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Understanding Your Best and Your Worst Customers

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As Covid-19 declined, a European multichannel retailer observed a decline in its online revenues, which caused alarm. But then they looked at the data a different way, focusing on transactions by individual customers. When they sliced the data in this manner, they realised that their customer base was actually healthy, but that their channel behaviour had shifted: Online purchasing, which had become unnaturally accelerated during the pandemic, was now returning to a more normal pattern of online and offline purchasing.

A European multi-brand underwear retailer was a major reseller of La Perla, a premium Italian lingerie brand. A new merchandising leader undertook a review of brand profitability and saw that the company was actually losing money on its La Perla sales. The brand had relatively low margins, a high return rate, and required expensive photography costs to capture its products’ elegance online. The company debated whether it was worth carrying a brand that consistently created losses. However, when they looked at La Perla through the lens of the customer, they reached a completely different conclusion. La Perla was often the first brand purchased by their most valuable customers, who went on to purchase a wide variety of more profitable products. Instead of cutting ties with La Perla due to its lack of profits, the retailer ended up expanding their range of La Perla offerings — and this became a critical driver of its growth.

What do these two examples have in common? Companies often look at their business by focusing on geographic regions, specific brands or products, or by sales channel. This makes sense, because this data is always at hand, and organisations are often structured around geography or channels. But by looking at data and business problems from a frame of reference in which the customer is the atomic unit for analysing revenue and profitability, these firms were able to gain a new perspective on the problem they were facing, either properly diagnosing the problem or stopping themselves from making a bad decision.

As you analyse your firm’s revenues and profits, or as you make plans for the future, what’s your unit of analysis?

At too many firms, analysing the data of individual customers gets short shrift. Management reporting systems make it easier to focus on other things, and the organisational structure can make other metrics a priority. (If you have a person in charge of online sales, it feels natural to judge his or her performance by channel metrics.) This lack of focus on individual customer data is often a mistake. Revenues are generated by customers pulling out their wallets and paying for your products and services. Revenue is the sum of the value of all the customer transactions that occurred in a given time period.

Many firms recognise the need to think differently about using customer data, but they do not know where to start. They are often trapped in an old-fashioned view of their business, structured around products or channels. How do you approach the task of getting your people to shift their perspective and start thinking about your firm’s performance using the customer as the atomic unit of revenue and profitability?

We have found that performing a customer-base audit is a fundamental catalyst for change.

What is a Customer-Base Audit?

A customer-base audit is a systematic review of the buying behaviour of a firm’s customers using data captured by its transaction systems. The objective is to provide an understanding of how customers differ in their buying behaviour and how their buying behaviour evolves over time.

  • We are not talking about “knowing the customer” through the lens of traditional market research. We are not interested in the demographic profile of our customers. We are not interested in their attitudes. We are interested in understanding their actual buying behaviour.
  • It is an unashamedly descriptive and diagnostic exercise. It doesnot involve any forecasting models, AI/ML methods, or prescriptive advice. Rather, it lays the foundation to perform these kinds of tasks more effectively after the audit has been completed.

The starting point is a list of transactions for each customer (date, time, products purchased, total spend, etc.). This will reside somewhere in your company’s operational IT system.

Traditional reports will summarise performance by product. Think of an Excel worksheet where the rows correspond to individual products and the columns correspond to time (e.g., quarter).

Now, imagine an alternative summary table — again, think of an Excel worksheet — where the rows now correspond to individual customers and the columns correspond to time (e.g., quarter). The entries in the table report each customer’s total spend with the firm in that particular time period. Another table tells us how many transactions each customer made with the firm. (For most firms, these tables will contain lots of zeros.) If you’re lucky, you’ll also have an equivalent table that summarizes the profit associated with each customer in each period.

How do we approach the task of gaining insight from such a customer-level summary? As we reflect on the various questions that are asked when leaders seriously engage with the idea of understanding the performance and health of their business using the customer as the atomic unit of revenue and profitability, five broad themes appear, which we call the five lenses of a customer-base audit.

Who are our Best and Worst Customers?

