Focus on customers to survive in this economic downturn

Gartner Research recently posted six strategic customer-focused areas for survival in this economic downturn. In a nutshell they focus on automating your way through these hard times. Each of the six acknowledge there will be many growth opportunities arising from the dramatic changes taking place right now.

The challenge their report emphasizes: To find customer- and sales-focuses areas to cut costs and reinvest wisely.

Of the six, three are revenue-generating. Here they are, with a brief explanation of why they were included and what sort of immediate ROI might be expected:

1. Customer Retention Management

Gartner contends that holding onto customers who have a high value — or the promise of high value — is “Essential in difficult economic times.” The firm recommends calculating customer profitability / value and creating retention programs customized to each segment’s needs.

Common sense, right? But the vast majority of businesses are still light years away from calculating customer value — let alone devising ways to retain them!

It was Peppers and Rodgers, of The One-To-One Future fame, who most famously wrote about a business’s #1 asset as being its customers. That book was written in the early 1990s, yet the  systematic protection and “mining” of valued customers is still rare — so rare, in fact, that it still inspires whole books about those who dare to do it  well. (I’m thinking here of the book describing the astounding success of Harrah’s).

Gartner projects that in 2009, “Companies that develop effective retention management processes will reduce churn of profitable customers by at least 10 percent within six months.”

That’s a substantial bump. If your best customers follow the 80 / 20 Rule (that 20% of customers account for 80% of your profits), then this 10% reduction in churn of those best customers will mean — assuming every other rate is unchanged — an 8% increase in gross profits. That’s not chump change.

One proviso: By gross profits, I mean the money you get to keep after you’ve set up your retention methodology. These efforts aren’t free. But if you approach the process prudently, you’ll be gleaning far more profits from your existing customers, and feeling less strain to replace “churned” customers via ever-more-expensive acquisition tactics.

2. Lead Management

Speaking of customer acquisition, Gartner next recommends that marketing departments become more involved in the lead management process. By doing so, “Companies can improve lead quality and ensure higher conversion rates.” How do they define this expanded role? Here are two examples:

  1. Leveraging marketing insights — They advise using marketing data that the sales function may not be privy to augment leads before their sent through the sales pipeline
  2. Leveraging content — Helping the sales force use product information that’s already available to identify prospect needs early, and improve the impact of each sales contact

Companies that automate lead management processes this year will increase revenue by another 10% — all, “Within six to nine months, despite the uncertain economy,” reports Gartner.

3. Online Marketing

Interactive marketing isn’t a panacea. But it is a more cost-effective — and measurable — way to reach customers than traditional techniques. Here, Gartner claims that companies who, “Identify and prioritize three to four online marketing initiatives and measure marketing ROI,” will drive another 10% increase in revenue within six months.

I would be more skeptical of this projection if I haven’t seen it at work personally. Online business-building efforts have a surprisingly fast break-even when they’re done carefully. I see this payback being even greater today than a year ago, in a more hyper-competitive marketplace.

By that I mean we’ll soon be seeing an environment where only the fittest survive. The battle for limited business will shake things out quickly. That means very shortly, those who aggressively reach out for new business will find fewer hands fighting to grab it.

But that comes at some risk. More customer-focused investments need to be made starting today.

Life and Death in the Tar Pit

It’s appropriate that on this, the 200th birthday of Charles Darwin, we take a moment to ask ourselves how we are going to ensure that our businesses are not one of the losers in this heated battle for survival. Gartner’s report highlights constructive areas for the investment of scarce marketing dollars to ensure we come out winners in our category.

3 thoughts on “Focus on customers to survive in this economic downturn”

  1. Jeff,

    Interesting post, but I’m not sure I agree with your churn analysis.

    When Gartner says you can reduce churn by 10%, you may not really be gaining 8% on the gross, especially if the acquisition of new customers remains stagnant or the cost of acquisition rises. But I do agree that anything you can do to retain your customers will be significantly less expensive in the long run, and that by keeping more customers, you will end up losing less of your profits.

    On the other hand, I wholeheartedly agree that automation of the lead disposition system is absolutely essential for any size organization. Not just to streamline how leads are distributed, but more importantly, how they are disqualified.

    In my experience, most companies work to qualify leads instead of working to disqualify leads. It can be an extremely time consuming and expensive exercise to work toward lead qualification, while it can be very easy and inexpensive to burn off the chaff so you can really focus on harvesting the wheat.

    Once you’ve got your qualified leads list, the automation needs to effectively nurture the qualified non-hot leads, while the sales staff work to close the hot ones.

    I could talk about this all day. It’s a topic near and dear to my heart – selling and automation. Thanks for posting!

  2. I agree, Rick, that those types of predictions are dubious. And my numbers are as free and loose as theirs. Not only do I not take into account acquisition (although I did try to protect myself with “assuming every other rate is unchanged”), the truth is there is no 80 / 20 rule. If you’re looking at the top 20%, it may be 88%, or 69%. And if you’ll looking at the top sources of 80% of revenue, that number could be 14% or 24%. You get the picture. Every company has to do their own customer valuation analysis.

    I guess that’s the point, though. If you haven’t looked at your customer database in that way, you may be arriving late to the party if you start now, but at least you’re not completely out of it. You can always continue with the metrics you’re using now, and pray that your competitors are doing the same!

  3. I hear ya Jeff. What’s great about Gartner is that you typically have their position as a starting point for a debate or a sales call.

    I used to use their stuff all the time to justify CRM projects, especially to companies who already had at least one failed CRM initiative.

    The “10%” assertion is actually quite good, because for many businesses (especially those selling commodity products) I would assume the churn rate to be higher. But I’ve also seen those numbers used to scare customers into action – which isn’t necessarily a bad thing.

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