Customer marketing is a business method that uses process control techniques to measure, manage and improve customer performance and customer focus.
Seventy percent of CRM projects fail to deliver positive results. The trade
press and analysts have been repeating this fact for a number of years. But
is it true? CRMGuru, a CRM portal, decided to find out. It commissioned a rigorous
study of more than 600 CRM implementation projects and concluded that:
- 45 percent of the CRM implementation projects delivered a positive ROI;
- 20 percent of the CRM implementation projects were earning profits, with
a full payback and ROI likely; and
- The remaining 35 percent of the CRM implementation projects were not likely
to show any ROI largely because these failures were self-inflicted, with
the companies not implementing what the study showed to be the critical success
factors of CRM.
And what were these critical success factors? There were four found to be statistically
1. The company must follow customer centric strategies, including the use of
customer satisfaction data, tracking numbers of customers gained or lost and
installation of voice of the customer programs. (This factor was clearly the
2. Intensive training and coaching of front-line managers and staff.
3. The ability to manage change.
4. Establishing measurable goals.
Despite the claims of CRM software suppliers, the choice of a CRM package made
no difference. Highly publicized and heavily promoted packages did not gain
any more ROI than lesser-known competitors.
The conclusion: CEOs must first develop customer centric programs as the highest
priority when considering CRM for their companies. Customer marketing is one
of these strategies.
The Short History Of Customer Marketing
I originated customer marketing in 1989 as an American direct marketing consultant
based in Amsterdam. For several years I had been confronted with a lot of confusion
and negative attitudes about direct marketing among European CEOs. When
invited in 1989 to present a seminar on direct marketing to a high-level audience,
I decided to resolve the issue completely.
I declared that direct marketing was actually customer marketing, the process
of finding, making, keeping, and developing customers. And I demonstrated the
concept with customer pyramids and a simple 10-step action plan.
Encouraged by the response of the audience, I elaborated the concept in my
first book, Customer Marketing, which was published in the Netherlands, the
United Kingdom, Germany, Spain, Italy, Japan and China.
In 1997 the European Commission, recognizing the innovative character of customer
marketing, funded project ACUMAP A Customer Marketing Pilot, designed to validate
the method and support the development of software, tools, and training materials
that could help European companies maintain a competitive advantage.
The ACUMAP project was successfully completed in June 1998, which resulted
in a validated method to help companies implement and profit from what is now
known as customer relationship management. Since early in 2000, Customer Marketing
International BV, based in Amsterdam, has brought to market the customer marketing
method and tools.
The Definition Of Customer Marketing
Customer marketing is a business method that uses process control techniques
to measure, manage, and improve customer performance and customer focus. The
customer performance factors are:
- Customer profitability;
- Customer behavior; and
- Customer satisfaction.
The internal customer focus factors are:
- Communications; and
The customer marketing method is represented graphically in a pyramid (see
Figure 1). Lets look at this in more detail.
The Customer Performance Factors
Operational profit is the result of deducting the losses from unprofitable
customers from the profit generated from profitable customers. Its as simple
as that. Hence the need to maximize customer profitability, as measured in profit
per customer and customer lifetime value.
While cost factors play an important role in the profitability of a customer,
customer value is, to a large extent, determined by customer behavior. Customer
behavior is usually measured in terms of revenue either monetary or volume
of product or services ordered over a period of time. Positive customer behavior
means, in the first place, that a customer is a customer he buys from you.
A second customer behavior parameter is customer lifetime, or the average length
of time as measured in months or years that the average customer does business
A third and important customer behavior factor is share of customer: the extent
to which a customer meets his needs for the kinds of products or services by
doing business with you.
Happy and satisfied customers behave in a positive manner. They will buy a
lot from you and will give you a large share of their business. Customer satisfaction
is derived largely from the quality and reliability of your products and services.
You make good on your explicit and implied promises.
But customers who are just satisfied are likely to walk away for a slightly
more attractive proposition from your competitor. The major goal of a customer
satisfaction program should be to achieve preferred supplier status with as
many customers as possible.
The Customer Focus Factors
Customer performance customer value, customer behavior, and customer satisfaction
is something that happens outside the company. But customer performance is
predominantly determined by customer focus factors inside the company and has
a major impact on customer performance.
There are three primary and six secondary customer focus factors:
1. Managers are committed to customer focus, set an example for themselves,
and budget time and money for customer process improvement.
2. Employees possess the necessary customer care skills and experience, have
a customer care attitude, and work in teams with others who have customer contacts.
3. Contact logistics: Customer communications are well planned, on time, and
have no sloppiness in execution.
4. The most appropriate methods, media and messages are applied to each customer
(segment); communications are interactive and stress customer benefits rather
than product features.
5. Customer data is relevant, complete and up to date.
6. Customer information systems are effective, flexible, and userfriendly.
There is clearly a direct correlation between customer focus and customer performance.
All things being equal, if you can improve your customer focus, you will improve
Putting customer performance and customer focus together brings us to a CRM
model. The model represents the idea that if your internal customer focus is
strong, your customers will be very satisfied.
And if your customers are very satisfied, they will behave very nicely, giving
you a large part of their business, often without any major marketing and sales
effort or squeezing every cent off the price. (Send me another thousand widgets
and the invoice.) This positive customer behavior will lead to higher customer
value and therefore more operational profit!
Its quite a simple concept. But if you cant measure the factors in the CRM
model, you cant manage them. There is a whole group of professionals out there
measuring your profits the accountants. But is anyone measuring customer profitability,
customer behavior, customer satisfaction, and customer focus so that they can
be managed and improved?
The answer all too often is: not really. Thats why process control techniques
are also needed.
Process Control Techniques
Managing customer performance and customer focus is not really possible without
measuring progress and results. Marketing, sales, and service must be subjected
to the same process control techniques that are often used for production, logistics,
and administration: Customer marketing is carried out on a continuing basis
applying the four phases of process control:
- Customer performance registration: You acquire or integrate from internal
sources data on customer profitability, behavior, and satisfaction.
- Customer focus registration: You undertake a customer focus audit or self-assessment
of your customer information, communications, and organization.
- Customer performance analysis: You analyze the profitability, behavior,
and satisfaction of your customers and prospects to identify problems and
- Customer focus analysis: You analyze the current status of your customer
information, communications, and organization and identify priorities for
- Customer performance planning: You set top-down/bottom-up profitability,
revenue and satisfaction targets for each customer (and prospect) that, when
realized, will meet corporate goals for profitability, revenues, and satisfaction.
- Customer focus planning: You make plans to make measurable improvements
in your customer information, communications and organization.
- Customer performance realization: You execute customer performance plans.
- Customer focus realization: You execute customer focus plans.
You may well be thinking that customer marketing looks great, in theory. But
does it work in the real world?
Telecom Company Case Study
The customer marketing case study illustrated in Figure 2 was a pilot project
at the regional office of a national telecom company. The pilot region was responsible
for marketing and sales of telephone services to small and medium-size businesses.
Because the European Commission funded the pilot, the results were closely followed
and highly documented.
Despite the entrance of competition because of deregulation, traffic revenues
in the pilot region increased by no less than 22 percent. But marketing costs
remained about the same as the previous year, leading to a sharp growth in profits.
All of the 7,248 customers in the pilot region were identified and their behavior
traced. It was thus possible to see that the increased turnover was the result
of improved customer behavior: 27.7 percent (2,013) of the customers migrated
up the pyramid; only 2.1 percent (150) went down, and 70 percent (5,085) remained
in their pyramid position.
The percentage of highly satisfied customers in the pilot region had doubled
after one year of customer marketing. The pilot region scored substantially
higher than the national company.