Solving the WHYDFMT Problem in Customer Service

Come on, say it out loud three times real fast.  Solving the WHYDFMT problem in Customer Service, solving the… forget it.  Quite a mouthful, ain’t it?  Alas, this is the quintessential problem of customer service and the one you need to tackle.  Forget channels, and feedback, and measurement and all that stuff.  That is secondary.  If you want to build a successful customer service and support strategy this is where you are going to focus: WHYDFMT.

Which, when spelled out, means What Have You Done For Me Today. This is the attitude of customers towards customer service – and the reason you must do things differently.  Let me explain.

I have written countless times that Loyalty does not exist (come to think of it, it is the most popular post in this site – if you have not read it yet, take some time to do so – I’ll wait right here).  It should not be measured, sought, or intended.  I have not been listened by lots of people, but lots of head-nodding ensue.  WHYDFMT is why loyalty is not a goal for your organization.  Customers, when dealing with customer service, take the attitude that each instance is a fresh, brand-new, out-of-the-box time for your to prove your love for them.  Each time they approach customer service they want something and they don’t care what you did for them last time – actually, that reinforces the feeling of entitlement (I promise, I am not bitter or resentful – just noticing things).

You gave them a credit last time they were late with their payment, well – do it again.  You refunded a fee they did not understand (although they signed up for it when they contracted the service), well – do it again.  This creates a problem within the organization where managers don’t want to continue the trend and CSRs don’t want to deal with customers.  It creates a big problem for management when customers are willing to criticize them for the performance today and forget the performance yesterday.  It makes the company look like it provides bad customer service based on, maybe, one bad instance.  That is bad for your brand and you have to change it.

So, how do you solve this problem?  Let me point you to the solution in an example: Zappos.  That’s right, the telephone / online shoe sales organization. By design, every single instance when a customer contacts the organization will be a delightful experience.  Every single time.  It is part of the corporate culture, it is part of their brand – some even would say part of their mysticism.  This is who they are, not what they do.  This is their persona, their representation to their world, their promise to their customers and to themselves.  That is why it works.

So, as usual towards the end of the post, what shall you do to partake on this?  First, recognize Loyalty is not a worthy pursuit (yes, again) and focus instead of delivering excellent experiences.  Each time and every time.  Easiest way to do that?

1. Conduct Feedback Events – use surveys, or any other tool, to ask customers what problems you have in your experiences today.

2. Implement an Experience Initiative – Zappos did not get to excellent experiences by wishing them, they planned for them.

3. Continuous Improvement – over time, even the most excellent experiences tend to become dated. Update them.

In other words, to solve the WHYDFMT problem – avoid the question.  Make it very clear, explicit, and documented (have you seen the feedback that Zappos gets from customers – almost fanatical) that you are about your experiences and customers won’t ask that question anymore… and they will become loyal (sorry, parting pun – could not resist).

What do you think?  Is this something that may work for you?  Let me know your thoughts and experiences — and as always, email me if you want more details or have any questions (ekolsky at evergance dot com).

Forget Parallel Computing…The Money is in Parallel Servicing

I know this will be hard to believe – but I am a nerd, a geek, a lover of all things technology.  Why, in the old days when Windows 3.x was just beginning I made a few extra dollars building computers from spare part for fellow students (hey, it was way cheaper and popular back then), not to mention that I am certified for Novell and Microsoft networks (yes, I was a sysadmin at some point in life).  I love technology and I use my knowledge as much as possible.

As I was cleaning one of the hard-drives in my computer last week I came across a paper I had written at some point in life contrasting the use of parallel and serial ports in computers.  Now, this is not a big deal these days with USB and Firewire and the myriad other connection options – but back then it was the only way to connect.  In this paper I looked into the technological considerations, including speed, of using one or the other.

Here is the summary you need to know for the purposes of this post.  Parallel ports work, as their name implies, by sending data at the same time through all possible pins or channels with no interruption.  This translates into a top speed of around 4 Mbps.  Serial, on the other hand, work by sending data bits one at the time and waiting for confirmation before continuing.  This reaches a top speed of 115 Kbps.  The difference is somewhere around 12 times faster for parallel ports once you count in things like hexadecimal conversion, acknowledgments and enhanced ports and accelerators.

