New Customers and their Loyalty

The so called typical customer no longer exists, and companies have been learning this lesson the hard way. Until very recently, business was more concerned about the product rather than about who is the buyer or customer. In other words, companies were focused on selling as many products and services as possible without regard to who was buying them. Most corporations cling to this product-centric view today, basing their organizational structures and compensation plans on the products they sell, not the customers who buy.

The Burger King slogan of the 1970s inviting the fast food consumer to “Have it your way” was positively unorthodox for its era, as companies across industries offered standard products to the consumer population at large. Moreover, 1960s and 1970s corporate America bet their profits on classic marketing tactics primarily television ads, mass mailings and billboards and then sat back and waited for the customers to come in and buy.

But the buyers or consumers have become smarter over the period (last 2 decades) and competition burgeoned. Consumers had more choices that ever before about where to do their banking, their grocery shopping, and their vacationing. Deregulation increased competition even further as it drove prices down. Companies were forced to invent new methods of interacting with customers to reduce costs and gain market share. Use of automated teller machines (ATM) and interactive voice response (IVR) system machines increased. But customers weren’t necessarily more satisfied than before.

Executives soon realized cost-reduction tactics weren’t enough to satisfy either customers or share holders, who continued to call them on the carpet for eroding margins. Maximizing profitability was the real name of the game. The paradox was that companies couldn’t very well increase profits while simultaneously enticing new customers with price breaks. AT&T and MCI learned this the hard way in the 1980s as they and other long distance companies mailed millions of $100 checks out to consumers, who switched their long distance service and switched it back again.

Nowadays, the competition is just a mouse-click away. Embattled companies are slouching toward the realization that without customers, products don’t sell and revenues don’t materialize. They have been forced to become smarter about selling, and this means becoming smarter about who’s buying. Companies are reading the competitive writing on the wall and looking to technology for moving ahead in the race.

This, combined with often spelt out fact that it costs a company six times more to sell a product to a new customer than it does to sell to an existing one – the ‘old bird in the hand’ thus coming to roost has motivated businesses to try to maximize existing customer relationships. And the main way to squeeze every drop of value from existing customers is to know who the best customers are and motivate them to stay that way. Indeed, a good starter definition of customer relationship management (CRM) is,

The infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal indeed that is to buy again.

CRM is about more than simply managing customers and monitoring their behaviors. CRM has the potential to change a customer’s relationship with a company and increase revenues in the bargain.

The most forward-thinking companies have recognized from past failures that CRM is a combination of plans of strategy, and thus technology alone can’t address high profile issues such as new-customer acquisition and Web based marketing. To these companies, CRM is much more than a standalone project accounted for by a single organization. It is a business philosophy that effects the company-at-large. These firms have articulated their ultimate visions for CRM to communicate them to every facet of operations.