If we reflect on a single vertical slice of the table, say the columns associated with last year, the following types of questions come to mind. How many customers did we have last year? How do these customers differ in terms of their value to the firm? For example, how many customers purchased from us just once last year? How many customers accounted for half of our revenue last year? Half of our profit? If we compare, say, the 10% most profitable customers to the 10% least profitable, what lies behind these differences? To what extent are they driven by differences in the number of transactions, the average value per transaction, and average margin per transaction? Digging deeper, what about differences in the types of products they purchased?

The set of simple analyses that explore how different our customers are from each other lead to a fundamental conclusion: customers are not equal. Most people underestimate just how unevenly revenue and profit are distributed across customers.

How is Customer Behaviour Changing?

If we reflect on two adjacent vertical slices of the table, say the columns associated with last year and the year before, the following types of questions come to mind. How many customers purchased from us in both years? How does their behaviour and profitability differ from those that purchased from us in just one of the two years? How stable is customer behaviour? What proportion of our “top” customers in one year remain as “top” customers the next? What lies behind the observed changes in customer-level profitability? To what extent are they driven by changes in the number of transactions (average order frequency), the average value per transaction, and average margin per transaction?

The analyses that answer these questions help identify the changes in buyer behaviour from one period to the next and show that period-on-period variances can be explained by changes in individual customers’ average order frequency and value.

How Does a Cohort of Customers Change Over Time?

Suppose we reflect on a horizontal slice of the table. In other words, we reflect on the behaviour of a cohort of customers, starting from their first-ever transaction with the firm. (A customer cohort is defined as the set of customers acquired in the same time period, e.g., those customers who made their first purchase in January, or the second quarter of the year.) Questions that arise include how many customers appear to be “one and done”? Of those that make a second purchase, how long does it take them to do so? What is the nature of the decay in customer activity? For those cohort members that remain active over time, how does their transaction frequency, average spend per transaction, and average margin evolve over time?

The analyses that answer these questions are central to getting the firm to think about the cohort as a key unit of analysis when seeking to understand revenue and profit dynamics. A common conclusion is that the revenue for each cohort decays over time and recognizing the nature of this decay is critical for understanding long-term growth.

How Do Different Cohorts Behave Differently?

Having looked at one cohort, it is natural to look at another cohort and start questioning how and why the cohorts differ. Looking beyond a superficial comparison in terms of overall revenue or profitability, the curious manager will ask questions that seek to understand the differences in terms of cohort size, how they differ in the evolution of the percentage of cohort members that remain active over time, how they differ in terms of the evolution of spend per transaction, and so on.

Putting It All Together

The fifth and final lens sees us stepping back and considering the whole customer × time worksheet (described above), integrating the types of analyses introduced via lenses 1–4 to gain an overall customer-centric view of firm performance. The types of questions answered include

  • How “healthy” is our customer base? How reliant are we on a small group of customers? How has the “quality” of our customers changed over time? How do our “newer” customers compare to our “older” customers in terms of their behaviour? Are the differences good or bad?
  • What level of business can we expect from our current customers over the next year or two? In light of this, how realistic are our growth objectives / business plans in terms of the expectations they place on customer acquisition, retention, etc.

Conclusion

Much like Copernicus changed the way people thought about the earth’s place in the universe, we have observed that taking a view of the firm’s performance using the customer as the unit of analysis can have a similarly profound impact on the way the firm thinks about assessing performance and planning for growth. This results in a mindset shift for organizations to move from talking about “what makes us money” to “who makes us money.”

We expect that some people, lurking in various parts of your organization, are conducting ad-hoc analyses that can provide the answers to some of the questions posed above. But it is rare to find the analyses being pulled together in one place, let alone making their way to senior management and the CEO.

Yet without a solid understanding of the buying behaviour of your customers, including an appreciation of how they differ in their value to the firm and a solid understanding of how their behaviour is evolving over time, how can you be expected to ask the right questions and make informed decisions?

The customer-base audit provides this foundation for any executive wanting to gain an understanding of the health of their organisation’s revenue and profit streams and the feasibility of their growth plans.

