Keep 'em drooling

GUEST COLUMN

Many of today's marketing managers direct their focus on their brand's "life cycle". Various strategies are formulated and implemented for making the brand successful during its normal life, and for extending its life further.

At most annual marketing conferences, brands are assigned to matrices to ascertain whether the brand is a "cash cow" or a "star", and accordingly, a common "formula" is applied to decide its fate in the foreseeable future.

All these actions imply an internal focus to the external world. A view that is "inward-out". An "outward-in" approach, on the other hand, would mean profiling customers of a brand on the basis of the "customer life cycle", and then understanding the differing needs and requirements of the customers depending on their stage in their life cycle.

Clearly, the concept of a customer life cycle merits explanation. Simply put, the customer life cycle consists of three phases, each so distinctive that the implication for the supplier could result in fundamental changes in the way the company operates.

Consider these distinct phases:
Acquisition: Consists of search by a potential customer and an initial experience of the product or service.

Use: Involves product usage and repeat purchase.

Churn: Where a customer could exit the category or change suppliers to one who gives better value for money.

In the brand life cycle, however, all these customers would possibly get similar treatment and would be classified as people who are using the product that is in a certain stage of its life cycle.

Acquisition
This is the first stage where a customer establishes a relationship with your company. A new customer to a particular supplier could be of two types:

• Customer new to the category.
• Customer who has churned from a product that has a similar benefit (competition).

These two kinds of new customers are very different in their approach, decision making and expectations from a supplier and tolerance to poor quality of product or service delivery.

The new customer's decision-making will probably be influenced by the images of the supplier as well as by word-of-mouth influence. Certain categories like insurance, health and consumer durables usually benefit from a high degree of positive word-of-mouth.

On the other hand, low-risk categories like retail outlets and restaurants may not rely so heavily on world-of-mouth as in these cases a positive experience on trial alone would lead to repeat purchase and commitment.

The other type of new customer (competition-churned customer) will probably rely more on his own judgement and experience, coupled with the word-of-mouth from the users of the alternate supplier of the product.

The expectations, too, are very different. A customer new to the category might have general expectations which emanate more from the benefits that the category offers as well as those specifically communicated by the brand. For instance, in washing machines, a customer is likely to look for less labour and a quality wash.

The churned customer's expectations, on the other hand, might be much more evolved "" in fact, he may be less focused on the category offerings and more on what he expects in terms of features, value-adds and so on. For instance, a customer may look for a washing machine that is front loading.

The new customer might be easier to delight (unless you have promised the moon in your communications) if you maintain a minimum standard of the product and service, because he is experiencing the benefits of the category for the first time.

The churned customer, on the other hand, would constantly make comparisons with his earlier experience, and will be quick to point out the deficiencies as well as the improvements.

Hence, if a company identifies whether a customer is new to a category or has churned from competition and tailors its services accordingly, it might lead to driving both these sets of customers up the loyalty ladder.

Retention: creating loyal customers
While most of us are aware that it is less costly to retain an existing customer than to acquire a new one, this is possibly also the most challenging phase. This is especially true in the current competitive scenario where the duration of the customer life cycle as well as the product life cycle is diminishing.

Most companies may argue that behaviour does not change everyday and hence the standardised offering that customers are given should satisfy them tomorrow if they have been satisfied today. Unfortunately, the market place as well as the customer psyche is very dynamic.

In order to extend this phase, suppliers must respond to the ever-changing needs and expectations of the existing customers. These expectations change broadly on account of three factors:

Adaptive expectations of the customers: Once the customer experiences a certain level of service/quality of product, the next time he will expect at least the same level in order to be satisfied or an even better service level to feel delighted.

Thus, what was a delighter yesterday will become hygiene today and a minimum standard to be achieved in order to avoid dissatisfaction. Take the example of a five-star hotel.

Placing cookies or a fruit basket in a room was initially introduced for loyal/prized customers as a delighter. Today this service is hygiene. Guests ask for a fruit basket as a matter of right.

Competitive activity: The competition may offer additions in service which might change the value-for-money equation. Customers then expect the existing supplier to match up.

The evolving requirements of the customer: Customers who have had their first experiences and have got used to the product category now have a different set of expectations, often driven by knowledge of the utility of various features in the product. A classic example is that of a new mobile phone purchaser who may want to have all the latest features in his instrument "" WAP-enabled, fully loaded tunes, camera and so on "" even if once he starts using the phone, the feature which he will use most often may be just the dictionary-assisted SMS.

The implication of these changing needs and expectations can be manifold for the supplier company:

• Snazzy, exciting and attractive communication for new customers and a regular informative dialogue for existing customers to reassure them about their decision.
• Constant evaluation of the value for money that existing customers are deriving through the current products. It may even be necessary to correct the value-for-money equation through offerings such as add-on training, upgrades and so on.

There should be desirable features for attracting the new customer, but which ensure top-class quality of the product, functional features and back-end servicing.

Effective customer loyalty management requires that the company focuses on improving what was great yesterday, is just about good today, and might be just OK tomorrow.

Hence, one of the pillars of customer service will have to be research and development in products as well as service delivery. Each department in the organisation has to be in a learning mode and constantly improvise to deliver to its internal customer and ultimately the external customer.

Churn
Churn is an outcome of the supplier's failure to recognise the gaps between the delivery of the products and services and the needs of the customer. As mentioned, most customers are constantly evaluating their decision to use your products and services. Their experiences "" good or bad "" are constantly adding up to either churn or repurchase. While all the churn cannot be avoided, most of it can be managed by handling the first two phases very well.

Most companies are so preoccupied with wooing new customers that they rarely focus on those customers who are on their way out or have, in fact, departed.

In the case of the fast-moving consumer goods (FMCG) category, suppliers do not even get to know that a customer has defected. In B2B categories, one does get to know about the departures, but rarely do companies have a formal service-recovery initiative.

According to Jill Griffin, the author of the internationally published business bestseller Customer Loyalty and How To Earn it, most companies think that lost customers are dead customers and not recoverable, which is simply not the case.

According to Marketing Metrics, a New Jersey-based consulting firm, the probability factor for successful selling to existing customers is 60 to 70 per cent.

This same factor is a mere 5 to 20 per cent when selling to prospective customers. The untapped potential lies in "lost" customers, where the probability is 20 to 40 per cent.

(The writer is associate vice-president and research services director of CSMM, a specialist unit of IMRB that partners company initiatives in loyalty management and the measurement of customer, employee and stakeholder relationships)