Fix the Brittle Customer Relationships Affecting Your Bottom Line

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Stress can make something brittle (meaning “liable to break or shatter”). When something is subjected to stress, it is more predisposed to breakage.

You may not think of the word “brittle” within a business context, yet it is an excellent word for understanding the strength or fragility of your customer relationships. When a customer relationship has reached the limit of its strength, it usually either deforms or fractures.

Strong customer relationships translate into financial value. The notion of a relationship suggests a long-term view. The strength of customer relationships are enumerated in two powerful metrics: Customer Lifetime Value (CLV) and Share of Wallet (SOW).

As a marketing and business metric, CLV is a forward-looking financial indicator and provides one of the best customer-centric key performance indicators. It is the sum of cumulative cash flow of a customer over his or her entire lifetime with the company, after accounting for the average cost of capital to acquire and serve the customer.

SOW is the percentage of your customer’s total spend for a product/or service.

Over a decade ago, Peppers and Rogers posited that the purpose of building customer relationships was to grow SOW (i.e., the percentage a customer spends in a category that goes to a particular brand or product).

Timothy L. Keiningham, Lerzan Aksoy, Alexander Buoye, and Bruce Cooil conducted a two-year longitudinal study of more than 17,000 consumers, looking at purchasing across a dozen industries around the world. They found that the rank that customers assign to a brand relative to the other brands they use predicts share of wallet.

Strengthening customer relationships merits your effort and investment.

There are various ways to measure and offset the brittleness of materials. Let’s explore how you can measure and offset the brittleness of a customer relationship.

Three Customer Relationship Dimensions

The first place to start is by understanding how to measure the strength or weakness of any relationship.

There are numerous dimensions associated with measuring a relationship, including attitude and the way you think or feel.

One of the most common ways companies measure attitude is through customer satisfaction. The purpose of a customer satisfaction measure is to determine the extent to which your products or services meet or surpass your customers’ expectations. Many customer transactions take this form of measurement, such as problem resolution or a purchase experience.

Another common dimension used to measure the strength of a relationship is intent. Intent reflects a state of mind. Determining whether a customer is likely to serve as a referral, to recommend, or to repurchase are all examples of measuring intent.

And then there’s behavior. These measures attempt to capture how a person acts. Recency and frequency of purchase illustrate measures of behavior. The premise is that your relationship strength is higher with satisfied customers, who regularly recommend and buy your products.

The key takeaway is that you need more than one metric to measure customer relationship strength.

Three Attributes of Strong Relationships

In 2003, S. C. Tamer, S.C., J.C. Roger, and Z. Yushan found that the nature of a strong relationship depends on the following:

  1. Mutual trust. Trust is defined as “the belief in the trustworthiness, honesty and reliability of another person,” according to the book Business Marketing: Connecting Strategies. Relationship and Learning by Dwyer and Tanner.
  2. Commitment. This is the degree the parties feel obligated or connected and regard the relationship important enough to do most anything to preserve it. “Commitment is a vital component of successful relationships that leads to loyalty,” according to the work of Leonard Berry and A. Parasuraman.
  3. High quality (the perception of value). This attribute speaks to whether both parties derive value from the relationship.

Each attribute can be measured and used to create a measure of customer relationship strength. Strengthening your customer relationships should help you improve CLV. Dr. V. Kumar and Bharath Rajan determined that measuring and maximizing CLV will enable you to make “consistent decisions over time about which customers and prospects to acquire and retain, as well as those not to acquire and retain, and also determine the level of resources to be spent on the various micro-segments.”

Two Customer-Centric Metrics Driving Marketing Action and Investment

Good metrics help Marketing determine the best allocation of limited resources.

Rather than targeting customers easy to acquire and retain, consider evaluating customers based on SOW and CLV. Those two metrics can help you make important marketing decisions. For example, you can cross sell and promote higher value products to customers with low SOW but high CLV. And you will want to reduce your investment in customers with both low SOW and CLV.

SOW and CLV are customer-centric metrics. They enable you to shift from a product focus to a customer focus. So, we’re back to brittle.

For a company to be customer-centric, it needs to focus on all the interactions between the organization and its customers, and on developing and employing organization resources to successfully manage and strengthen customer relationships.

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Customers are more fickle and relationships are more brittle than ever. Even the world’s largest companies don’t have as many resources as they need to reach all markets and drive ever-increasing quarterly revenue. That makes it imperative to implement and maintain marketing initiatives to track and communicate the right dimensions, attributes, and metrics to reduce customer relationship brittleness and improve customer satisfaction.