Marketers Must Tap Into the Year of the Customer

The year of the customer. That is what the authors of the third annual New York Stock Exchange CEO Report have dubbed 2008, based on research with 240 of the world's top business leaders representing more than 20 industries in 24 countries. Those executives indicated that in the coming year they intend to have more focus on customers. This renewed effort comes on the heels of a Conference Board survey of CEOs, which found customer retention to be the No. 1 challenge facing companies.

It seems we've come full circle since Peter Drucker, the father of contemporary management, said that "the purpose of business is to create and keep a customer." A third of the CEOs in the Conference Board study reported that they now spend and plan to allot more time to customer relations than they did three years ago.

With the renewed emphasis on the customer, marketing's role become even more critical because—once again turning to Drucker, "the aim of marketing is to know and understand the customer so well the product or service fits him and sells itself." Marketers are being asked more than ever to demonstrate their value. Increased emphasis on marketing metrics initiatives and the renewed emphasis on the customer highlights some key trends related to metrics that marketers should consider.

If you haven't thought about the driving trend toward metrics, it's time you did. It is one of the most important transformations occurring in marketing, and, when coupled with the focus on the customer, the intersection demands our attention. Metrics provide valuable data points against which marketing can track progress and demonstrate its contribution to the business. Numerous studies suggest that the simple act of measuring marketing results reduces management dissatisfaction and stress with regard to marketing methods and practices. One of the greatest challenges for any good marketer is discerning between trends and transformations. Return on investment, for example, is not a trend. ROI means nothing less than accountability, and accountability signals the growing pressure for marketing to quantify its financial value. The tools and tracking technologies available to today make accurately tying customer behaviors, actions and revenue to specific marketing programs within reach of most businesses.

And while many companies realize the importance of customer loyalty and value, very few of the more than 100 companies we've worked with (regardless of size) actually focus on or report any customer-related metrics. For the past six years, VisionEdge Marketing has been conducting a marketing performance management study. Several of the questions inquire about the metrics marketing has established to demonstrate its strategic impact and financial contribution to the company. The 2007 results indicated that, of the nearly 140 business executive and marketing professionals who took the survey, two-thirds do include metrics in marketing plans. But only 8 percent of the respondents track or measure share-of-wallet; fewer than 10 percent of the respondents measure customer lifetime value, customer advocacy or customer tenure. Seventy-eight of the respondents track leads to conversion, but only 25 percent track and measure the rate of customer acquisition. About one in four study participants measures marketing's impact on business goals.

Metrics shift
We don't believe there is a single customer metric. Rather, the renewed emphasis on the customer means that marketing is going to have to establish some metrics that demonstrate how we are contributing to what, basically, is our job. In 2008, the trend for marketers will be to shift from activity-based metrics to more strategic metrics related to customers.

So what are some of the strategic customer metrics marketers should embrace in 2008? We believe in 2008 marketers and business will be embracing some if not all of the following customer-related metrics:

1. Rate of customer acquisition
2. Cost of customer acquisition
3. Customer margin
4. Customer retention rate
5. Customer retention cost
6. Customer value
7. Customer advocacy
8. Customer engagement

There are a few companies and industries paving the way, and the financial services industry provides some excellent examples. For example, Wells Fargo created an initiative to reduce the number of high-value customers leaving the bank. The company created performance targets to increase share of wallet and share of preference for all of its branches and made creating a positive customer experience Job 1 for its branch staff. As a result, Wells Fargo reduced the defections in half and saw an increase in the number of customers buying their next financial product from the bank.

A number of companies are measuring customer advocacy using a variety of approaches including the Net Promoter Score®, Relationship Score or our Net Advocacy Score. By focusing the origination process and personal relationship in its healthcare business to improve its Net Promoter Score®, General Electric (GE) saw its core business for healthcare services increase 12 percent over the previous year.

In today's dynamic cluttered environment, securing and keeping customers will continue to be challenging. The Internet makes switching easier and has increased access to more choices as well as eroded attention. The customer has become more empowered. When Time magazine announced "you" as its Person of the Year for 2007, it signaled the significance of the power of the customer. Customers increasingly are at the center of the universe, and that will demand that marketers embrace customer-centric metrics.

Laura Patterson is the author of Metrics in Action: Creating a Performance Driven Marketing Organization (Racom, 2009), Measure What Matters (Visionedge Marketing, Inc., 2004) and Gone Fishin' (Visionedge Marketing, Inc., 2001). She is president and cofounder of VisionEdge Marketing, Inc., a leading metrics-based strategic and product marketing firm located in Austin, Texas, specializing in consulting and learning services.