Why am I bringing this up?  I am not trying to date or label myself, I am using this as the starting point for a new model for customer service – parallel servicing.  All the customer service we do today is in serial form.  A customer contacts us, and they wait.  We take one action, they wait.  We solve their problem, we think, and then we wait to make sure it was solved, or we wait for them to come back.  Not only that, but we cannot serve multiple customers at once unless we deploy more “ports” or resources.

The concept of parallel servicing is not having to wait, to be able to service customers at a higher speed, with certainty of delivery and better results.  How would you like to be able to service more customers with just your current resources but faster?  Three steps to get you there:

1. Proactively Service Customers.  I wrote about this many times, talked about it for a long time – and no one listened (it’s OK, I am used to it).  You have the tools, technologies, and know-how to implement proactive service today – with no major investment.  As simple as writing a few triggers for your database, then letting them run their course.  As you get more comfortable you can get more courageous — the sky is truly the limit.  A new patch released? Send an email to people who own the product you are patching.  Complementary product created for your best-selling product? Up-sell.  You can even charge for it in a subscription service!  So many ways to do this… so easy to do.

2. Change your Processes.  Yes, I am telling you to change your processes. No, I don’t know how (but would be glad to do the work for you if you want, just call me).  The secret here is to find serial processes that can be converted to parallel processes.  Why would a customer have to wait for one action to take place before a second starts?  Look, you know your processes, you know where you can find actions or functions to improve.  Once you get used to the idea of parallel servicing you will notice more and more areas where it makes sense.

3. Automate. Nothing makes processes go faster than automation – and you can run multiple instances at the same time (sorta like a parallel communication bus).  Look for areas where you can automate to improve the speed of your processes.  In lots of cases, you can turn long processes into sub-second actions on the computer – virtually parallel servicing if there is no delay!  Think about where automation makes sense, and do it.

Final words: you don’t have to do all this at once.  I am a firm believer in evolutionary changes, not revolutionary ones.  Go slow, little by little, and notice the results.  Get more courageous as you succeed.  Do more and see the speed of your service processes improve, then end up with a great example of parallel servicing.

What do you think? Interesting enough to try?  Leave me a comment, let me know how it goes…

Shifting Priorities, or How to Become a Customer-Driven Organization

So, how tired are you of hearing me — what’s the right word here… oh yeah — “emphasize” the need for customer centricity?  I wrote about it before in this blog, and I wrote and preached about it for over seven years at Gartner.  It was almost like a battle-call, each time I talked to a customer we always started with a discussion on customer-centricity.  So, with that in mind — how sad would you be if I were to tell you that customer centricity is a thing of the past?  How about if I told you that customer-focused organizations are not likely to make it either?  Shocking, I know… but let me explain.

We are entering a state of business that is way different that we have seen so far.  Until now, and for the most part still continuing for the vast majority of organizations, our approach to business has been us versus them.  Company versus customers.  Come on, be honest – even when you talked about customer-centricity you were still trying to figure out how to create the best possible solution for your organization – not your customers.  Still there are plenty of verticals where this is the norm rather than the exception.  We are, by nature, trained to seek our own benefit above others.  That was fine –  until now.

See, among the changes brought by social media (you know, that whole feedback-driven, blog-centric, twitter-infused model of businesses) came the recognition that customers are strong. not one by one, but as a group.  There are plenty of examples of businesses that either took advantage (Comcast) and reaped the rewards, or failed to notice it (Motrin) and paid the price.  The social media “revolution” has actually managed to change the world of business for those astute companies that noticed it.  The new world is no longer customer-centric — it is now customer-driven.

Converting your business to customer-driven means that what you do is what your customers want you to do, and tell you to do.  You make the decision, of course, to engage in that business model.  However, if you do – their feedback drives your organization.  There is no more ignoring what they tell you or what they need – instead those demands become your driving force.  The reward for that? Loyalty and repeat business.

Are you still with me? Still interested?  Good, here is what you need to do.  You don’t have to change that much what you do, just how you react.  See, the core principle of customer-driven businesses is feedback.  No, you are not getting away from that so easy.  You have to create your feedback strategy (and I am not just talking about surveys here), deploy it, collect feedback and constantly analyze it and implement changes based on it.  If you cannot make your organization move dynamically, this is not for you.  If you cannot quickly react to changes in what your customers need and want, then don’t bother.  This is for dynamic organizations that want to hear what their customers have to say – and react to it.

