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AUSTIN, Texas, January 14, 2002 – Establishing metrics, segmenting customers and creating customer equity programs will help businesses better understand and service customers during tough economic times

Trend:

Recent United States government statistics, such as business inventory levels, average hourly earnings and the number of hours employees work per week, suggest that the economy may be ready to make a recovery, although most economists predict that economic recovery will be slow. “I think there are signs of recovery…but the recovery is likely to be weak,” said Glenn Hubbard, chairman of the White House’s Council of Economic Advisors, during a January 5th speech. In order to succeed in this low period of growth, businesses must focus on customer centricity, establishing such practices as customer retention metrics, segmentation and customer equity programs.

Industry Opinions:

  • “In 2002, there will be greater urgency in improving the quality of customer relationships. This is particularly true for electronics and high-tech companies,” said David B. Rich, global industry managing partner, Accenture.
  • Aberdeen Group reports that in a recent survey of CIOs, 90% of the respondents rated Customer Relationship Management (CRM) as one of their top three IT priorities for 2002. “What the results are telling us is that the things that are driving spending are customer-focused – better service, support and retention,” said Edward Black, analyst, Aberdeen Group.
  • “Companies always need to ask themselves how much it will cost to maintain a customer versus how much that customer will bring in over time,” said Esteban Kolsky, senior research analyst, Gartner Group. He suggests that companies segment their customers “since about five percent of customers represent 60% of revenue for most business.”

Tips for Customer Centricity:

  • Establish Customer Retention Metrics – companies should establish a set of metrics and consistently measure how satisfied a customer is, how often they buy and how recently they purchased, as well as defection and retention rates. Companies may also want to look at win/loss and conversion ratios; these ratios may help a company understand if there has been a shift that requires a new look at the competition and/or the company’s positioning in the market.
  • Segment Customers – By finding patterns in customer transactions and attributes, companies can distinguish the responsive and profitable customers from the rest of the customer base. Companies should analyze the entire customer base and develop the primary attributes to develop segments. This information can then be used for retention related efforts as well as a way to profile attributes of “best” customers.
  • Create a Customer Equity Program – This allows companies to understand a customer’s life cycle and lifetime value, so that the most valuable customers can be separated from customers with lesser value or potential value. Companies can then tailor the approach to each customer target level. Factors that should be considered include the cost for acquiring, retaining and expanding (cross-selling and up-selling) customers against the profits generated by these efforts.

Expert Source:

Laura Patterson is president of VisionEdge Marketing, a metrics-based marketing consulting services for business intelligence, product and strategic marketing, pipeline engineering and revenue creation, and professional development. She can discuss such issues as marketing and customer retention tactics for a down market, how metrics play an increasingly important role in today’s business environment, using customer segmentation to increase ROI and creating a customer equity program to increase customer loyalty.

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