From the Center for Strategic Relations, a twice-monthly supplement to Applying Strategic Relations, mailed at your request

Quantifying Customer Relationship Value

Interaction points are critical for lead generation and understanding the value of individual customer relationship. They also help you better understand customer behavior in a way that helps you predict desired actions of a given group.

With these strategies your company will be seen as more responsive, rather than reactive to customer needs.

Last month, you learned a method for influencing others behavior through structured commitments. Influencing behavior means understanding the desires of your audience. The same is true for developing a quantifiable measure of customer relationships.

In this lesson, you'll learn about points of measure you can use to quantify customer relationships. You'll also receive a simple plan to make use of this new knowledge.

In the next lesson, continue this discussion with ways to measure customer behavior to get more from relationship building efforts. Together these lessons will help you quantify relationships for a better return on investment.

Sincerely,

Justin Hitt
Consultant, Author & Speaker
https://iunctura.com/

Why Understanding And Measuring Customer Interaction Points Helps Quantify Relationship Value

By Justin Hitt, Strategic Relations Consultant, https://iunctura.com/

Twenty-one percent of those surveyed cite quantifying relationship value as their greatest concern in producing a return on investment from their customer relationship management efforts. [Survey of CRM Guru Members by Center for Strategic Relations, 2003]

Quantifying customer relationship value doesn't have to be your concern. You can quantify relationship value by understanding and measuring customer interaction points. Here are the reasons why:

A. Customer Interaction Points Represent Events Over A Period

Interaction points represent a series of points in time where a customer uses, connects, or has a clearly defined need for what you offer. Time is measurable. By having a clear picture of how customers interact with companies like yours, you can develop a sequence of events that uniquely identifies a customer potential.

To know how your customer interacts with your company, start with points in sales, service, and marketing. Map the sequence of events that brings a customer (or prospects) to certain stages of using your product or service. Use high-level descriptions of events to start building this understanding, for example:

  1. Someone who has never purchased from your organization will interact first with the need for what you offer, then gain awareness of your offer through marketing, and next will contact sales for more information. After the purchase, if certain technical issues arise they will contact the service department for support.
  2. An existing customer solved one problem with a purchase. Based on their initial purchase, the customer may also need services in a related area. Your marketing department introduces them to materials about a complementary product; they contact sales, and receive delivery after a second purchase.
  3. Certain manufactures in a specific market would benefit from using what you offer, they read about your solution in a trade publication. Marketing provides additional information through an educational campaign that prompts an engineer from the target company to request specifications. A sale representative provides specification and starts a dialog with purchasing only after the engineer signals your solution is a match.

By walking through your customers experience from pre-ownership to post-ownership, you'll see events that signal time to purchase. Trace back from a point of purchase to the events prior to choosing your solution -- clearly define each event on this timeline until you have a repeatable sequence of actions taken by a customer.

Each event is composed of customer expectations, desired results, starting signals, concluding signals, required information, and your efforts. These signals can alert you to other events including changes in requirements, depletion of materials, new service needs, and changes in capacity.

B. Changes In Sequence Provides Indicators for Future Events

Changes in certain events along interaction points identify the likelihood of future events. Use measures as predictive triggers for moving customers from one interaction to another.These measures define certain needs, expectations, and requirements a customer may have or desire.

Comparing the path of one customer against other customers with similar demographics or characteristics can provide an understanding of where this relationship may go next. Your interactions become more predictive than reactive, often reducing the time to sale, and increasing customer satisfaction.

Each interaction point becomes a mark on a time line from your customer's current situation to their desired result (or your sales objective). With enough interactions, you'll gain an understanding of what your customer wants and when you should address it. In addition, you'll learn:

  1. Average time between events,
  2. Incoming expectations before a particular event,
  3. Desired outcome of particular event,
  4. Dollar value per certain chain of events,
  5. Total duration from marketing to sales and from sales to first service event,
  6. Preferred mediums or channels of communications,
  7. Required resources to service event,

Imagine spending less time marketing to prospects that are not going to purchase and bringing products to market faster by identifying most responsive channels. As you become more familiar with segments of your market, your message become timelier in a way that produces a greater return on investment.

