COLUMN - Customer Relationships
Customer
Relationship Management:
What it is and What it's not - Part Two
Changing the Soft Science of
Relationships
Welcome to the second article in a
series on CRM for non-profits. What should you know about
CRM? And is it a panacea for your association? We'll be
exploring these two topics in six articles over the next
year. I welcome your comments at
paul@pkward.com as we go along.
The key to good customer relationship
management is to re-think your organization completely, in
all its strategies, tactics, processes and interactions,
so that the “customer” is in charge. This kind of
on-demand model is really nothing new: When I began
writing business plans twenty years ago, the most
clarifying part of the process was defining the “user
benefit” – in other words, being really specific about
what the customer is going to get from me.
Even though this idea is not new, the
customer-centric organization has never been more
important. In the past, you could be guilty of any of
these sins and be forgiven:
-
Thinking of your members in terms of
what they buy from you
-
Promoting products and meetings
prominently at the top of your web site
-
Talking a lot about your mission, your
staff, your Board members and your history
-
Shipping products from third-party
suppliers who don’t give you reliable tracking
information
-
Raising dues as a result of rising
expenses
You can’t get away with these faux pas
anymore. That’s because the customer is at the center of
everything. And we’re not just talking about members. Your
customers include a long list of other folks, too. But
we’re getting ahead of ourselves – that’s the topic for
our next article.
Loyalty Ain’t What it Used to Be
Back in the good old days, any
organization could build a brand by coming up with a
catchy slogan, a nice logo and some products and services.
Advertising and promotion was a top-down affair, driven by
marketing departments and made real in the form of print
ads, direct mail, flyers, buttons, banners and so on. And
it used to work pretty well. Which means, in business
talk, that the metrics gave you a way of predicting
outcomes based on what you spent.
No more.
The reason is subtle but profound. It’s
affecting every part of the world’s economy. And it
explains why so many associations are losing members.
The reason? It costs very little for
individuals to find alternatives to what you have to
offer. With the click of a mouse, someone can use a search
engine to find a competing association. If they’re
offering similar products and services at a lower price,
or better products and services at a good value, you’re at
risk. Switching is simple, and the decision process is
almost as simple: People ask whether they’re getting a
good value.
Let’s call this reason the Switch Factor.
It explains why you have to re-think your organization’s
behaviors, technology and metrics. It explains why you may
have been losing members. It explains why it’s harder to
prospect.
The Double Bottom-Line: Is the End
Near?
Non-profits have two kinds of value.
First, they offer products (publications,
for example) and services (annual meetings, list serves,
and so on). These have a price. If the perceived quality
of these offerings, divided by price, is high, you have
what’s called a high perceived customer value (PCV). If
your PCV is higher than anyone else, you’re probably going
to find it easier to prospect, and people won’t tend to
quit your association.
You’ll note that, in business talk, you’ve
now got a metric (PCV) that may give you a way of
predicting outcomes based on what you spend. In the best
case, you can use PCV to improve the total customer
lifetime value (CLV) of your members. That’s sounds good,
doesn’t it?
Set aside PCV for a moment. In fact, set
aside the value of all of your products and services.
After all, any organization can duplicate what you do,
given enough time and money.
But can they duplicate who you are?
Your association has an overall “value
proposition” that’s related to your mission and to the
intrinsic integrity of your staff and their behaviors.
This is part of your brand equity that’s separate from
your products and services. You can measure your success
not only by how well you sell products and services to
keep the lights on, but by how well you provide a sense to
members that they belong to an organization that has
softer values.
That is what has been called the Double
Bottom-Line. It’s a measure of your value and your
values.
But the Switch Factor is going to change
the Double Bottom-Line: Your prospects, members and
customers won’t stay with you only because of your values.
The shift in the marketplace towards the customer and away
from the organization – the shift towards a business
environment where the power is in the hands of the
individual – makes your work harder.
It’s not that your members and prospects
fail to care anymore about your values. It’s simply that
they’re more willing and able to find alternative sources
for your key products and services, at zero cost. The
Internet made it impossible for Nike to hide from its
exploitation of women and girls in sweatshop conditions
also makes it impossible for perfectly ethical
organizations such as non-profits to hide from their lack
of customer-oriented products and services.
Measuring and Cutting
Customer Relationship Management hit the
streets with force four years ago. Your organization
engages in CRM principles when it creates processes that
measure and improve the quality of relationships you have
with customers (and prospects). This is made simpler by
creating enterprise-wide data systems that track customer
and prospect interactions with you, including e-mails,
phone calls, purchases, returns, and so on. In fact, CRM
done properly extends beyond what you might think of as
your enterprise. If your association uses vendors and
partners to create content, products or services, a true
“extended enterprise” CRM system will ensure that these
vendors and partners measure and improve the quality of
their interactions with your customers and prospects.
One key feature of CRM has been to support
reporting customer data to decision-makers (sometimes in
real-time, such as in call centers). Customer data is thus
built from a “single view” of the customer. This can
include analytics – data derived from transaction data –
that can help decision-makers determine appropriate levels
of service. For example, many CRM systems monitor the
recency, frequency and amounts of a customer’s purchases.
