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Customer Pyramid

Customer Pyramid

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Published by: SONI_MAHESH on Dec 18, 2010
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Customer Pyramid: A Proven CRM Strategy

mThink Knowledge - Posted on 05 October 2004

Authored by: Jay Curry; PDF File: CRM5_wp_curry.pdf Customer Marketing International BV Customer marketing is a business method that uses process control techniques to measure,manage and improve customer performance and customer focus. Seventy percent of CRM projects fail to deliver positive results. The trade press and analysts have been repeating this fact for a number of years. But is it true? CRMGuru, a CRM portal, decided to find out. It commissioned a rigorous study of more than 600 CRM implementation projects and concluded that:
y y y

45 percent of the CRM implementation projects delivered a positive ROI; 20 percent of the CRM implementation projects were earning profits, with a full payback and ROI likely; and The remaining 35 percent of the CRM implementation projects were not likely to show any ROI largely because these failures were self-inflicted, with the companies not implementing what the study showed to be the critical success fa ctors of CRM.

And what were these critical success factors? There were four found to be statistically relevant: 1. The company must follow customer centric strategies, including the use of customer satisfaction data, tracking numbers of customers gained or lost and installation of voice of the customer programs. (This factor was clearly the most important.) 2. Intensive training and coaching of front-line managers and staff. 3. The ability to manage change. 4. Establishing measurable goals.

The internal customer focus factors are: y y Organization. the United Kingdom. and Customer satisfaction. When invited in 1989 to present a seminar on direct marketing to a high-level audience. and developing customers. manage. The ACUMAP project was successfully completed in June 1998. which was published in the Netherlands. Customer Marketing International B . Customer marketing is one of these strategies. I decided to resolve the issue completely. and improve customer performance and customer focus. based in Amsterdam. making. And I demonstrated the concept with customer pyramids and a simple 10-step action plan. funded project ACUMAP A Customer Marketing Pilot. t e choice of a CRM package made no difference. the process of finding. Since early in 2000. Japan and China. which resulted in a validated method to help companies implement and profit from what is now known as customer relationship management. For several years I had been confronted with a lot of confusion and negative attitudes about direct marketing among European CEOs. The Defi ition Of Customer Marketing Customer marketing is a business method that uses process control techni ues to measure. tools. Communications. Customer behavior. Customer Marketing. and . The Short Hi tory Of Customer Marketi I originated customer marketing in 1989 as an American direct marketing consultant based in Amsterdam. In 1997 the European Commission. The customer performance factors are: y y y Customer profitability. than The conclusion: C s must first develop customer centric programs as the highest priority when considering CRM for their companies. designed to validate the method and support the development of software. Highl publicized and heavil promoted packages did not gain any more R lesser-known competitors. Spain.Despite t e cl i s of CRM soft e suppliers. has brought to market the customer marketing method and tools. Italy. I elaborated the concept in my first book. Germany. keeping. Encouraged by the response of the audience. recognizing the innovative character of customer marketing. I declared that direct marketing was actually customer marketing. and training materials that could help European companies maintain a competitive advantage.

y Information. A third and important customer behavior factor is share of customer: the extent to which a customer meets his needs for the kinds of products or services by doing business with you. to a large extent. in the first place. determined by customer behavior. Customer Behavior While cost factors play an important role in the profitability of a customer. Positive customer behavior means. Hence the need to maximize customer profitability. Customer behavior is usually measured in terms of revenue either monetary or volume of product or services ordered over a period of time. It s as simple as that. Customer Satisfaction . that a customer is a customer he buys from you. customer value is. or the average length of time as measured in months or years that the average customer does business with you. The customer marketing method is represented graphically in a pyramid (see Figure 1). A second customer behavior parameter is customer lifetime. Let s look at this in more detail. as measured in profit per customer and customer lifetime value. The Customer Performance Factors Customer Value Operational profit is the result of deducting the losses from unprofitable customers from the profit generated from profitable customers.

