Latest Updates: customer acquisition costs RSS

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  Esteban Kolsky 05:29:00 am on February 25, 2009 | 4 | # |
  Tags: CRM, customer acquisition, customer acquisition costs, customer loyalty, efm, enterprise feedback management, loyalty, net promoter score, NPS, Voice of the Customer

  Actions Speak Louder Than Words in Customer Loyalty

  Let me ask you a question: would you recommend me to your friends and family?  Yes, that question… the “L” question.  If you say YES, then you are loyal.  If you say NO, then you are not.  That is an abusive oversimplification of a very, very complex topic – but one that we are able to make mostly because we don’t really understand Loyalty and we do think that everything in this world should be measured.  That question (and its twin sister, “would you use the service or product again?”) supposedly measure loyalty.  Why, there is an entire methodology (NPS or Net Promoter Score) devoted to the study of the answer of those questions.

  Alas, if you have my previous entry on loyalty you know that I think that Loyalty is so badly used in organizations that it is useless.  Thus, asking those questions will not yield any insight into the loyalty of your customers, rather yield some insight into your customers’ ability to answer questions one way – and act a different one.  I have not yet seen any proven correlation between answering those questions and being loyal (sorry Fred).

  Now, let me turn the concept a little bit on its side.  Let’s say for the sake of argument you could measure loyalty.  Let’s say that you want to make sure that your customers would indeed recommend you to their friends and family, or even use the product or service again.  Would you really take their word at face value? or would you rather have some proof, some evidence that they will act as they say they will?  Yeah, thought so.

  Here is the simple way to save yourself the money and not buy into the NPS hype and methodology.  Don’t believe your customers’ words, believe their actions.  Implement frequent shopper or user programs, adopt a referral program – and then see the value of your customers’ actions replace the empty words.  Reward your customers for using you frequently (remember, it costs ten times or more to get a new customer as it does to retain an existing one – use those savings for good).  Pay them, and their friends, for referring new people into your service or organizations.  Make it worth their time to be loyal – and they will.

  What do you think? Take their words or their actions? Have you done this? Want to talk more about it? Leave me some comments or email me.
   

• Esteban Kolsky 08:12:24 pm on November 20, 2008 | 0 | # |
  Tags: CEM, CRM, customer acquisition, customer acquisition costs, customer experience management, customer service, Experience, experience management, financials, roi

  ROI for CEM? NWJ (No Way Jose)!

  First things first: I don’t have a set formula for calculating a ROI on CEM.  Are you still with me?  Good… because what I do have is better than a formula – I have a method.  A method we used several times before, and it has proven to be successful.  So, if you are interested in knowing what you can get out of adopting CEM, read on.

  First, want to make sure you did your homework.  In my previous post on experience management I told you to read the three notes I wrote on Customer Acquisition and Maintenance costs (just in case, #1, #2, and #3 here for your enjoyment).  I am going to assume that you did read them going forward.

  The reason I am referring to those posts is that the formula you created for your customer acquisition and customer maintenance are going to be critical for your ROI calculation for CEM.  Two caveats: first, it is not possible to quantify quality – which means if you improve your experience you cannot put a number to it (as in saying “I am going to improve my experience by 10%”, or “I will improve my interactions with customers by 20%”).  Second, your mileage will vary – what works for one of you may not work for someone else.  That is why I have a method, not a formula for this.

  Now, let’s focus on the ROI of from adopting a CEM strategy for your organization (you do remember this is an enterprise-wide implementation of a strategy – right?).  By creating better experiences you stand to get three benefits: reduced number of interactions (happy customers that have what they need don’t use customer service), shorter interactions (if they put off calling because they don’t like the experience, they may have 3-4 complex problems instead of a simple one), and reduced costs for training (the same systems that have better information for your customers will be used by your agents – greatly enhancing their powers with less training).

  How do you decide which ones of these benefits apply to you?  Well, this is part where it depends.  If you are going to improve your customers’ experiences by offering more channels and more automation, you will have a reduced number of interactions (you may have some in other channels, but they would probably be cheaper).  If you are shortening the processing time, you are more likely to get easier and shorter interactions as well as fewer of them (customers won’t call just to “check” status).  If you are implementing more automation, better knowledge management or better access to back-office systems, then your training costs and interaction times should be greatly reduced.  You have to determine what makes sense for the actions you’d be taking.

