The Missing Link in Customer Intelligence

Measure short-term and long-term customer value to satisfy the CFO and the CMO

By Don Peppers and Martha Rogers, PhD

Soothsayers are awfully tough to come by when you’re trying to figure out your customer strategy. Yet that’s what C-level executives get paid to be. We believe that when it comes to predicting customer value in the short and long term, executives need to mix customer data with creative, intuitive judgment about customer needs in order to concoct a marketing soothsayer’s elixir of genuine customer understanding. 

Predicting what customers will need six months or even a year down the road is tough. Predicting what we term Return on Customer ^SM  (ROC) or how much a group of customers will change in value is even tougher, but it has been achieved by many companies through a mix of art and science. Peet’s Coffee, a San Francisco- based coffee supplier and retailer, has driven its business impressively by doing this. According to a presentation by General Manager Brian Platter, the company saw through sales data, e-mails, blogs and contact center feedback that its most valuable customers wanted special coffee blends, home delivery and even a negative- option loyalty program. It delivered by starting the Peetnik Loyalty Program, which rewards high-value customers who maintain a standing order for delivery of coffee or tea. These customers receive free samples of special blends and are able to order these items before they are available in stores.

Here’s another example that relies a bit more on understanding the customer. According to an article in last October’s Harvard Business Review, Nokia and Samsung have been able to predict different customer needs in the vast Indian mobile phone market and address them through innovations such as building in flashlights for drivers who need to navigate the poorly lit Indian highway system. That kind of insight results from good data and good customer understanding.

The demands we place on our customer intelligence have escalated. In the past, good customer intelligence could fill a spreadsheet with numbers. Now it’s about listening to voices and trends and hints that could lead to changes in customers’ most intrinsic values, such as the environment, social responsibility, peer-to-peer networking and designer tastes. Hard to detect as these hints often are, they nevertheless have the potential to revolutionize your business model right out from under you.

When McKinsey Quarterly asked more than 3,500 global executives the most important trend that will affect their businesses over the next five years, “changing consumer tastes” took 87 percent of the vote. In the Institute for the Study of Business Markets’ “Trends Study” for 2007, No. 1 on the list is: “Gathering and acting upon intimate knowledge of customers and their business needs.” But how can a company measure the kinds of changing consumer tastes evidenced by the current move toward the environment and social responsibility?

C-suite partnership 
Maybe it’s time for CMOs to open a dialogue with CFOs in order to help them both come to grips with the yin and yang of customer intelligence, as well as long-term/short-term trade-off issues. Costs and revenue, customer data and intangible intelligence – these are issues that have more meaning when looked at in a big-picture way. Getting these two camps together is not always easy.

For the CFO, it’s all about the bottom line, which the CEO tends to agree with. As a result, marketers are trying to curry favor with the finance department by becoming increasingly analytical. They’ll measure just about anything they can to prove a campaign or strategy’s success. But often finance and marketing still end up speaking different languages. According to a new study from analytics firm Marketing Measurement Analytics (MMA), only 7 percent of 150 financial executives surveyed are satisfied with their marketing department’s ability to measure marketing ROI.

Costs and revenues, the atomic particles that make up a company’s financial reporting, are hard numbers. It may be a rearview mirror approach, but the simple fact is that costs and revenues can be tabulated exactly, and this is what a CFO is looking for. 

Marketing measurements, on the other hand, are metrics like open rates, ad clicks, ad awareness levels and brand preference figures. It’s difficult to directly tie them to actual revenue numbers because customer actions are not linked to these measurements in a closed-loop fashion. Even metrics like campaign ROI and return on marketing investment (ROMI), while they have a suitably “financial” appearance, suffer at some point from the lack of a clear link between the interim measurements of spending and the actual sales lift or incremental revenues produced.

But there is an even deeper disconnect between finance and marketing, because marketing is an inherently future-oriented function, while finance spends most of its time documenting the past. Marketing measurements have gone from day-after-recall to more useful, future-oriented metrics like Net Promoter Score and customer lifetime value, but even these measurements are still just meaningless talk to the CFO.

The key is getting the CFO and the CMO to work together to balance short-term and long-term goals. Campaign ROI and customer value growth should carry equal weight. For example, some initiatives actually destroy company value in the long run even though they show a positive short-term ROI. A cross-functional approach is a good start to understand what’s at stake for each individual organization.

Also, consider traditional marketing metrics as a baseline to start a conversation about ROC, a future-oriented metric incorporating both current-period and long-term customer value created. ROC doesn’t necessarily close the loop between marketing actions and value created, but at least it closes the gap between customer behavior and genuine financial value.

CMO/CFO cooperation also opens up an opportunity to begin measuring ROC. Ultimately, executives will have a better understanding of the overall impact of their company on a customer. Do it right, and maybe you could become a marketing soothsayer yourself.

Bio: Don Peppers and Martha Rogers, Ph.D., are co-founders of Peppers & Rogers Group, a management consulting firm recognized as the leading authority on customer-based business strategy. Visit their Web site at: www.1to1.com.