The major goal of a customer satisfaction program should be to achieve preferred supplier status with as many customers as possible. have a customer care attitude. All things being equal. and userfriendly. and budget time and money for customer process improvement. Customer satisfaction is derived largely from the quality and reliability of your products and services. But customers who are just satisfied are likely to walk away for a slightly more attractive proposition from your competitor. media and messages are applied to each customer (segment). Customer information systems are effective. 2. Putting customer performance and customer focus together brings us to a CRM model. There are three primary and six secondary customer focus factors: Organization 1. There is clearly a direct correlation between customer focus and customer performance. Contact logistics: Customer communications are well planned. and work in teams with others who have customer contacts. But customer performance is predominantly determined by customer focus factors inside the company and has a major impact on customer performance. Employees possess the necessary customer care skills and experience. Managers are committed to customer focus. They will buy a lot from you and will give you a large share of their business. customer behavior. The most appropriate methods. if you can improve your customer focus. communications are interactive and stress customer benefits rather than product features. Communications 3. your customers will be very satisfied. you will improve customer performance. The Customer Focus Factors Customer performance customer value.Happy and satisfied customers behave in a positive manner. You make good on your explicit and implied promises. The model represents the idea that if your internal customer focus is strong. Customer data is relevant. set an example for themselves. and customer satisfaction is something that happens outside the company. flexible. on time. 6. Information 5. . and have no sloppiness in execution. 4. complete and up to date.

and satisfaction. giving you a large part of their business. customer satisfaction. communications. and satisfaction of your customers and prospects to identify problems and opportunities.And if your customers are very satisfied. There is a whole group of professionals out there measuring your profits the accountants. But if you can t measure the factors in the CRM model. communications. Customer focus planning: You make plans to make measurable improvements in your customer information. That s why process control techniques are also needed. Customer focus analysis: You analyze the current status of your customer information. Marketing. you can t manage them. often without any major marketing and sales effort or squeezing every cent off the price. logistics. and organization and identify priorities for improvement. behavior. revenues. But is anyone measuring customer profitability. and satisfaction. revenue and satisfaction targets for each customer (and prospect) that. will meet corporate goals for profitability. customer behavior. Customer focus registration: You undertake a customer focus audit or self-assessment of your customer information. communications and organization. behavior. Realization . and administration: Customer marketing is carried out on a continuing basis applying the four phases of process control: Registration y y Customer performance registration: You acquire or integrate from internal sources data on customer profitability. when realized. and organization. ) This positive customer behavior will lead to higher customer value and therefore more operational profit! It s quite a simple concept. Analysis y y Customer performance analysis: You analyze the profitability. sales. and customer focus so that they can be managed and improved? The answer all too often is: not really. ( Send me another thousand widgets and the invoice. Process Control Techniques Managing customer performance and customer focus is not really possible without measuring progress and results. and service must be subjected to the same process control techniques that are often used for production. they will behave very nicely. Planning y y Customer performance planning: You set top-down/bottom-up profitability.

It was thus possible to see that the increased turnover was the result of improved customer behavior: 27. .085) remained in their pyramid position. The pilot region was responsible for marketing and sales of telephone services to small and medium-size businesses.7 percent (2. Because the European Commission funded the pilot. leading to a sharp growth in profits. Customer Behavior All of the 7. Customer focus realization: You execute customer focus plans.1 percent (150) went down. in theory.y y Customer performance realization: You execute customer performance plans. But does it work in the real world? Telecom Company Case Study The customer marketing case study illustrated in Figure 2 was a pilot project at the regional office of a national telecom company. and 70 percent (5. traffic revenues in the pilot region increased by no less than 22 percent. Customer Value Despite the entrance of competition because of deregulation. You may well be thinking that customer marketing looks great.013) of the customers migrated up the pyramid. the results were closely followed and highly documented. only 2. But marketing costs remained about the same as the previous year.248 customers in the pilot region were identified and their behavior traced.

Customer Satisfaction The percentage of highly satisfied customers in the pilot region had doubled after one year of customer marketing. The pilot region scored substantially higher than the national company. .

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