Given our current situation knowing that your colleagues or employees are best suited for this new scenario we find ourselves in. Finding the right talent, the best fit for the job and your organisation can be a very challenging task. It is now important to find out whether your managers or your team is well-equipped of working together from various locations. It requires deep knowledge of their personalities, strengths, weaknesses, interests, work style and other characteristics. Our technology and solutions will do the work for you, helping you discover if your people are resilient during times of hardship, if they are autonomous, if they are team players, without actual human contact. Given that our platform is cloud-based, everyone can use it from home as well. Humanity finds itself at a crossroad for various reasons now, why not help people discover and develop themselves from the comfort of their own homes?

Request a free demo:

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Sources:

https://www.entrepreneur.com/leadership/5-good-reasons-to-fire-your-worst-customers/281680
https://www.merkle.com/blog/good-customers-vs-bad-customers-how-you-can-tell-them-apart-and-get-better-it
https://www.mindtools.com/arys2mu/dealing-with-unhappy-customers

Have Remote Employees Lost Touch with Customers’ Needs?

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Before companies went remote or hybrid, non-sales employees usually had some minimal interaction with customers. However, as time moved on, teams with no customer interaction started to lose their connection to them. Losing sight of customers means internal teams are more likely to double down on their own agendas, putting the organisation at risk of being out-innovated and eventually becoming irrelevant (in the long term). There are ways in which leaders can bring customers “back to life” for teams who don’t interact with them.

After months of successfully working from home, the finance, HR, and legal teams of a mid-sized bank decided that they were going to adopt a hybrid model, permanently. Covid-induced remote work had proven that physical presence wasn’t a requirement for productivity.

Some employees elected to be 100% remote, others came in a few days a week, and those who wanted to work in the office were given safe spaces to do so. It all seemed fine at first; productivity stayed high. Yet after several months, they began to realise that something was missing from their daily conversations — or rather someone. One operations leader put her finger on it when she said, “We used to start meetings talking about customers. Now we hardly mention them at all.”

While much has been written about the need to keep teams connected to each other in a virtual environment, losing your organisational edge in regards to the customer is more dangerous.

In many of our clients, we have observed the following: Before their companies went remote or hybrid, most employees throughout the organisation had some sight line to customers. Even if they didn’t interface with them directly, they had regular conversations with customer-facing teammates, and when the organisation talked about “customers,” everyone was clear on who they were and what they needed. And when the pandemic hit, people rallied. The top priority was keeping the business afloat, so teams leaned into taking care of customers.

However, as time marched on, non-customer-facing teams started to lose their connection to customers. The hallway conversations stopped. They didn’t run into a sales rep in the elevator or sit next to a customer success agent in the cafeteria.

In this environment, even the most well-intended remote employees can forget that customers are their organization’s lifeblood. Internal teams are more likely to double down on their own metrics and agendas. In the short term, this puts the organization at risk for silos. In the long term, an organization without a clear sight line to customers is at risk of being out-innovated and eventually becoming irrelevant. One need look no further than Sears, Blockbuster or Monster.com to see what happens when an organization loses their tether to customers.

It doesn’t have to be this way.

When leaders are intentional about bringing customers to life for internal teams it creates an emotional (and practical) connection. It infuses the why of the business into the organizational groundwater. This has been proven to result in greater engagement, which creates bolder innovation, resulting in faster, more lasting growth.

Here are three ways leaders can bring your customers to life for teams who don’t interact with them.

1. Talk about specific customers (instead of the aggregate “customers”)

Ask yourself, which is more engaging: “Customers are counting on us!” or “Ken’s Plumbing Supply is counting on us to fill this order. Without it, he won’t be able to keep his team on schedule.”

Specificity matters. Instead of discussing customers in the aggregate, share details about individual customers to make them more real. Without this, remote employees will more likely see customers as abstract numbers on a page, rather than real-life human beings.

To build this tangible connection, we recommend leaders have regular conversations with customers, asking customers not just about what they bought, but about how what they bought is impacting their life and/or business.

Then, leaders should share what they’ve learned about specific customers (who they are, what they do, their daily challenges, etc) with all non-customer-facing remote employees. Telling an IT, or Finance, or HR team how a specific customer improved their life or business as a result of the organization’s offering infuses a purpose-driven ethos into the organization. Stories about specific customers are more memorable and repeatable than a generic value proposition.