Here is an example of a customer-driven business model.  Egg Bank in the UK heard their customers’ complaints about the lack of a specific type of account.  They thought it would be a good idea to create it, but they also wanted to make sure they delivered it exactly the way their customers’ wanted.  They implemented a series of short surveys to collect input on how to deliver that service.  They put out the survey for just three days and collected all sorts of feedback.  They later analyzed the information collected and within a week they had created a new product, conforming to their customers needs and desires, and it was an instant success (guess where the initial marketing list came from… yep, the people who provided feedback).

Are you ready to let your customers drive your organization?

ROI for CEM? NWJ (No Way Jose)!

First things first: I don’t have a set formula for calculating a ROI on CEM.  Are you still with me?  Good… because what I do have is better than a formula – I have a method.  A method we used several times before, and it has proven to be successful.  So, if you are interested in knowing what you can get out of adopting CEM, read on.

First, want to make sure you did your homework.  In my previous post on experience management I told you to read the three notes I wrote on Customer Acquisition and Maintenance costs (just in case, #1, #2, and #3 here for your enjoyment).  I am going to assume that you did read them going forward.

The reason I am referring to those posts is that the formula you created for your customer acquisition and customer maintenance are going to be critical for your ROI calculation for CEM.  Two caveats: first, it is not possible to quantify quality – which means if you improve your experience you cannot put a number to it (as in saying “I am going to improve my experience by 10%”, or “I will improve my interactions with customers by 20%”).  Second, your mileage will vary – what works for one of you may not work for someone else.  That is why I have a method, not a formula for this.

Now, let’s focus on the ROI of from adopting a CEM strategy for your organization (you do remember this is an enterprise-wide implementation of a strategy – right?).  By creating better experiences you stand to get three benefits: reduced number of interactions (happy customers that have what they need don’t use customer service), shorter interactions (if they put off calling because they don’t like the experience, they may have 3-4 complex problems instead of a simple one), and reduced costs for training (the same systems that have better information for your customers will be used by your agents – greatly enhancing their powers with less training).

How do you decide which ones of these benefits apply to you?  Well, this is part where it depends.  If you are going to improve your customers’ experiences by offering more channels and more automation, you will have a reduced number of interactions (you may have some in other channels, but they would probably be cheaper).  If you are shortening the processing time, you are more likely to get easier and shorter interactions as well as fewer of them (customers won’t call just to “check” status).  If you are implementing more automation, better knowledge management or better access to back-office systems, then your training costs and interaction times should be greatly reduced.  You have to determine what makes sense for the actions you’d be taking.

Then, there is also the issue of increased revenues.  Depending on how you improve you experience, part of it may be offer management for specific situations, or the ability to increase revenue recognition, or even the ability to create new services and revenue sources.  All those should also be considered – and you are probably tired of me saying this – but they cannot be identified until you design your new experiences.

One final point on return on investment: if you make customer experience management part of your branding, as it should be, you will see that your customer acquisition costs (again, your calculation as detailed in my previous post) are going to be lower.  No, I am serious.  If your brand of excellent experiences becomes part of your overall brand, then customers will need less convincing to sign up, which will aid converting customers, thus reducing the cots of acquiring them.  And, if you think that I am saying that you cannot calculate your ROI until after you implement your experiences — no, I am not.  I am saying, your ROI will be based on assumptions and expectations of what that CEM implementation will be.

So, what do you think?  Does this method makes sense?  Let me know what you think..

Customer Service is Dead — Long Live Community Service!

I have had lots of requests lately dealing with social media, and how to make good use of this for Customer Service and CRM – even broadening the scope into the entire enterprise.  Of course, this is related to the “explosion” in twitter, plurk, Facebook, blogging and related tools.  But, is there something else there? is there value in implementing communities?

Yes, yes, yes, and yes.  This is the future of customer service.

I have been working with communities, back then called collaborative customer service or forums, for some eight years.  Of course, back then we had little to go on – some forums, communities were nascent at best –  and we could not see how it would work best.  I wrote about it as the intermediate step between Customer Interaction Hub and Secret Customer Service.  Got some interest, did some strategy work, small lab-based deployments but almost no one at that time even attempted to take on it fully.

Fast forward to today: communities are the rage – an integral part of Web 2.0. We still don’t have a clear path or a well defined purpose, but lots more is happening.  Now if the perfect time to get started – once the concept of community service becomes mainstream (12-18 months from now) it will move very, very fast for you to play catch up.  You can do this now and be prepared.

