CRM in a Growing Economy

by Don Peppers, Martha Rogers, Ph.D.

It was a long, dark winter, but the spring of economic recovery is beginning to bloom. Three years ago, Peppers & Rogers Group published its first version of "CRM in a Down Economy." We likened surviving the downturn to a squirrel burying nuts during the winter. Like the squirrel, businesses combat lean times by tightening their belts, cutting costs and conserving precious resources. The one critical difference: The squirrel knows spring will come, but businesses mired in a downturn don’t have the luxury of knowing if or when a recovery will arrive.

Until now, that is. A December 2003 Business Roundtable CEO Economic Outlook Survey found that America’s business leaders expect economic conditions to improve in coming months. They look for strong upticks in two critical indicators: sales and capital investment. Eighty-nine percent of respondents anticipated higher sales through the first half of 2004, and 35 percent expected their companies to boost capital spending. A recent McKinsey study found decision makers around the world to be rather bullish as well. A 2004 Global Survey of Business Objectives queried thousands of senior execs from small and large companies about economic health. A robust 74 percent considered global economic conditions to be moderately or substantially better than they were six months earlier.

The collective sigh of relief is audible, but the realization that this upturn is a unique animal will soon set in. Returning to "business as usual" is not an option. Familiar strategies like purchasing other companies, customer acquisition to drive market share, and profitability via cost-cutting must also be evaluated through a customer lens.

What do we mean by a "customer lens"? It means seeing your business the way your customers see it, and then putting the customer at the center of your strategy. It means evaluating your upturn initiatives based on three customer-focused criteria:

• Does the initiative help to uncover deeper insight into the needs of customers?
• Will it meet these customer needs?
• Will it grow the profitability and value of this, your most important asset – your customer base?

Two different but linked developments are at work here, and they will mean that this recovery is likely to be somewhat different from previous ones. The first development is technology. Specifically, innovations in data warehousing, analytics, sales force automation, campaign management and technology-enabled customer service (including Web-based self-service) have changed the rules of the game quite dramatically. Today’s technology makes it possible to provide individual customers with increasing levels of value at a lower transaction cost than ever before, and customers will reserve their business for companies that get this right.

Importantly, this is the first economic upturn during which Web-based self-service and other technologies have actually operated. They have streamlined business processes and reduced the frictional costs of handling customer transactions and tracking individual customer relationships. During the long, dark winter, companies used these technologies to suck costs out of their operations. But during the upturn, companies will be tested to see if they can also focus these technologies on improved customer service. Companies that don’t keep up will falter, even though their costs might be lower.

The second development is customer attitudes, which have changed in two ways over the last few years. On one hand, customers are fed up with being bombarded with irrelevant offers. A recent Yankelovich survey reveals that American consumers “have had it up to here” with unsolicited advertising and marketing messages. Some 60 percent of consumers have a “much more negative opinion” of advertising and marketing today than they did just a few years ago. In other words, consumers are telling businesses that it’s getting worse, not better. The striking ferocity and sheer size of the response to the Do Not Call Registry and CAN-SPAM legislation in the United States attest to the fact that relevance is the only way to cut through the clutter.

But on the other hand, the impact on businesses of these increasingly negative consumer attitudes is magnified by a corresponding increase in consumer expectations. Consumers around the world have now had a taste of top-flight treatment. Every time a consumer receives a world-class customer experience, her expectations go up for every other company she deals with. So even if a business model was successful in the past, it will become less attractive to consumers as they demand more.

Seize the day
When you see your company through a customer lens before making managerial decisions, the decisions themselves – i.e., the initiatives your company takes – will almost certainly change. Furthermore, a valuable resource companies have during a growth period that they couldn’t afford in a downturn is time. Businesses today in most categories have already survived. They no longer are standing on the scaffold, afraid to take the time necessary to plan for a future that might not come at all. The way you take advantage of this new resource – time – is by rolling out initiatives today that increase customer profitability in the long term.

Take the case of two telecom competitors. Company A takes a typical upturn tack. It’s looking to be "first to market" with new products and will measure success by how many new customers it acquires, the response rates to its new campaign and total sales. Company B, by contrast, assesses the same initiative according to its impact on long-term customer profitability, measurable today using new technologies. So Company B balances the benefits of being "first to market" with a given offering against the longer-term benefits of being "best in market" at serving customers’ needs.

Company B asks important strategic questions up front, such as, "What will the offering cost on a customer-by-customer basis? Are my customer services aligned not just to cut the costs of a quick product rollout, but also to provide real convenience and value to customers? Is the product designed in a way that allows my existing valuable and growable customers to supplement easily the services they already have?"

Company B’s customer-driven decision making will impact other initiatives across the enterprise. Technology investments can be tied to business cases that take into account whether the solution enables customer interactions that are aligned with individual value and needs of each customer. Customer-facing processes can be retooled according to whether or not they allow differentiated treatment. Acquisitions of other companies can be assessed not just according to their impact on cost structure, but also on how they will impact customer equity. Is the "Return on Customers" of the acquisition greater than zero – that is, aside from the balance sheet and income statement, will this business combination actually create real enterprise value or destroy it?

By peering through the customer lens, Company B will be able to leverage the upturn in a more competitively advantageous way. In a growth economy, everyone’s boat is rising, so the real "success test" is whether you’re growing faster than the competition. The customer lens is the path to getting there. "It’s typical to talk strategy about achieving financials," says Roy Barnes, senior vice president of customer strategy at Marriott Vacation Club International and INSIDE 1to1: Strategy editorial board member. "But consistent focus and application of what you want to do for the customer is the key. If that becomes your strategic guidepost, you can properly assess your capabilities, processes and culture, and your financials will inevitably fall into place."

Reap what you sow
In a downturn, customers are the assets that help companies survive; in an upturn, customers are the most direct route to triumph. Spring is finally here, and if you’re a customer-focused business then you buried enough nuts to make it through the winter. The question now is whether you can improve your situation during these coming good times, so that when the next winter hits, you’ll survive that one, too.