2. Ask “How will this impact our customers?” during decision-making

Even if the decision seems like it has nothing to do with customers, putting a customer-oriented lens on decision-making enables teams to think more holistically and deeply consider the potential impact of their choices.

We recently worked with a team from a financial services firm charged with improving the cash flow of the organization. The organization had some long-standing process hiccups that were only made worse when the team shifted to working remotely.

The team met and quickly came to a decision: to require vendors to agree to 60-day payment terms in advance of working for the organization. At first blush, the decision seemed sound. Cashflow would improve and customers wouldn’t even know … or would they?

When the team asked, “What impact will this have on customers?” they realized some fatal flaws in the plan. For example: The organization had just partnered with an IT vendor who was supporting them through major internal system changes. A big part of the project was training all the teammates, some of whom are customer-facing, on the updated system.

If it took the vendor 60 days to get paid, the vendor would be required to fund staff while still waiting on payment. As result, the vendor would likely not allocate their best trainers to the project, meaning their teams wouldn’t have top-notch support and training to do their jobs. And an under-supported and undertrained team can’t support customers effectively. The team soon realized that their policy, which at first seemed unrelated to customers, could ultimately end up doing damage to customer relationships.

The ensuing conversation — which was challenging and took a while — resulted in a breakthrough. The team created a system to help vendors get paid over time, as they complete the work. This helped fend off major cashflow spikes, it made sure vendor relationships stood solid, and it enabled the organization to keep delivering for customers.

When non-customer-facing teams assess decisions and projects asking, “How will this impact customers?” it changes the frame. This simple question can be asked of any project or decision. In our experience, when internal teams make a regular practice of asking this question, the resulting priorities and projects are better aligned to improve the organization’s market position.

3. Include non-customer-facing teammates in customer meetings

When it comes to bringing customers to life, nothing is more powerful than meeting with a real, live, breathing human. One of our clients, a building supplier, began inviting one backstage team leader to each annual customer business review. When leaders like the head of supply chain, the HR manager, and the safety lead got the opportunity to meet with actual customers, even virtually, it shifted their perspective. They understood in a real and visceral way who the organization serves.

After seeing the impact, which ranged from increasing empathy for customers to actual policy shifts, the senior leaders of the organization went one step further. They made it part of each leadership role (no matter what functional area they led) to attend two or three customer meetings a year. Their only job was to listen.

After joining the customer meetings, the department leaders then briefed their teams on what they learned about the customers’ business goals and needs. This helped everyone see their customers more vividly.  After hearing the head of finance describe her meetings with several customers, one staff accountant said, “These customers used to be just numbers, now I see they’re businesses with their own hopes and dreams.”

In a world where customers have more choices than ever, it’s crucial that leaders help all employees understand who your customers are and how you serve them. Bringing customers to life for backstage teams does not have to be difficult, but it does require effort. Using these three techniques will ensure that everyone in your organization has a direct line of sight to the people who actually drive your business, your customers.

Given our current situation knowing that your colleagues or employees are best suited for this new scenario we find ourselves in. Finding the right talent, the best fit for the job and your organisation can be a very challenging task. It is now important to find out whether your managers or your team is well-equipped of working together from various locations. It requires deep knowledge of their personalities, strengths, weaknesses, interests, work style and other characteristics. Our technology and solutions will do the work for you, helping you discover if your people are resilient during times of hardship, if they are autonomous, if they are team players, without actual human contact. Given that our platform is cloud-based, everyone can use it from home as well. Humanity finds itself at a crossroad for various reasons now, why not help people discover and develop themselves from the comfort of their own homes?

Request a free demo:

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Sources:

https://hbr.org/2021/02/financial-targets-dont-motivate-employees
https://www.forbes.com/sites/forbesbusinesscouncil/2021/07/22/5-common-problems-plaguing-remote-workers-and-what-to-do-about-them/
https://www.pwc.com/us/en/industries/consumer-markets/library/prioritizing-customers-in-hybrid-work-environment.html

Customer Experience: Are Companies Meeting their Customers’ Expectations?

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In a new study done by Walker Info has revealed that by the year 2020, customer experience will become the most important brand differentiator overtaking price and product.

