Customer focus is a data imperative

Age of information is really the age of confirmation and it is upon us. Gone are the days of naive customer focus termed as providing the best service to the customers. Customer focus, now, is the ability to understand the customer and serve each customer based on their particular needs and expectations while increasing their value to the organization. The key here is to understand before serving and the level of understanding determines the depth of relationship with the customer. The best form of understanding is quantifiable knowledge, attained through cycles of data analysis converted into domain expertise, is empirical in nature and forms the basis of apriori expansion.(We can have separate debate on the chicken and egg dilemma of whether an idea comes first or the experiment to knowledge foster ideas)

Role of Technology & Data 

Why and how does technology and data help shift focus to customers? I will quote from one of my favorite reading on the topic

 "in an ideal customer centric organization everyone is focussed on increasing the customer value and understands that this requires learning from each customer interaction and ability to use what has been learned to serve customers better."

 (Micahel J. Berry and Gordan S. Linoff )

The authors go on to profess that such an organization records each and every customer interaction. In short the firm keeps an extensive historical record of every customer interaction. But a practical caveat to above is that the extent to which the organization leverages such information to manage relationships largely depends on the multidisciplinary capabilities of the firm. What we do know from evidence is that the most valuable companies in the world are able to do this better than the rest.

Before we get further into this debate we need to explore few related concepts and then we can direct a company's ambition to be customer centric. The key concepts is what I call the 3 Cs of customers focus for an organization.

1. Customer

2. Customer value

3. Customer Relations

Customer

To measure anything we must define who the measure applies to what is being measured and to what extent the concept is explained by the measurement.  Is the entity an abstraction or a tangible body e.g. customer is an abstract concept and the person or a company is a tangible entity, similarly a household becomes the abstraction and husband, wife, child1, child2 etc become entities. The abstraction may encompass number of organisms or further composites that can be quantified by some aggregation of individual measures and some grouping of individual properties of its entities, 

The abstraction of the customer can take many forms depending upon the definable singletons, specially in B2B scenarios where the entity can be an organization, a building, a department, a person, a function, a title or a combination of these, which in turn can be cumulations that can be further dissected to users of products and services or appropriators(pre and post sale included) of the same. This can raise questions like is the customer the service or product acquiring entity, or the payment facilitating agency, is it the end use facility or the end user, is it the entity paying the bills, is it the user making the transaction on behalf of the end user or organization; any of which can be stemming from a single or multilayer abstraction. 

The answer to customer definition dilemma is not single or hierarchical groupings but a correlated set of abstractions of various entities that have measurable dimensions of interrelated attributes. 

Customer Value

Ultimately the customer value to the company are the transactions (historical and future discounted or not). Do we need a rigorous analysis of customer value? And why can't we just sell to everyone that wants our goods and services? If an organization can sell and serve everyone, that desires its product then it absolutely should. In reality there is a cost for the enterprise, to be discovered, considered, chosen and carry forward, attached to every phase of selling and serving. This problem is mitigated when the firm has either a large customer base where the volume of transactions subsidizes the cost of intimacy with masses or leverages technology for customer relationship management albeit at a cost of intimacy. The other ways include marketing tactics to increase mindshare at various phases till it becomes top of mind.

Critical is to understand that the customer value on a time horizon quintessentially measures the effectiveness of the acquisition not in terms of how valuable the customer is but how valuable the essence of the interaction with the company is to the customer. To an extent one can predict the need of the customer, bucket it in value segments and then try to acquire those classified by similarity factors, in hopes that just by definition the inherent properties of the firm will resonate with intrinsic customer nature and the firm will increase customer value. In reality the acquisition is simply enlarging the sample set to test the enterprise value itself. 

At the end of the day business is to fill a need by providing products or services. Knowing how the need arises, or creating the need in first place, understanding how the need is being filled and what the consuming organization holds as valuable in the process of identification and fulfillment of its needs is the landscape of customer value creation.

One can say that life time value measurement is brand equity governance.

Customer Relations

How can an organization have better customers relations? By understanding its interactions with the customers! The point to note is that an interaction is not just a record of every transaction (recording a transaction is a given must for most organization with any real legal bearings) but it is the record of every implicit or explicit touchpoint. It is not only communication in traditional sense, it is any and all touches, implicit or explicit, the customer has, with the organization, from minutest glance at a marketing collateral to the experience of an hour long call with an company associate. Implicit interactions maybe defined as the ones that are not based on direct two way communications but the customer witnesses in company operations, its marketing, its service pre and post sales, all its visual components, messaging components, informational pieces, fulfillment timings, packaging details the list is huge and the importance of implicit interactions cannot be overstated. That is where technology has shifted the pendulum in favor of companies that can understand implicit interactions at scale.

Few years ago the quantification of a customer relationship was mostly transactional (be it POS type transaction or web based activity; a click is a transaction of sorts). It was difficult if not practically impossible to gauge the essence of all interactions, that is spoken, unspoken, written and unwritten observed and unobserved. With the improvements in technology to capture, gather, store and analyse at scale the transactional history, and footprints that can be detected and the users that can be identified, albeit at cost of privacy, the true nature of customer relationship can be defined. 

Although data is termed as "the new oil" , gathering of data itself has to be tamed to customer expectations of privacy as well as maintenance of service levels. If the customer is bogged down by providing data to the organization, more than likely it will stress the service and the relationship at the contact point. That's where data mining is most effective as it can connect the dots between end points where the customers voluntarily give out information as part of the expected interaction or transactional necessity. The organization can accurately know, not only its (soft) relationship with its customer but the value of that human communication previously left to the domain of human understanding and appraisal. The advancement in speech recognition as well as gathering and connecting expressed opinions using NLP gives an organization further insights about its customer, previously not possible.

Customer focus is understanding the composition of your customer, measuring the effect of all the implicit and explicit interactions and their value to the customer, and finally building the relationships by affecting every interaction and ...lets not forget continuous evaluation of the 3 Cs of customer focus.

Simple yet not!

This seems simple enough but in reality the category managers and every one from call center associates to top managers are usually focused and rewarded on amount of product sold while trying to exceed the firms service touchstones and the margin made. That culture shift to measuring and increasing customer value on rolling basis is different, if not difficult. To blame the product focus on culture or the product profitability mindset is a naivety and who can really argue with growing the company profitability. The challenge is to translate those product margin metrics to customer value metrics and tune the sum product of organizational effort to measuring and growing customer profitability, which may very well be product profitability in customer definition and customer value but it has a different long term impact on how the organization is held in the eyes of the customer and the enterprise's ability to manage those expectations.

The organizational imperative is to create every type of customer definition, find out value of each, record all interactions, map them back to value tiers, connect operational excellence to value tiers, and product or service, connect value segments to all interaction types then find out the best models that predict any and all of those clusters. Finally choose which classifications and associated measures are best at predicting the company level KPIs. At the end of all this activity a virtuous cycle will emerge creating an ecosystem of generating insights from people and data, and using those insights to tune implicit and explicit customer interactions from training of staff to tuning of resources and operations.

Ultimately, creating a virtuous cycle is a joint venture between technology, data, analysis and people.