The benefits of implementing community service are astronomical.  There are plenty of case studies (Mercury Interactive, Cisco, Microsoft, and more) that have moved either part or their entire support structure to communities or forums and have increased their customer satisfaction, reduced their costs of customer maintenance – even found new ways to increase revenue!  All this by switching from traditional customer service models to community service.  So, how do you make the move?  Three things to get started:

1. Make sure your customers want it – Quite simple, there ain’t no community without people.  If your customers are not going to participate, nor do they feel they can get value out of it then the community will not succeed.  This is independent of topic, theme, method of operation or anything else.  Plenty of failures exist of communities launched without checking with customers first. Best way to start? start a community alongside the rest of your support structure.  Advertise it. Make it attractive. Populate it with good content. Commit time and resources to grow it.  then you start shifting people over slowly, finally make it the channel of choice.  Sounds simple; it is simple.

2. Make sure your company can support it – Despite claims to the contrary, the most successful examples of community service are those where the company commits time, resources, knowledge and participants to them.  If your experts are involved in the community, take interest in it, answer questions and receive feedback from customers the community will grow and become useful to you.  If no one from your company ever enters the community, and it builds with its own content and resources, if you seem not to care about the feedback and knowledge built in it, then it will be a failure.

3. Let it be – I know this is hard to understand, but you have to let the content be free.  Monitoring content, censoring entries, and controlling what goes where and how it flows through your community is not the way to go.  Think Wikipedia and self-regulating content.  It is likely that you will have to do some policing to get it started, but go lightly and err on the side of freedom.  Once the community is up and running, make sure you use reputation tools built into them so the people that matter the most (engineers and outside experts as an example) can be recognized.  Communities center around self-elected leaders and they are the ones that will control the content and quality of the community. Feel free to court them – but try not to control them.

Final word of advice.  If you read my blog on customer experience management you know that I will advise you to integrate your community into your CEM strategy.  Yet, I will also advice you to make sure that you treat communities as the most important link between you and your customers since there is nothing that can replace the direct link you can have with them – and the free flow of information both ways.

Are you working with communities? How is it going?  Do you see yoursefl replacing customer service with community service?

Welcome to the Real World, Neo

Yeah, yeah, yeah.  I’ll admit it – I love”The Matrix” (not the sequels as much as the original).  It can be used in so many ways to explain technologies and trends.  I am not talking about the aesthetics of “bullet time”, nor whether it could possibly exist.  I am talking about the actual world where the movie takes place.  Sure, there are plenty other metaphors for life as well, but the one that interests me the most is how that alternate universe explains so well where we are going today with our technologies.

Let’s say that Web 1.0 was about the infrastructure.  We put together the servers, we built the connections, we laid the “pipes”, and we created an amazing infrastructure to connect virtually everyone in this world to everyone else.  We, in Thomas L Friedman’s words, flattened the world. Problem was, we did not know what to do with it.  Sure, we had the standard ecommerce applications, some self-service solutions, interactive connection to easy applications, we created and used static, non-leveraged content.  The basics that you would expect to find in any other connected world.  Except for a sense of community, smarts, and automation. The “sharing” was not real, it was just accessing some static content (or partially dynamic static content) via a dumb-down interface.  Better than what we had, but not the best.  In Matrix-terms, this were the individual machines that were plotting to take over the world.

Now, let’s fast forward to Web 2.0.  There are lots of definitions out there for Web 2.0 – almost as many as startups trying to make it in it. Tim O’Reilly is credited with coining the term and describing it initially.  We use lots of new technologies, new models, and new applications.  Web 2.0 is about leveraging the infrastructure.  We are moving away from the static content, come-and-find-me model we created in Web 1.0 and we are creating dynamic applications, using distributed architecture models, dynamic and useful content, access and integration levels never before used or seen.  We are, in short, using the network.  Making the network become the application, and the content itself.  We are, in matrix-terms, beginning to create the matrix itself.  Alas, we still don’t’ have intelligence built into the system to self-regulate, auto-manage, or self-organize.  Yet, Web 2.0 (and Enterprise 2.0 by extension) is about using content to make the infrastructure useful.

