The ONE Question To Ask Customers

Larry Freed really tees off on Fred Reichheld and the Net Promoter Score concept on his blog, calling the book a fraud. I think Larry is too harsh — but I would assert that “likelihood to refer” is not the ONE question to ask.

I’ll propose a different question, but first want to share some thoughts.

Many financial services firms segment their customer base. Many use a “value” approach, segmenting customers by their value to the firm — looking at the number of products owned, or estimating profitability. Others use psychographic approaches to identify the differences among customers as they relate to attitudes about life in general or about managing their financial lives.

But both of these approaches — and most others in practice — fail to identify something very important: The type of relationship a customer wants to have with the firm.

Consumers enter into “relationships” with firms with different expectations — and desires — for what that relationship will be. I put the word in quotes, because in some (many?) cases, a consumer doesn’t want a relationship — he simply wants to buy and use a product or service from the firm. But as maketers, we’re looking to deepen the relationship our customers have with us.

So, what’s the one question to ask customers?

What are your expectations of us and how well are we meeting those expectations?

(OK, I cheated. That’s really two questions. But even Reichheld’s one question becomes more helpful when you ask “why are you likely to refer us?”)

The challenge is in constructing the right prompts for the expectations question. From the research I’ve done with financial services consumers, I strongly believe that many consumers’ expectations will fall into one of the following buckets:

  • Interpersonal excellence. These are the consumers who are predmoninantly looking to deal with employees who are friendly and helpful; take the time to listen to problems, concerns, and needs; and live up to values portrayed in the firm’s ads.
  • Advice and guidance. These consumers are expecting objective advice and guidance in making product decisions and making the best use of those products. They may or may not care if the people they deal with are “friendly”, and they may not care if the advice and guidance they get even comes from a human (versus a Web site).
  • Operational excellence. These consumers want to do business with a firm that’s easy to do business with and never makes mistakes. Again, they may or not care if the people they deal with are “friendly and helpful” — in fact, they probably don’t even want to talk to those people in the first place.

If you don’t know what your customers expect from you — and how well you meet those expectations, then: 1) you can’t know what you have to do to grow the relationship, and 2) who cares if they’ll refer you to their friends and family?

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What’s The Value Of An Email Address?

In response to a post about how to calculate the value of an email address, Benry comments that the value can’t be determined simply by looking at email marketing campaign results, because

We use email to market to people, but also to support communication or to enable sales staff to converse with [customers] in the manner best suited to their needs.”

Good point, Benry. But, no offense, it’s a good answer to a question that should never have been asked.

Asking “what’s the value of an email address?” is like a baker trying to figure out the ROI on flour. She can’t do that. She can compute an ROI on the finished product — the cake — but not on the individual components of the cake.

An email address is like flour — it’s raw material. If we’re going to compute the “return on customer” (SM rights to Peppers and Rogers), then we can’t compute a return on all the individual elements that go into “making” that customer. That’s what an email address is — something that (presumably) helps us create a loyal, profitable customer.

What it means: Marketing is wasting its time trying to quantify the value of an email address.

The “value” is in determining: 1) who the best customers and prospects were; 2) the best offer to make to them; and 3) the best way to reach them; and 4) their email address if email is the best way to reach them. Step #5 is execution (the firm still has to invest in running the campaign). If you didn’t invest in all five steps, there would be no “value” to that email address.

What should Marketing do?

1) Distinguish between cost and value. There is no inherent value or ROI of an email address (or a blog for that matter). The ROI comes from the utilization of the asset (in this case the email address). Which is not to say that marketers shouldn’t focus on the cost and quality of that email address. How much should the firm invest in acquiring email addresses? Which email addresses are higher quality than others? These are the questions marketers should address. But to answer them, marketers are going to have to….

2) Define who the firm’s best customers and prospects are. Plenty of marketing departments have customer segmentation approaches, but few really identify who, across the segments are the best customers (current and potential). And even among the firms that have done this, few have been able to drive those definitions down to the investment allocation level. When you show senior execs who the most valuable customers and prospects are — and that the best way to reach them is through email — then they’ll be more likely to invest in acquiring their email addresses.