  Then, there is also the issue of increased revenues.  Depending on how you improve you experience, part of it may be offer management for specific situations, or the ability to increase revenue recognition, or even the ability to create new services and revenue sources.  All those should also be considered – and you are probably tired of me saying this – but they cannot be identified until you design your new experiences.

  One final point on return on investment: if you make customer experience management part of your branding, as it should be, you will see that your customer acquisition costs (again, your calculation as detailed in my previous post) are going to be lower.  No, I am serious.  If your brand of excellent experiences becomes part of your overall brand, then customers will need less convincing to sign up, which will aid converting customers, thus reducing the cots of acquiring them.  And, if you think that I am saying that you cannot calculate your ROI until after you implement your experiences — no, I am not.  I am saying, your ROI will be based on assumptions and expectations of what that CEM implementation will be.

  So, what do you think?  Does this method makes sense?  Let me know what you think..
   

• Esteban Kolsky 07:43:59 am on November 7, 2008 | 4 | # |
  Tags: CEM, customer acquisition costs, Customer Experience, customer experience management, customer service, experiences, interactions

  It is All About the Experience, You Know?

  While I was at Gartner I wrote a lot about Customer Experience Management (CEM).  I mean a whole lot.  I co-wrote a guide to doing CEM with Ed Thompson (if you have a Gartner account, you just have to read what he writes – and if you can make it to one of his presentations, you will be a better professional for it – promise).  I wrote lots of individual research notes, presentations, case studies, lots and lots and lots.  I spent a very long time talking to vendors and end-users about it, making sure they understood what it was, how to approach it, and how to succeed at it.  You see, the little secret that few people know is that Enterprise Feedback Management, Surveys, Analytics and all that other stuff is not more than a sub-set of CEM.  Without Feedback, there would be no CEM – alas, without CEM Feedback would be as dull as… well, an air sandwich (come on, don’t make me explain it — two slices of bread, nothing in between… i was raised in Argentina, what do you want?).

  Because everything you do with feedback, actually let me take that back.  Everything you do with your customers is about the experience.  There is no other way around it.  I was reminded of that this week, as I was doing some research into Social Media, SOA, Web 2.0, Web 3.0 (yes, we already have that), and Web 4.0 (that one is mine, not yet defined formally – working on it).  All these wonderful technologies will do absolutely nothing to improve your relationships with your customers if you don’t put them to good use – that is, use them to build a better experience.  After all, it is all about the experience – you know?

  So, how do you get started in the world of CEM? First, repeat after me: CEM is not a technology (pause for you to repeat), CEM is not a tool (pause), there are no CEM Vendors.  Go back and repeat it again.  Good.  That is the secret of your success (no, not like Michale J Fox).  You will, as you embark in CEM, receive no help from software, hardware, or vendors despite their promises.  You can, if you want, ask for assistance from your friendly consultant (say, me), or do some research (work with Gartner – trust me on this, Ed Thompson and Jim Davies are superb).  You can try some of the “vendors” and “software” available for CEM (Google lists 2.9 MM entries for software, 250K for vendors) but trust me – there is nothing there for you.

  Second, focus on the three Ps of CEM. Yes, the famous People, Process, and Politics.  As you develop your strategy for CEM (you already knew this was coming, it is not software or hardware, it has to be an enterprise-wide strategy – right?) remember that you will have to change your processes, train your people, and affect your politics.  The principles of Change Management will be your best friend, and prior experience with enterprise-wide projects your best ally.  If you don’t have any of these, don’t start – failure is at hand.  Make sure you know what you are getting into as you start working towards your goal.

  Third, remember that CEM is an iterative process.  There is no end to it, just steps towards an improved experience.  Once you conquered the first set of processes, the first level of complex integration between interactions you will begin to receive feedback from your customers – that is how you know it is iterative.  Once you get this responses, you get to start again and continue to improve your (now better) experience.