C. Analytical Measures Taken Along Interaction Points Provides A Way To Describe Customer Relationships

Measures taken from customer interaction points provide an analytical picture of customer relationships. Easily apply attributes that motivate changes in customer behavior to other areas of your company. Start with simple measures of change between interaction points. Instead of measuring emotions, measure the results created by such emotions in a particular group of customer relationships.

Knowing that better customer relationships tend to produce more profits, referrals, and have a long duration, you start with these simple measures. You can create your own points of measure or segment your Recency-Frequency-Monetary (RFM) to provide interaction level details.

Choose measures easily tracked in your customer relationship management (CRM) or accounting system. Here is a small sample of measures to quantify relationship value:

  1. Number of sales transactions,
  2. Number of requests for information,
  3. Number of positive service events,
  4. Number of referrals that lead to sale,
  5. Days since most recent purchase,
  6. Days since last payment on account,
  7. Monetary volume of purchases,

Choose transactional measures that represent positive customer actions. These measures don't require guesswork and come directly from business intelligence already on hand. A customer with above average marks in any three of these areas is likely to be more loyal by definition.

You can further segment and understand customer behavior (the relationship) by observing these measures over various periods of time and interaction points. An advance exercise useful here is to develop your own scoring system to assist in segmentation.

Knowing your customers behavior is vital to quantifying customer relationships.

D. Customer Behavior Is Often An Indicator Of Future Actions

Understand that customers who have positive past behavior will have the propensity to take favorable actions with your organization in the future. You can't make a customer do something they don't want to, but you can help them make educated decisions to purchase your solution over the competitions.

Use a general understanding of the behaviors of your average customer to identify those that likely to take a desired action. This action could be to purchase, request information, or be less costly to serve.

Your ability to qualify relationships through customer interaction points will translate into better business intelligence gathered in process. By quantifying relationships in this manner, you will:

  1. Identify measures that optimize certain marketing, sales, or service processes.
  2. Clearly identify most profitable customers by behavior based analytical measures.
  3. Understand customer behavior over certain conditions or events.
  4. Gain a predicative measure of customer experience at certain stages of life cycle.
  5. Produce predictive measures that identify profitable customers earlier in sales cycle.

One of the biggest mistakes companies make in quantifying relationship value is looking at only a few small samples of customer behavior. For best results, measure relationships across your entire customer base, and then compare your findings against the behavior of individual segments. Reevaluate points of measure every few years depending on how frequently the requirements of your customers change.

If your measures stop producing the response you desire, reevaluate your criteria by remapping your customer interaction points. It is possible that new technology can simplify your processes or your competition has changed customer expectations for how they should get to a certain result. The good thing is that you'll make the most of your customer relationships now with a tool that lets you adapt to market changes quickly.

By understanding and measuring how your customer interacts with your company you can easily develop a system to qualify relationship value. You can do this because customer interaction points represent measurable points in time with customer behavior at these points determine the likelihood of future events.

By selecting analytical measures resultant of positive customer behavior, you create a way to describe customer relationships in a way that is predictive of future actions. The more you learn about your customers, the better you can anticipate their needs. This means less waste and better targeting for every marketing, sales, or service effort.

While quantifying customer relationships still a concern for many companies, you now have a simple plan to get started. How do your customers interact with your organization?

© 2004 JWH Consolidated LLC dba Center for Strategic Relations, All rights reserved.
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Earn a greater return from customer relationship management. If you are one of the thousands who invested in CRM but haven't broke-even, you can still earn a return on investment in 18-months or less guaranteed. Click now to learn what your vendor isn't telling you

Justin Hitt is a strategic relations consultant with the Center for Strategic Relations. He is available for limited consultative support of professional organizations serving other businesses. Call +1 (877) 207-3798 or visit https://iunctura.com/

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Inside Strategic Relations is for Sales and Marketing Management who want to turn business relationships into profits. Members read past issues at https://iunctura.com/archive-newsletter

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