Such measures (the so-called RFM metric) are thought to
correlate to future buying patterns, and perhaps to member
or customer loyalty as well.
Another example of analytics can be the
total revenue a member brings in less the cost of
servicing that member. When the cost of servicing a
member/customer exceeds the revenue, CRM folks call that
member/customer a “below zero” (BZ). Looking at this kind
of metric can help your association build service and
support systems that won’t bleed you dry.
Should you “fire” members that cost you
more to service than they bring in? It’s certainly a
popular mantra in the CRM industry that companies should
consider “firing” their BZ customers.
You’ll have to decide for yourself. But
even if you decide that BZ’s are still important to your
association, or if you’re concerned that being too
“exclusive” will alienate other members, you should take a
hard look at creating member service systems that scale
according to the value a member provides you.
The flip side of this coin, which is
hardly ever discussed in CRM circles, is that member
service can be greatly improved for your most worthy
members. By shifting resources to attend to the needs of
these most valuable folks, you may be able to increase
your revenues, build loyalty, create strong word-of-mouth,
and energize your membership. You may even be able to
enlist these members to help mentor and invigorate your
BZ’s.
Make Your Value Visible
It’s critical to CRM that well-tuned
internal systems support your efforts.
Association Management Systems are moving
in the right direction, but many – even those based on
products such as Microsoft’s formidable MS-CRM – still
focus on improving internal systems with very little
measurable benefit to customers. Microsoft, in fact, led
with two key applications of CRM: Sales force automation,
which tracked which bids and agreements related to a
customer; and call center support, which tracked phone and
email interactions with customers after a sale. In theory,
then, a company with a sales force could track a customer
from cradle to grave – the Holy Grail of CRM.
But that’s a corporate-centric vision.
Essentially creating a single customer view that provides
no unique, differentiating improvement over other call
center or sales force automation tools, MS-CRM out of the
gate missed one of the critical aspects of CRM. Let’s call
it the “single enterprise view”. Customers should have a
single, unified experience of an enterprise. That’s not to
say that the enterprise shouldn’t customize its
interactions. It should. Think of Amazon.com’s ability to
offer music and books suited to your tastes. But Amazon’s
value proposition is that it makes online purchases
simple, transparent and high-value. No matter how much
Amazon customizes your experience, it always gives you
that kind of value.
It’s this kind of “single enterprise view”
that most AMS systems omit. They don’t support building a
brand because they almost never ask the question: How do
we model member and prospect interactions with an
association so that its value proposition emerges
naturally from these interactions? When the American
Hardwood Export Council re-vamped its web site with Rock
Creek Creative, Rock Creek added an automated system for
hardwood buyers to find hardwood producers. Simple,
effective, transparent value. Such a simple system raised
the profile and customer satisfaction levels of the
American Hardwood Export Council’s brand in a few short
months.
In fact, if you think about how plain
Amazon.com’s logo is, and how cluttered their pages are,
you begin to realize that the power of Amazon.com’s brand
is so great that we overlook elements that normally are
associated with the term “brand”. The power brand is just
as much about setting and exceeding expectations in each
interaction as it is about a nice looking logo and catchy
tag line.
In short, once you realize that the Switch
Factor is in play, you’ll realize that you must completely
re-think all the interactions you have with members and
prospects and then build systems that help you create that
power brand.
Loyalty
What makes a member loyal? Ultimately it
comes down to two critical factors. How much do they spend
with you and how often they refer other people to you.
Loyalty as a feeling is important, of course, but
associations must ultimately manage from facts, and you
can measure what people spend and how often they refer
other people to you. Let’s call that blended number
“loyalty”.
In the new customer-driven economy, what
will inspire a member to buy from you (or just keep their
membership current), or to refer others to you, or both?
Their inspiration is increasingly based on
their perception of your value. We noted above that if you
know what your members and prospects value about you, in
what order, and with what weighting, you can create an
index – a number – that helps you manage your products,
services, budgets and staffing much more rationally.
I’m now suggesting that perceived customer
value (PCV) will also be what creates loyalty, once you
define loyalty as we did above.
This is bold and new, incidentally. If you
pick up Reichheld’s great book, The Loyalty Effect, you’ll
be hard-pressed to find much of anything about the cause
of loyalty. It’s great to know that the effect of loyalty
is greater revenues, lower cost of sales and increased
total lifetime customer value. But that’s an effect, and
as an association executive you’ll be more interested in
the cause of loyalty. Now you know what it is.
The Black Hole for Loyalty
Now that we’ve established that the
economy is increasingly customer-driven, that values by
themselves are not enough to maintain members or convert
prospects, and that loyalty is really a product of
perceived customer value, we ask the following tough
question:
How do you prove in your association’s
interactions that you understand this?
Look at your web site. How much of the
menu is devoted to information about you, your products
and services? Look at your e-mail newsletters. Have you
written them with members and prospects in mind? How about
your trade shows, your journals?
