Which customer groups offer the most potential? And how can you balance maximizing customer value (attract, grow, and retain the potential) with acting in the best interest of your customers (customer experience)? These are questions that vex almost every company today.
In the Automotive industry profits are under pressure, while data and content are becoming the new but challenging playgrounds for manufactures. Add to that the increasing complexities of digital customer expectations, which is driving churn rates higher and customer acquisition costs up. Many chief marketing officers are looking for direction on where to focus their efforts and resources to differentiate and grow.
Understanding customer value with segmentation
Understanding customer value with segmentation is definitely the first step. Customer value information, typically based on ARPU or related revenue metrics, is mainly used to guide investment decisions for marketing, sales, and customer care activities. Typical examples include the development of customised communication to high-value customers or the assignment of special resources to high-value customers in the contact channels.
Value segmentation, however, cannot enable differentiation by itself, simply because value is an outcome. In order to truly understand their customers, organisations must also know the “why” and “how” that leads to the outcome “value.” The “why” is represented by a needs assessment — understanding the underlying motive and need behind interest in motor vehicles. Customers have common needs, shared needs, and differentiating needs.
Business must know these needs at the individual customer level, which can be scored in the database. The “how” part is represented by behavior — how customers use products, channels, and how they communicate. By putting together needs, value, and behavior, organizations can then create the required insight for differentiation.
Business resources are aligned to customers
Segmentation will have little value unless the businesses resources are aligned to customers. The purpose of segmentation is to activate segmentation to enable “treating different customers differently” via the delivery of relevant offerings to a group of customers (portfolio) based on their needs, behavior, and value. For most operators moving to such an alignment is quite challenging because they are structured and functioning as silos. For true differentiation, customers should be managed across the life cycle. Such effort requires a disciplined approach that revolves around customer segments and extends across the customer life cycle.
So, what has to change to enable the proper functioning of “treating different customers differently?”
Treating different customers differently
Aim: Create a clear set of strategy, action, and investment plans at the customer portfolio level
Balance: Act in the best interest of customers while balancing resources. This means creating a culture of portfolio ownership and an ecosystem to coordinate the delivery, as well as making a dedicated function within the current organizational structure that will manage and coordinate the entire customer life cycle
Accountability: Integrate customer planning into the organisation’s performance management
This approach, customer portfolio management (CPM), is a new, strategic way to deploying CRM that emphasizes customer knowledge, strategic planning, and execution as the cornerstones of a CRM initiative. It encompasses the delivery of the right offerings to specific customer portfolios based on their needs, behaviors, and values across their life cycle. Like a stock portfolio, the value of a customer portfolio can go up or down. If the business can identify needs to influence the behaviors of the customers within the portfolio, the value of that portfolio can improve.
A CPM strategy is an enterprise wide strategy, not contained within one department or business unit. While traditionally segments are the responsibility of the marketing, sales, or customer service departments, customer portfolios can influence actions taken by marketing, sales, customer care, even strategic planning and capital investment, as companies allocate resources and take departmental actions to increase the value of customer portfolios.
For the CPM concept to succeed, operators must change the way they think. Customer portfolios must become the heart of the organization, and the direction of the operator should be coordinated by the portfolio managers. Customer value, needs, and behavior will influence the way companies allocate resources, so the rules of engagement need to change how people work. It requires a huge cultural change, which is hard to swallow for many traditional businesses. However, its long-term benefits — in the form of organic growth, customer satisfaction, and bottom-line improvement — will be worth the pain of change.
With CPM, each portfolio has an owner or manager; someone who is responsible for growing the value of the portfolio. A portfolio manager understands the portfolio’s value now, as well as what needs to be done to grow its value for the future.