Surviving the recession, a Quocirca series

In the third instalment of this weekly 12-part series, Quocirca analyst Clive Longbottom breaks down the stages in managing the customer relationship and explains why a sound understanding is crucial, now more than ever...

Without a solid knowledge of what constitutes a customer and how your company should be dealing with them, any customer-facing project will be severely hampered from day one.

However, surely a customer is easy to identify? Aren't they the ones who come and spend money with you? Well, yes, but there are also those 'customers' who would like to spend money with you but haven't done so yet due to not knowing who or where you are. Then there are those customers who lose us money every time they contact us, by having small, low-margin transactions but with high overheads.

By understanding the dynamics of the customer base, a project aimed at maximising the revenues and margins will be easier to write up to gain funding from above. Being able to demonstrate full customer awareness will help when proposing any front-office project.

So, first of all, who are your customers? Well, definitely those who buy anything from you directly for their own needs. But how about those who are buying from you to pass on the product to someone else (an intermediary, a wholesaler or a retailer, for example) - are their customers also your customers? Certainly - and by understanding these end users better, you can be more active in supporting your direct customer to the greater benefit of all involved.

Next, at what point does a prospect become a customer? Only at the point of buying, or at the point of substantive contact? By treating a person correctly at the right points of their lifecycle with you you can push more prospects through to customers, retain more customers and maximise their transactional value to you.

However, as previously mentioned, a high proportion of your customer base is actually losing you money. It is widely accepted that in the finance sector, the top 20 per cent of the customer base delivers over 120 per cent of the profit, and that the same goes pretty much for mobile phone companies and many retailers. This top 20 per cent of your customer base needs to be made more 'sticky' (loyal) by providing them with higher levels of customer relationship management, particularly by providing quick means for 'gold' and 'platinum' customers to access a (high cost) human.

But what about the other 80 per cent? A certain percentage will always be loss-making - the secret here is to eradicate or at least minimise the loss by using least-cost routing for their needs, by maximising what margins you can get from them or by actively dissuading them from coming to you.

The first involves using technologies such as integrated voice response (IVR) systems for telephony (from the likes of CTI Labs, MagicPhone, Parity, Periphonics and Vocalis), frequently asked questions (FAQs) systems for web-based interactions (Formatt Solutions, Transversal) and kiosks or paper-based systems in offices and outlets.

The second approach may involve the introduction of low-cost, low margin products (including low-end retail products (like Tesco Value), low-risk insurance (Term Assurance)) to provide a service which will be bought by these people and will provide a net margin at the end of the day.

The third is always dangerous. Actively dissuading a proportion of your customer base can have disastrous effects should word-of-mouth begin to impact other customer segments.

Obviously, the main aim is to understand your customers sufficiently so any offers you make them will have a high probability of being converted into orders. For this, personalisation becomes the key. Many CRM products have built in personalisation capabilities (Oracle, PeopleSoft, Siebel), while advanced personalisation technologies are available from specialist players (ATG, eOne Global and Vignette).

Within personalisation, there is also the need to enable a customer to personalise the way they want you to interact with them. This may involve the use of portal technology (Epicentric, Plumtree) and of convergent messaging technologies (Avaya, Openwave).

The content you will be presenting to the user may also need to be personalised, requiring not only good content management (ePrise, InterWoven, MediaSurface) but also the capability to deal with the evolving mobile markets through intelligent delivery and presentation technologies (Clickmarks, Everypath).

As you can see, the overall solution to successfully managing a dynamic customer base in today's markets is highly complex and a full solution would be both overly expensive and time consuming. However, by prioritising your business issues as discussed previously, it is possible to intelligently apply small investments to maximise impact while maintaining flexibility to achieve a full solution in the long term.

By knowing the customer, the issues facing your business and then applying technology solutions to solve these issues, your chances of surviving the recession improve dramatically.

Next week, the mobile factor - preparing for the deluge.

**Quocirca is a leading, user-facing analyst house known for its focus on the 'big picture'. For a full summary of its activities see http://www.quocirca.com, or reach the company's founding directors by emailing quocirca@silicon.com.

Previous Surviving the Recession columns:
Part 2. Prioritising business needs
http://www.silicon.com/a49901
Part 1. It's a recession - save or spend?
http://www.silicon.com/a49733