If you’re member and prospect interactions
aren’t intensely customer-centric, you’re not building a
power brand. You’re not building trust. You’re relying on
old thinking puts you first and your members and prospects
second.
And when you consider that most
associations offer content and networking, you have to ask
yourself: In this world of Google and blogs, who needs
associations who just blather on about themselves on their
websites and in their e-mails?
The black hole for loyalty, down which you
will lose member and prospects, is precisely any
interaction you have that isn’t centered on the customer.
When you don’t know your customers’ needs, it shows.
And customers expect more. They’re
comparing you to Amazon.com whether you like it or not.
Chunking the Market
What can you do about this?
Start with understanding your customers
using a perceived customer value study. This is not just
another survey. After all, it requires that you survey
your prospects, and the vast majority of associations I
deal with have never surveyed their prospects. Plus, the
PCV study requires that you get weightings for each
preferred product, service or attribute. This is done even
more rarely.
The good news is that PCV studies are not
hard to do; that your competitors probably don’t have this
data; and that you’ll see the benefits in the first year.
A colleague of ours turned a packaging company’s market
position from worst to first in eighteen months using PCV
methods.
One critical question to ask as you create
a PCV study: How will you determine the segments into
which your markets fall? The answer is simple to state,
but difficult for most organizations: Name your market
segments using terms your markets will understand. One
client of ours caters to sociologists. Under questioning,
they further divided these into academics, students and
professionals. But this isn’t enough. Academics may think
of themselves as teaching academics, research academics,
new faculty members, thought-leaders, writers, and so on.
You can break down students and professionals into as many
groups. Once you define these segments, you have a better
chance of looking for meaningful correlations between a
segment and their weighted list of preferred services and
products.
Once you have PCV data for your segments,
you should ask the question: Which of these segments are
most important to us? You can answer that question
primarily either in terms of the revenue they bring you
now, or the revenue you’d like them to bring you in the
future. Our client viewed every single major segment of
sociologists as important as the others. It’s unlikely
that each segment generates the same revenue for the
association, so it’s plain that this association will
spend more money relative to revenue on some segments.
This flies in the face of the basic CRM principle:
Preserve your service cash for your best customers so you
can build more loyalty, revenues and long-term stability.
Finally, you have data (PCV indices) for
each segment. Use this data to create a web experience
that provides proportionately more screen space, content,
products and services to your most valued offerings. In
short, make sure your staffing, budget, processes and web
site line up with a value creation strategy. Use this data
to drive your publications, your trade show, your list
serve topics, your e-mail newsletters. When every
interaction shows your value, visibly and proportionately
to a segment’s needs, you are building loyalty.
Unifying the Experience
Designers, not business people, create
most branding projects. Until recently, that’s been a
great thing. But now, in the customer eco-system that is
our economy, a brand isn’t just beautiful, clever or
mission-based. A brand must capture the promise of your
processes. If your association provides professional
development, your brand will have to promise you’ll
develop members professionally, and then your processes
must deliver on that promise. A brand, then, starts with
an explicit or implied value proposition. The graphics and
taglines are just part of branding.
But if you have multiple member and
prospect segments, how can you build a unified brand? If
you’re providing unique value to each segment – or even to
each person – won’t everyone see you as a somewhat
different company?
Yes and no.
Think of IBM. In fact, visit their web
site. Are they a computer company? If so, for end-users or
for big companies? Or are they a consulting company? Yes
to all.
If you look at the IBM site, you’ll see
that they have different regions for each of their brands.
I’ll bet the variation in the size of these regions is
directly proportional to the income they receive from what
they offer in these regions. Check it out.
And while you’re looking at IBM’s site,
glance at the left menu. Notice all the market segments?
Not only will a prospect or customer instantly be able to
identify where to go, IBM can track how many hits they get
in each segment’s area. That’s a metric they can take to
the bank.
But what unifies the experience? IBM’s
logo, it’s reputation as Big Blue, its appeal to quality
and to end-users – all these combine to create a unified
brand. You don’t need a tagline to understand that IBM
wants to make it easy for your to do business with them,
whatever the level of your current need.
Next Time
Believe it or not, some of your prospects
may already be your customers. If a prospect knows about
you at all, you have a chance to exchange value with a
prospect – even before they buy something from you, or
join your association. These are your “almost customers”.
How can you use CRM principles to identify these “almost
customers” and convert them? We’ll find out next time.
We’ll also list other “customers” of yours. You’ll be
surprised who they are – and how well you can apply CRM
principles to make them happy. And when your customers and
members are happy, your association is stronger.
 Paul
K. Ward is a CRM, Branding and Customer Value
Consultant www.Pkward.com.
Paul regularly meets with top Washington-area
executives to discuss business best practices, and has
recently inaugurated an advisory group for the American
Society of Association Executives to assist in creating
ASAE member value. He writes for ASAE Global Link,
ASAE Association Management and Canada's The
Canadian Association.
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