3) Talk about opportunity costs. Running into senior execs’ offices with calculations on the value of an email address doesn’t improve Marketing’s reputation or its desire to be more strategic. Marketing needs to show that the relevant metric here isn’t ROI, but opportunity cost. What is the opportunity cost of not acquiring email addresses? What would we do with that money that could help produce a better return on our investment? This is how Marketing shifts the focus from the micro to the macro, and becomes more strategic to the firm.

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Constructing Marketing’s Key Performance Indicators (KPIs)

Been listening in on a conversation between Gary Angel and Eric Peterson regarding web analytics KPIs. Eric says:

Key performance indicators should be included or excluded from a hierarchical reporting strategy…based on the likelihood that the indicator will spur some type of action in the organization when the indicator unexpectedly changes…[although] the action the organization would take, when unexpected change occurs, is never precise.”

Gary’s take is more context-oriented:

A report becomes actionable by using KPI’s to provide the business context within which an action can be identified or deemed worth trying. The more relevant context a report provides, the more likely it is to be actionable. KPI’s are the context builders that make up our view of what’s important and what isn’t.”

Although their focus is on Web analytics (I think), their points are relevant to Marketing’s broader quest to define the right set of KPIs. My take: Constructing the “right” set of KPIs is not an either/or decision between actionability and context. CMOs should look at their KPIs as a portfolio of measures, each of which should meet at least one of the following criteria:

  • Explanatory ability. Perhaps closest to Gary’s description of context, does the KPI help explain why what happened happened? (sorry, you may have to read that twice).
  • Predictive ability. Does the KPI enhance the firm’s ability to predict what will happen in the future?
  • Behavior change. Does the act of measuring the KPI incent people to act or behave in a particular way (that management believes is desirable)?

When evaluating a set of potential KPIs, marketing execs need to put each metric up against these criteria and ask themselves (at least) two questions:

1) Does this metric help us explain, predict, or change behavior? If not, then that metric may not be a good candidate for the KPI list.

2) Is the set of metrics balanced between the criteria? If all of the proposed KPIs are explanatory, then it’s likely that reports will be “rear-mirror” focused, leaving senior execs frustrated that Marketing isn’t looking ahead.

What about metrics that simply describe what happened? I’m not saying that these shouldn’t be measured. But they don’t clear the bar to qualify as a Key Performance Indicator.

This is important because too many marketing dashboards and scorecards are nothing but laundry list of metrics that senior execs often get from finance or within their own LOBs. To be effective, Marketing’s reports have to go beyond the standard metrics and add value to execs understanding of the business (i.e., explain, predict, or change behavior).

Hat tip: Jim Novo
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Response To MarketingNPV’s Predictive Analytics Predictions

If I’m the first person to point you to Pat LaPointe’s MarketingNPV site, go there and spend a few hours perusing the great content on that site.

On his blog, Pat posted his predictions for the “Path of Predictive Analytics.” I wanted to share some of those predictions, along with my thoughts on them.

Pat says: “Analytics are increasingly the lifeblood of a CMO’s accountability process.”
My take: Analytics could be the lifeblood — but it isn’t. For now, the analytics focus in many organizations is at the campaign level or at the investment level (i.e., what was the impact of last quarter’s media spend). For analytics to become the lifeblood of the accountability process, the focus needs to shift from a micro- (investment level) to macro- (enterprise-wide) perspective.

Pat predicts: “The corner office will go from interested to involved to participating in marketing decision making. The analytics underlying resource allocation recommendations will need to more clearly articulate and justify what you need, why you need it, and the payback.”
My take: Pat is mostly right on here, but his prediction misses the nuances of C-level behavior. CEOs don’t want to be involved or to participate. They just want the process to work smooth, and to produce results. Smart CMOs will utilize (not rely) on analytics to build trust. How many CEOs really understand the models that CFOs use to make financing decisions? Certainly not all — but they trust that their CFOs are making smart decisions with these models. CMOs need to be comfortable in explaining their analytical models (as Pat says “sans the geek interface”) so they, too, can build the trust that CFOs have gained.

Pat predicts: “The near future of analytics will go beyond one-time, ‘what’s going on today’ metrics to present real-time continuous results. A new ‘test and learn’ framework is also helping marketers capture feedback and adjust to it more quickly.
My take: For me, ‘real time, continuous results’ doesn’t capture the essence of where analytics needs to be headed. Instead, it’s something more like ‘dynamic measurement window.’ Analytics must do a better job of tracking and tying together the investments that were made last year (and the year before) that have an impact on this quarter’s results, and forecasting and projecting out results into the future. Again, it goes back to the micro-focus of today’s analytic efforts (“how did THIS campaign do?”).