  Of course, I’d be remiss if I did not mention ROI for this investment.  Because, as you work improving your experiences you will need to show the return on the investment.  There may be no vendors or software associated with it, but it still require changes to process, training, potentially some EFM software if you don’t already have it, same with analytics and business processes software and systems.  There is a cost associated with it — and your CFO wants to see the return on the investment.  So, how do you prove the return in your investment?

  Well, that is left for the next entry… but until then, do some homework and read my previous series on cost of customer acquisition and cost of customer maintenance.  Trust me, you will need them to go through the ROI of CEM.

  Are you ready to get into CEM? What are you doing right now with it?

   

• Esteban Kolsky 07:28:51 am on November 3, 2008 | 1 | # |
  Tags: CRM, Customer, customer acquisition, customer acquisition costs, customer costs, customer maintenance costs, customer service

  The Evil Lies in Properly Calculated Customer Maintenance Costs

  (Part 3 of 3)

  Part 1 – Is it Really More Expensive to Get New Customers?

  Part 2- Segmented Customer Acquisition Costs Saves the Day

  OK, on the final part of this three part series – how to calculate your customer maintenance costs.  Yes, this is the longest one as far as the number of metrics to track, but if you have been following the series you know where this is going.  Check out the previous two entries before you continue on this one, trust me – it makes more sense that way.

  As you know, I advocate an individual approach to calculating customer acquisition costs, and customer maintenance costs.  You already read that I believe that true business decisions cannot be made in a bundle.  You cannot decide to cut costs for customer maintenance across the board, hurting those customers that need service but cannot get it since someone else abused it.  You cannot decide to implement a specific channel or program only for a segment of your customers just because you may think that, for example, business users will benefit more.  You have to make decisions based on the true costs of getting each customer, retaining and servicing them.

  When it comes to customer maintenance costs, most companies just take the total they spend on customer service (by their definition) each year and divide it by the total number of customers.  Simple, and ineffective.  You can harbor expensive customers (constantly demanding service) as well as not properly reward inexpensive ones (they never, or rarely, require service).  You can ignore budding problems, such as the excessive cost of a specific segment, tool, or channel, by not properly focusing.  What is the solution? There are two things you have to consider for properly measuring customer maintenance costs.

  First, the overhead costs you have for maintaining a customer service operation.  This is where you can see real savings when outsourcing, for example, or by decreasing specific sunk maintenance costs (such as what happens when you optimize your KM initiative).  This is the base cost per customer — not per interaction — for infrastructure deployment.

  Second, I am assuming you already know your transaction costs per channel, broken down into different type of transactions (if not, as they say on TV – get them!).  Monitor interactions and add those costs to each personalized customer maintenance cost as they happen – yes, that also means web self-service or similar automated transaction tools (e.g. IVR) which tend to be ignored by most organizations since they are either cheaper than regular channels, or there is no prescribed way to track users through those channels (you may even have to ask users to log-in to get service).

  OK, so this gives you a basic cost per customer for maintenance.  Now, the final step is to compare each personalized costs against the average per segment, channel, or transaction – and assign bonus points (or deduct from the total cost of maintenance) to those that are below the average.  This will reward those customers that don’t abuse the system with increased access to different tools, technologies, or even a higher status with the organization – depending on your business decision on who gets access to what.  Of course, you need to constantly (once a month would be fine, no longer) update the scores, the averages, the bonus points, and the status of each customer to ensure they receive all their benefits.

  Chances are that you will have to make some small to medium changes in the way you measure and monitor your data and interactions; you will be surprised at how much certain segments or channels will cost you to maintain, and change your opinion on who is your best customer.  A simple per-customer benefit calculation (revenue minus cost) will allow you to create literally segments-on-the-fly as needed, based on all new different metrics, benchmarks, and results.

  Are you ready to try a new approach to rewarding good customers and bechmarking your true costs?  Who knows, maybe you get to debunk the original entry for this series “a new customer is X times more expensive to acquire than to retain a current one”.

  Ready to prove the myth wrong? Let me know how this goes for you…

   

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