Of course, there is a futuristic state of the world that is Web 3.0.  No, it is not defined anywhere that I know, nor am I creating a new term (come on, I just grew the version number by one, how hard is that to do).  I am presenting my version of a likely model we will use in the future of the Internet, applications, content – and how we interact with them and each other.  We built an infrastructure, we created the content to populate it – now we are making it useful.  Truly useful.  We are talking about self-organizing systems, ultimate automation, self-categorization – even intent-driven systems (Michael Maoz and I wrote about this back in the Gartner days).  Think the way computers worked in “Star Wars”, think the way the Matrix operates.  A neural network that realizes there is no corner to far-fetched, no content unusable, no connection impossible.  This – Web 3.0 – is the core of the Matrix.

Now, I am not proclaiming that we are all going to be batteries in 20-25 years or any time after that.  But, the model fits well to where we are taking our technology world.  As we continue to evolve, you will see some of the things we thought impossible even five years ago become reality.  Self-managing, automated, independent systems that perform flawlessly without us noticing them.  Secret Customer Service (another concept I worked on while at Gartner) finally emerges.  Self-organizing, dynamic communities form ad-hoc to tackle each and every problem.  Computers become more independent, and we become more advanced as a group.  We become a global tribe that has its own heartbeat, and interacts with technology to simplify our lives.

Sounds interesting? Welcome to the real world – you.

It is All About the Experience, You Know?

While I was at Gartner I wrote a lot about Customer Experience Management (CEM).  I mean a whole lot.  I co-wrote a guide to doing CEM with Ed Thompson (if you have a Gartner account, you just have to read what he writes – and if you can make it to one of his presentations, you will be a better professional for it – promise).  I wrote lots of individual research notes, presentations, case studies, lots and lots and lots.  I spent a very long time talking to vendors and end-users about it, making sure they understood what it was, how to approach it, and how to succeed at it.  You see, the little secret that few people know is that Enterprise Feedback Management, Surveys, Analytics and all that other stuff is not more than a sub-set of CEM.  Without Feedback, there would be no CEM – alas, without CEM Feedback would be as dull as… well, an air sandwich (come on, don’t make me explain it — two slices of bread, nothing in between… i was raised in Argentina, what do you want?).

Because everything you do with feedback, actually let me take that back.  Everything you do with your customers is about the experience.  There is no other way around it.  I was reminded of that this week, as I was doing some research into Social Media, SOA, Web 2.0, Web 3.0 (yes, we already have that), and Web 4.0 (that one is mine, not yet defined formally – working on it).  All these wonderful technologies will do absolutely nothing to improve your relationships with your customers if you don’t put them to good use – that is, use them to build a better experience.  After all, it is all about the experience – you know?

So, how do you get started in the world of CEM? First, repeat after me: CEM is not a technology (pause for you to repeat), CEM is not a tool (pause), there are no CEM Vendors.  Go back and repeat it again.  Good.  That is the secret of your success (no, not like Michale J Fox).  You will, as you embark in CEM, receive no help from software, hardware, or vendors despite their promises.  You can, if you want, ask for assistance from your friendly consultant (say, me), or do some research (work with Gartner – trust me on this, Ed Thompson and Jim Davies are superb).  You can try some of the “vendors” and “software” available for CEM (Google lists 2.9 MM entries for software, 250K for vendors) but trust me – there is nothing there for you.

Second, focus on the three Ps of CEM. Yes, the famous People, Process, and Politics.  As you develop your strategy for CEM (you already knew this was coming, it is not software or hardware, it has to be an enterprise-wide strategy – right?) remember that you will have to change your processes, train your people, and affect your politics.  The principles of Change Management will be your best friend, and prior experience with enterprise-wide projects your best ally.  If you don’t have any of these, don’t start – failure is at hand.  Make sure you know what you are getting into as you start working towards your goal.

Third, remember that CEM is an iterative process.  There is no end to it, just steps towards an improved experience.  Once you conquered the first set of processes, the first level of complex integration between interactions you will begin to receive feedback from your customers – that is how you know it is iterative.  Once you get this responses, you get to start again and continue to improve your (now better) experience.

Of course, I’d be remiss if I did not mention ROI for this investment.  Because, as you work improving your experiences you will need to show the return on the investment.  There may be no vendors or software associated with it, but it still require changes to process, training, potentially some EFM software if you don’t already have it, same with analytics and business processes software and systems.  There is a cost associated with it — and your CFO wants to see the return on the investment.  So, how do you prove the return in your investment?

Well, that is left for the next entry… but until then, do some homework and read my previous series on cost of customer acquisition and cost of customer maintenance.  Trust me, you will need them to go through the ROI of CEM.