Here’s the bottom-line: Looking ahead, analytics has a huge opportunity to:

  1. Shift the discussion from the micro- to the macro-. Instead of talking about how the last campaign did, CMOs can start talking about how the firm is doing as a result of marketing investments.
  2. Improve transparency. CEOs and CFOs hate to admit this, but they have no clue how marketing spends its money, let alone how it decides to spend its money.
  3. Build trust. Regardless of how sophisticated your modeling techniques are, if the senior management team doesn’t trust marketing, then marketing isn’t succeeding. Analytics can help build this trust — but it isn’t a panacea.

If You Want To Win A Marketing Award, Use A Calculator

An article in Chief Marketer called How to Win (More) Marketing Awards: Practical Help from a Real-Life Judge offers some advice on how to win an award, even if you’re not the “best marketer on the planet.” Here’s reason #1:

Most entries are riddled with mistakes and slapdash efforts. [S]ponsoring organizations…get 1% of entries in the first weeks. On the actual day of the deadline, roughly 65% of entries will arrive. Then the day after the deadline, the final 44% of entries come.”

That’s 110% of the entries, according to my calculator. And you wonder why CFOs question marketing’s ROI calculations. 🙂

Investing Beyond The Four Walls Of Marketing

There are some common complaints I hear senior execs voice about marketing:

Marketing is too insular — they’re not out there with customer service and sales trying the better understand the customer”, and “Marketing doesn’t tell us where we should be investing to deepen our customer relationships.”

If this frustrates you, I can understand why. After all, an article on Adweek.com about CMOs’ increasingly short tenure in the job stated that “…many CMOs are not given authority over areas other than advertising and promotions.”

But I’m not shedding any tears — senior execs get to be senior execs because they influence direction and decisions that extend beyond the scope of their function or department.

That’s why Marketing needs to help define, initiate, and fund projects that are owned by other functions like sales, IT, and customer service.

[I can hear you saying “but I don’t have enough budget to do the things I’m currently expected to do.” Your CFO and CEO aren’t buying it — they don’t believe that all the money that marketing is spending is money well spent.]

Case in point: Of all the things to spend its money on, why did ScotiaBank choose to invest in movie theater naming rights? Does it have the best Web site of all the Canadian banks? Are its branch reps the best in the business at closing sales? Is the bank’s lead management process running perfectly? Has its analytics group already modeled everything there is to be modeled?

I doubt it can answer “yes” to all these questions. Are these strictly marketing’s responsibilities? Probably not. But investing in theater naming rights may be a case of marketing spending its budget because it has it, not because it was the best investment alternative. This isn’t an isolated example.

Marketing needs to get involved and help fund initiatives that:

  1. Improve sales’ ability to determine lead capacity and distribute leads to the right salesperson (so they’ll stop complaining about lead quality).
  2. Train call center reps on product features/benefits and sales techniques.
  3. Help eCommerce invest in — and publicize — online self-service functionality (to improve customer satisfaction and the retention rate).

Investing outside the four walls of marketing requires tough tradeoffs and tough decisions. But CMOs that make them will reap the rewards. The customer experience will improve, marketing’s ROI will improve, marketing’s influence within the firm will grow, and who knows — maybe the CMO’s tenure in the job will increase as well.

Affluent Baby Boomers Don’t Want Financial Education

Interesting study from Cogent Research on affluent baby boomers was featured in today’s Investment News. Key data points:

  • More than one-third of the 4,000 investors who were born between 1956 and 1964 with investible assets of more than $100,000 surveyed in the study said they don’t work with an investment adviser.
  • 57% of the respondents’ total investible assets were managed without the assistance of a financial adviser.

The article quoted Peggy Cabaniss, president of Lafayette, Calif.-based HC Financial Advisors Inc, as saying that the survey underscores the need for more education about financial planning.

My take: Affluent boomers don’t need — or want — to be educated about financial planning. They need to be convinced of the value of working with an advisor. These cranky investors don’t trust financial services firms, and are very aware of the conflict of interest scandals that have plagued the industry.

Mass media advertising isn’t going to fix the problem.