In the not so distant past, people had to actually pick up the phone and call customer service in order to speak with someone from support, but that times have changed drastically. Nowadays, we are constantly exposed to numerous advertisements and messages from various brands, leading up to near-instant gratification. Think about all the banners and messages you see during 11-12 hours of screen time per day. It comes as no surprise that advancements in customer service have become the most essential thing a company must do survive and evolve. In the aforementioned study done by Walker Info, it has been stated that customer experience is going to to make or break sales more than price and product.

Most companies are focusing their efforts into making everything more and more efficient. However, this need for efficiency can put in danger good customer service.

No customer is the same to another, thus, it is imperative for companies to realise this and be prepared to respond differently to distinct customer behaviours and personalities. Having a good prosperous business means that achieving a high level of effectiveness isn’t achieved by doing less in other areas of the company. Delivering the right customer service to clients should remain the key focus.

With this in mind, every company has to ask itself questions about what optimal customer experience means for them.

In a recent study done by Capgemini shows that 81% of consumers are inclined to spend more for a company that has exceptional customer experience, with more than 9% of consumers willing to spend by more than half to have access to such a positive experience.

So the question now is, what do customers want?

In a 2018 study done by Salesforce CX, 80% of people interviewed have said that the experience the company offers is as important as what they are selling, whilst 75% of people have stated that it’s much easier than ever to change the company they are doing business with. Here lie a warning and an opportunity. Given the fact that customers are very open-minded in discussing with more and more businesses and they are more than happy to switch and/or replace brands, customer experience is the focal point that will sway them one way or another.

How can businesses be sure that it is worth investing in customer experience? The proof to this question has been revealed through a study done by Forrester and Adobe, which clearly states that experience-driven companies can forecast a 60 to 90% increase in growth year-over-year in comparison with companies who do not thrive to have a higher level of customer retention and repeat purchases.

At the same time, Harvard Business Review has unravelled the fact that even a small increase of 5% in customer retention can potentially lead to a 95% increase in profits.

No matter what product or service a company offers, people will always expect a decent level of customer service. Even companies that have switched to 100% automated services are expected to have a real live person to offer assistance if required.

 

Let us look into EasyJet. The airline company never promised an exceptional customer service experience but that does not mean that is should be practically non-existent. EasyJet has almost managed to negatively impact the first windpipe transplant due to their refusal of allowing the courier to board the plane.

For sure, EasyJet has internal procedures that allow some exceptions, or at least have their staff trained for such situations and could have dealt with the courier’s request. The story has a happy ending, because of someone with a private jet agreed to transport the courier in the 14-our timeframe that was required for the windpipe to be safely used in an operation. However, it must be pointed out that given the seriousness of the item carried that person would have booked a different airline. This case itself simply proves the point that most customers make choices based on their own expectations.

The larger the organisation, the more field there is for discord between expectations and delivery. People expect very little in return for lower prices, but others with a stronger brand reputation cannot afford to make the same assumptions – simply imagine the impact it would have had if the courier had this experience on a British Airways flight.

Coordinating messages across the organisation is quintessential to producing a successful and sustainable customer experience. Get it right and the company will have business that is both sustainable and extremely profitable given the fact that it will be supported by an incredibly loyal customer base.

There is a real value in providing companies with the tools to carry out regular organisational assessments and this is where Great People Inside comes to your aid. Our online platform offers the best solutions and tools for your company to thrive in every type of industry and any possible situation your organisation may find itself. In terms of lowering your employee turnover rates, we recommend our GR8 Full Spectrum assessment for hiring and 360° Survey for retention. Finding the right talent, the best fit for the job and your organisation can be a very challenging task. It requires deep knowledge of your own organisation’s culture and a keen understanding of the candidate’s personality, strengths, interests, work style and other characteristics. Our technology and solutions will do the work for you, helping you find employees who can flourish and reach the highest performance required to constantly bring your company forward.

Request a free demo:

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Sources:

https://www.marketingdonut.co.uk/customer-care/customer-service/the-importance-of-exceeding-customer-expectations

https://www.zingle.me/how-to-exceed-customer-expectations-in-the-mobile-era/

https://www.entrepreneur.com/article/336926