Are you ready to get into CEM? What are you doing right now with it?

Using Email for Customer Service? Here’s How to do it Well

I must confess, I created most of the content for this post for a presentation I did at the last SSPA conference in Vegas.

It was a very interesting conference to be honest.  I was afraid no one was going to be at my presentation, but I ended up with standing-room only, and lots of questions.  My fear came from the fact that John Ragsdale, the VP of Research and SSPA and a great analyst, keynoted with a presentation talking about the end of email for customer service.  My presentation was called “The Second Coming of Email in Customer Service”.  Yeah, just like that.  He did a great job on his.

So, what is there to say about the second coming of email in customer service? lots and lots.  Please remember that I was with Gartner for seven years, sometimes it is hard to let old habits die.  So, I am going to talk in the same way I did at the conference – the Gartner Hype Cycle.  In case you are not familiar with it, the short version is that all technologies have lots of hype and few implementations initially.  The hype grows faster than the knowledge of what to do with it.  Eventually, the hype brings more adopters – yet we still don’t know much about what to do with it.  With time, and now that we have lots of people using it, we learn how to take better advantage of it and eventually get to use the technology productively, and that causes the second wave of adoption: knowing how to use it.

So, my contention is that email for customer service (or ERMS – email response management systems) is now climbing the slope and becoming more productive.  We are learning how to use it better, and how to make it work for us while generating revenue or saving us money.  This is the good part, because now we can not only tell new adopters how to use it better – we can go back to existing users and show them how to optimize it.  That is my passion, taking something that is not performing as well as it should, use best practices and lessons learned, and make it work better.  And, that is where we are today with the use of email for customer service.

We are, finally some would say, learning how to make it work as expected, how to save money using it for customer service, and how to do it well.  That is what my presentation dealt with – using best practices to improve the use of email in customer service.

I don’t have lots of time to explain in detail how this works, so I am going to summarize here the six best practices I highlighted in the presentation and prompt you to watch it onlne to see the rest.

1) Choose the best transactions to use with email

2) Automate the low-level interactions

3) Create and Maintain SLAs that are appropriate for the channel and interaction

4) Change your tracking metrics to effectiveness, not efficiency

5) Implement and use feedback on the value to customers

6) Hire, Train, and Maintain the proper skills for email interactions

I welcome comments, questions, and concerns. Please reply in the comments below, or email me directly (ekolsky [at] evergance (dot) com).  BTW, SSPA, KANA, and eVergance are planning a really cool webcast together to discuss the topic of Email in Customer Service.  We don’t have the final details yet, but is going to be on December 4th.  Send me an email, or leave me a comment, and we will add your name to he distribution list for it.

Thoughts? Comments? Complaints? Please let me know…

The Evil Lies in Properly Calculated Customer Maintenance Costs

(Part 3 of 3)

Part 1 – Is it Really More Expensive to Get New Customers?

Part 2- Segmented Customer Acquisition Costs Saves the Day

OK, on the final part of this three part series – how to calculate your customer maintenance costs.  Yes, this is the longest one as far as the number of metrics to track, but if you have been following the series you know where this is going.  Check out the previous two entries before you continue on this one, trust me – it makes more sense that way.

As you know, I advocate an individual approach to calculating customer acquisition costs, and customer maintenance costs.  You already read that I believe that true business decisions cannot be made in a bundle.  You cannot decide to cut costs for customer maintenance across the board, hurting those customers that need service but cannot get it since someone else abused it.  You cannot decide to implement a specific channel or program only for a segment of your customers just because you may think that, for example, business users will benefit more.  You have to make decisions based on the true costs of getting each customer, retaining and servicing them.

When it comes to customer maintenance costs, most companies just take the total they spend on customer service (by their definition) each year and divide it by the total number of customers.  Simple, and ineffective.  You can harbor expensive customers (constantly demanding service) as well as not properly reward inexpensive ones (they never, or rarely, require service).  You can ignore budding problems, such as the excessive cost of a specific segment, tool, or channel, by not properly focusing.  What is the solution? There are two things you have to consider for properly measuring customer maintenance costs.

First, the overhead costs you have for maintaining a customer service operation.  This is where you can see real savings when outsourcing, for example, or by decreasing specific sunk maintenance costs (such as what happens when you optimize your KM initiative).  This is the base cost per customer — not per interaction — for infrastructure deployment.

