Return On Customer Research Investments

Return On Customer Research Investments - ROIThere is a lot of talk these days about ROI (Return on Investment). Corporate leaders want assurance that actions show quantifiable paybacks. In marketing, some people talk about ROMI ‘“ Return on Marketing Investment. It is a simple idea. We spend money to take some marketing action. We want to get back:

  • Everything we would have made without taking the action
  • An incremental amount that covers the cost of taking the action
  • A meaningful additional amount above and beyond (a) and (b)

Demonstrating ROMI means a marketing effort ultimately pays for itself, and produces incremental revenue/profit ‘“ payback plus.

In the customer loyalty space, perhaps we should be talking about RO-CI-I, Return on Customer Information Investment. Whatever efforts we take to gather and use customer information, they ultimately should lead to:

  • Everything we would have reaped without getting/using customer information
  • Whatever it cost to get/use that customer information
  • Meaningful incremental returns on our investments

Personally, I like this idea far better than some of the philosophies we’ve chanted in the past. For example, there was the old “five times more to replace a customer than to keep one.” That’s a bit of a no-brainer. And the mantra only trades off downside risk (loss of customers and expensive replacement costs) against a kind of maintenance notion ‘“ keeping the customer base you have. As important as it obviously is, most companies don’t merely want to avoid having to replace their customer base. Most companies are striving for something much more challenging and forward-looking than that ‘“ growth.

Whether it be growth in revenue, growth in profitability, growth in market share, growth from cross-selling, growth from innovation and diffusion of new products and services, market expansion, growth through mergers and acquisitions, or something else, most companies are on the move. They have a vision of where they’re trying to go, some strategy for how to get there, and some specific forms of execution at corporate, functional, and even individual account/customer levels. I’d like to hear us talking more about how customer information pays off in the pursuit of those kinds of goals.

The principle: by gaining deeper understanding of customers in their competitive market context(s), then leveraging that intelligence in subsequent plans and actions, companies can enhance business success. Note the word “enhance” inherently embodies ROI kind of thinking ‘“ RO-CI-I kind of thinking. There are two broad ways by which that kind of customer information bears on enhanced business success.

The first way is as an input to corporate planning. There are market forces in play for most organizations ‘“ the economy, social trends, legislative and regulatory changes, changes in consumer wants and needs, and of course changes in competitive landscapes. Now more than ever, businesses are feeling the press of a set of highly dynamic factors that impinge on their practice. Strategically, companies must regularly take stock of “where we are” and “where we want to go” in light of these forces. While it is unlikely that answers to those questions spring entirely from customer inputs, companies that systematically bring the “voice of customer” into the process of answering the questions are more customer driven, and more likely to chart a successful course through the storms and waves of change. Customer feedback, including voice of prospective customers and voice of former customers, can inform organizations about the following:

  • How the company’s offerings are considered relative to competitive offerings
  • What factors drive the ultimate choice decision (or decision not to choose at this time)
  • How the product or service is experienced across the scope of the customer relationship, from the earliest stages (e.g., installation), through the mix of product and service experiences, through extended use and servicing (e.g., repair)
  • What considerations and decision processes take place when it is time to re-purchase
  • What experience elements or competitive forces cause customers to leave (switch to a competitor or exit the category entirely)

Clearly, these types of customer information can be invaluable in deciding how to steer the enterprise forward into the future, and how to steer it in ways that lead to success.

The second way customer information can enhance success is in evaluation of corporate action. This evaluative customer input can include anything from feedback on marketing communication messages, through reactions to process design improvements, responses to introduction of newly developed products and services, perceptions of improvements in supply chain/inventory designs, reactions to improved invoicing procedures, or any number of organizational initiatives. The classic approach is to:

  • Use customer inputs to determine what needs to be improved or changed
  • Measure customer reactions before and after some change initiative is implemented
  • Test whether the action has been effective in producing desired improvements

Obtaining customer feedback on any number of transactions or processes, particularly those targeted for change/improvement initiatives, is vital to gauge the effectiveness of corporate actions. In most organizations there are quite a few available sources of customer intelligence that can be used in these two broad ways. Sources include behavioral data from CRM systems, survey data from customer satisfaction and loyalty measurement programs, qualitative inputs from customer-facing employees, customer complaint system data, customer contact center metrics, lost customer studies, competitive brand positioning research, conjoint studies, and so on. Customer information from all these sources should be woven together to influence corporate planning, to evaluate resultant corporate actions, and to evidence enhanced corporate performance.

In the end, I’m advocating the calculated strategic use of customer information to increase total business success. It is about bringing customer intelligence to bear on where we are as a company, where we ultimately want to go, and how we should get there. Customer information can powerfully catalyze the journey if it is systematically gathered, unified, analyzed, understood, and acted upon. Then, customer information efforts, supporting action planning and evaluation of execution, not only can pay for themselves, but also can multiply back substantial incremental returns on investments.

By: Doug Grisaffe, Ph.D., Professor of Marketing, University of Texas, Arlington

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