Financial firms have to target advisor-holdouts with direct communications that: 1) demonstrate what it’s like to work with an advisor; 2) are upfront and transparent about fees; and 3) provide compelling offers (a few firms have found success with invitations to dinner at a fancy, local restaurant) to get these potentially lucrative prospects to take action.

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Google’s Faulty IT Innovation Logic

Google’s general manager of enterprise business, Dave Girouard recently told the Mass Technology Leadership Council that:

“the insane complexity of technology is leading companies to spend 75% to 80% of IT budgets simply maintaining the systems they have already.”

And what should they do instead, Mr. Girouard? Simply ignore — or better yet, throw away — these applications?

Mr. Girouard’s comment reflects a naive understanding of the ROI of IT investments. Smart firms build ongoing maintenance and enhancment expenses into their ROI projections. These ongoing M&E costs create new functionality that enables the firm to continue to reap the projected benefits of the app.

Discontinuing these costs in order to “innovate” is foolish and naive.

One Loyalty Program’s Impact On A Bank’s Customer Relationships

The Aite Group recently published an excellent report on reward/loyalty programs in financial services. I can’t share their analysis and forecasts here, but they did give me permission to share the following chart, which shows the impact that Banco Popular’s loyalty program, Premia, had on the depth of their customer relationships.

premia.jpg

[Note: The point of comparison with the plan’s 250k members wasn’t just all other customers, but a control group with demographics similar to the plan participants. In addition to the product growth, attrition among Premia members was 4% versus 11% for the control group and 13% for all customers]

A couple of thoughts on this:

  • In addition to the loyalty program, which rewarded members for their relationship across a range of products (not just credit or debit card), Banco Popular must be doing something else right — those are impressive cross-sell statistics even for the control group.
  • My bet is that plan members (and thus, the control group) skew towards younger adults, who are more likely to: 1) be in the market for credit cards and auto loans, and 2) consider doing business with one firm (us Crankys don’t like to put our eggs in one basket).
  • There’s another benefit here: The impact on employees. Richard Davis, of US Bank, said in Banking Strategies: “…[our] program has grown into a full suite of rewards including cash, miles, or merchandise. For the first time, the employees, en masse, said, “I like this program. I’m finally giving something to my customers that they may want.”

Results like these, coupled with the loyalty program efforts of high-profile firms like Citigroup and Bank of America, point to increased deployment of cross-product loyalty programs within financial services. Smart firms, though, won’t just rely on a loyalty program to build long-lasting relationships. They’ll use loyalty programs to:

  • Increase engagement. A loyalty program can be effective at creating economic loyalty. But to create emotional loyalty, customers need to be engaged with the bank in meaningful interactions. A loyalty program can be instrumental in creating these opportunities beyone simply balance checking and problem resolution.
  • Glean customer insights. Doing market research is expensive and potentially time-consuming. Highly engaged loyalty program members will prove to be a timely (and cheap) source of customer behavioral data as well as attitudinal data.
  • Compete. Large banks will face some internal organizational structure hurdles when trying to create cross-product reward programs. I expect to see a number of large and mid-sized credit unions to capitalize on this and aggressively pursue loyalty programs to compete with these firms in their marketplaces.
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The Unrealized ROI Of Blogging

Forrester recently published a report on the ROI of blogging and a follow-up case study focusing on the ROI of General Motors’ FastLane blog.

According to Forrester’s calculations, GM’s first-year ROI on the blog was 99%. The primary contributors to the top line: 1) $180,000 in customer insight, which was estimated by assuming a cost of $15,000 for running a monthly focus group with 10 participants over the course of a year, and 2) $380,000 in press coverage, calculated by estimating the value of “high-visibility Web placements” and the cost of CPM advertising on sites like InformationWeek.

Now, I’m willing to bet the $6 in my pocket that few firms will get anywhere close to those returns. Why? Because I don’t believe for a second that many firms will actually stop running focus groups or stop running advertisements.

ROI estimates based on cost displacement are only realized if the expenses to be displaced don’t get spent.

Two implications for marketing execs:

1) Budgeting and investment allocation decisions that exist within departmental silos are practically guaranteed to prevent cost displacements that occur outside that department (talk to your IT folks, they know all about this), and

2) If you’re going to tout the potential ROI of blogging to your CEO, you’d better be ready to make some tough decisions about where the money to fund the effort is going to come from (talk to your analytics folks, they should be able to help you here).

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