Second, I am assuming you already know your transaction costs per channel, broken down into different type of transactions (if not, as they say on TV – get them!).  Monitor interactions and add those costs to each personalized customer maintenance cost as they happen – yes, that also means web self-service or similar automated transaction tools (e.g. IVR) which tend to be ignored by most organizations since they are either cheaper than regular channels, or there is no prescribed way to track users through those channels (you may even have to ask users to log-in to get service).

OK, so this gives you a basic cost per customer for maintenance.  Now, the final step is to compare each personalized costs against the average per segment, channel, or transaction – and assign bonus points (or deduct from the total cost of maintenance) to those that are below the average.  This will reward those customers that don’t abuse the system with increased access to different tools, technologies, or even a higher status with the organization – depending on your business decision on who gets access to what.  Of course, you need to constantly (once a month would be fine, no longer) update the scores, the averages, the bonus points, and the status of each customer to ensure they receive all their benefits.

Chances are that you will have to make some small to medium changes in the way you measure and monitor your data and interactions; you will be surprised at how much certain segments or channels will cost you to maintain, and change your opinion on who is your best customer.  A simple per-customer benefit calculation (revenue minus cost) will allow you to create literally segments-on-the-fly as needed, based on all new different metrics, benchmarks, and results.

Are you ready to try a new approach to rewarding good customers and bechmarking your true costs?  Who knows, maybe you get to debunk the original entry for this series “a new customer is X times more expensive to acquire than to retain a current one”.

Ready to prove the myth wrong? Let me know how this goes for you…

Segmented Customer Acquisition Costs Save the Day

(Part 2 of 3)

Part 1 – Is It Really More Expensive to Get New Customers?

Well, I hope you have read the previous entry in the series, if you have not – follow the link above and read it.  Yes, it is necessary to set the proper background for this one.

Let’s dig a little bit deeper into customer acquisition costs.  In my previous entry I talked about a model where each customer carried its own acquisition cost.  You kept detailed records for each customer and how they become your customer.  You use these numbers to make customer-related decisions – satisfaction, loyalty, segments, etc.

Of course, I can already hear the first complaint – what about if we cannot do that.  I would not expect you to go beyond your normal course of business to find out, but I’d expect your systems to be setup in a way that will allow you to capture that information.  If you do carry out a promotion or campaign, you know whom it went out to, and you tend to have unique identifiers (name and address, name and email, etc.).  Same thing with  leads captured, you know where they all came from.  You also know the costs for each of those events.  Presto!  you have the information you need.

First, create a unique identifier for your prospects, make sure you collect the necessary data, and retain for each prospect what the costs have been for you to reach out to them.  Then calculate a cost per customer for each customer you already have in your database (if you don’t want to go through the trouble, average them – not recommended but doable).

Second, change your new account creation process so it accomplishes two things: one, captures the latest marketing campaign or event that convinced the new customer to sign up; two, look into past campaigns to determine whether another marketing effort was aimed at this customer in the past – to see if you have a prospect cost for them. This way when you create a new customer, you already have their personal customer acquisition cost.

OK, now there is one more wrinkle.  Some organizations, not all of them, will require an additional “plus” to be added to each account.  If you have a very large organization, and you spend some money in branding or marketing, spreading your name and making sure you remain in people’s mind, then you need to account for that as well as part of acquisition cost.  This is another shifting number, but not really hard to pin down.  Take your marketing or branding budget from last year, divide it by the total number of new customers you had last year – you have your “plus” number.   Add that number to each customer’s acquisition cost number – for last year only.  Make sure you update it every year for prospects and new customers that you reach out to for that year – even if they were there the year before.  Now you have a complete cost for acquisition for each customer.

Yeah, I know.  Not everyone will have access to all this data.  True.  But you may be able to get some.  You may also be able to capture the data you don’t have today and start storing it for future use.  Further, you may be creating an excellent customer acquisition cost for use next year, or the following and you want to add these calculations.  Whichever way, you can see how useful it will be to have this. Now you can make better decisions on retention, customer maintenance, and <gulp> firing them.  Yep, now it  becomes a real simple business equation.

If you dare to dream, think about benchmarking this and comparing yourself to your industry, across industries, across geographies – anywhere.  Once you create and embrace a model that others use as well, comparisons are easy.

What do you think? Some food for thought? Care to try any of these in your organization?

PS – stay tuned for a discussion on how to calculate a better customer maintenance cost…

the blog!

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