two changes, it may make sense for marketers to start thinking about moving from product and brand focus to a focus on the customer - from creating brand equity to creating customer equity, from having a Chief Brand Officer to having a Chief Customer Officer.

Metrics that Matter

This movement from brand to customer also means that the organization needs to shift from a production oriented mindset and capability to a mindset of mass customization” where each customer is a market of one. This may be the biggest barrier in an organization’s metamorphosis from brand to Customer.

Given that what gets measured gets managed, the starting point for the change could be clearly defined customer metrics related to business outcomes. Metrics such as number of new customers gained, number of customers lost, value of new customers, value of lost customers, value of old customers, increase in use of use of products/ services by existing customers. In sum what may be termed customer equity. One simple and uncomplicated way of looking at customer equity could be:

    Customer equity in any year = Number of new customers in + Number of existing customers – Number of churned customers.

This could be made a little more complicated by including revenues and costs:

   Customer equity in any year = ((number of new customers * average revenue of new customers) – (Acquisition costs)) + ((number of old customers * average revenue of old customers) – (Servicing costs)) – (number of customers churned * average revenue of churned customers).

There is one element missing in the above calculation – customers generated from positive word of mouth of existing customers, quite distinct from customers who come in through acquisition programs. In the above equation the “recommended customers” are included as part of acquisition. This is because more often than not, most organizations are unable to capture this information. However, if an organization knows if a newly acquired customer is thanks to sales efforts or thanks to the recommendation of an existing customer, then this aspect must be included in the above calculation. This brings more clarity to the business leaders.

The purpose is to make the customer metrics simple, yet insightful and allows the leadership to define the way forward.

When the organizations’ leadership starts to review these customer metrics (before discussing other metrics and issues) every month or quarter the message starts to flow through the organization about the importance of customer orientation.

The advantages of using customer metrics as described above are manifold. Here are some:

  1. The link to business outcomes is quite evident. More good customers coming in and less good customers going out means growth, more revenues and profits for the organization
  2. These metrics can be looked at segment wise, location wise, division wise, etc. This means that there is greater accountability amongst these units.
  3. It allows an organization to build reward and recognition programs around these metrics. This helps build a culture and also reinforce the culture around customer centricity.
  4. Focus on these metrics brings openness around the organization and is a leading indicator of future business outcomes. The organization focus is on improving these metrics.
  5. These metrics bring focus on customers who are not profitable/low revenues and attempts to either make them profitable or stop doing business with them. This frees up valuable resources for the organization to be deployed elsewhere.
  6. These metrics which have a real impact on the business brings some clarity around what levers will best improve profitability (bring new customers? reduce acquisition costs? improve retention? reduce servicing costs? improve referral rates and so on)

Several organizations use metrics built around surveys (such as a customer satisfaction index or loyalty index or the more popular NPS) rather than actual customer metrics as described above to reward their employees with incentives and bonus. This is possibly because these organizations either do not capture such customer metrics or more likely do not know how to collate this information on a regular basis. It is also likely that the organization has a production/brand mindset and not on a customer mindset. Surveys and Customer voice are best used to understand the customer and a) decide the kind of experiences to be created b) improve processes and systems to make customer experience more consistent and reliable c) identify and fix customer problems real time.

Surveys should not be the key customer metrics

There is no doubt that surveys metrics help improve experience and therefore customer retention. However using surveys as the key customer metrics in my opinion is not right and not good for an organization when linked with pay and bonuses. There are several reasons for this statement:

  1. Surveys reflect customer opinions and attitudes and not business outcomes. The insights from the survey’s must be used to drive customer metrics up but not replace customer metrics as the key items to be measured and managed.
  2. Surveys are prone to misuse, especially when large sums of money are involved. JD Power in his book, Customer Satisfaction talks about “managing the store and not the score”. This is absolutely true. Organizations focus on how to improve survey scores irrespective of the business outcomes. Also, skews in survey data can be generated by using biased customer databases, “buying” ratings through use of incentives and gifts, etc.
  3. Customer metrics is the “real thing” and reflects all the customers – new and existing, high value and low value, big and small etc. Surveys are carried out amongst a sample of customers and hence less reliable compared to actual customer metrics.
  4. The relationship between customer metrics and business outcomes such as revenues, profits, margins, market share etc are easier to establish and understand compared to the relationship between survey metrics and business outcomes.

The Leadership would find it very useful and insightful to discuss these customer metrics. They would want to know how to improve customer equity by improving the customer metrics. There are many ways to improve customer equity can be improved such as a) the sales team brings in high value customers with clear expectations into the organization b) the existing high value customers do not move out of the organization because of consistent and reliable experiences and in line with the promises made c) the experiences are delivered in a cost efficient way. Similarly good customers are acquired in efficient ways and d) the existing customers are encouraged to use more of the organizations products and services and at higher volumes and frequencies. Increased customer equity means increased profits for the organization. It must also be noted that the reverse is equally true. Customer equity will drop when poor quality and low value customers are acquired, high value customers churn and existing customers do not expand their relationship with the organization.