Nearly 30 years have passed since Ted Leavitt, a noted Harvard Business School professor, extolled the virtues of focusing on customers as fundamental to building and growing profitable businesses in his book, The Marketing Imagination.
Since that time, most Fortune 1000 companies have invested heavily in aggregating and analyzing customer information to gain insight into everything from product and channel preferences to the lifetime value of customers who use their services or buy their products. In recent years this practice has come under the heading of Customer Relationship Management or CRM.
This focus on CRM raises the essential question: Why haven’t more marketers leveraged their CRM learnings to improve the effectiveness of demand spending?
Fundamental Barriers
There are consistent reasons why marketing managers have been slow to apply customer knowledge more aggressively. Two barriers often cited are, first, company structure and marketing execution and, second, the inherent challenges associated with measuring marketing effectiveness.
Since most businesses are organized around products or channels, product goals and strategies usually determine demand objectives and expenditures. The brand building, advertising and promotional resources that provide tactical marketing support usually operate in silos separated from the CRM efforts of the business. Because these activities operate independently, less emphasis is placed on the quality of new customers generated from demand spending or their longer-term value potential.
Success Redefined
While it’s unlikely that typical business structures will change much in the near term, there are things that today’s CMO can do now to gradually steer the status quo in a new and potentially more profitable direction.
1. Re-evaluate traditional measurement approaches
One of the biggest problems CMOs have today is trying to determine how best to allocate marketing expenditures in an environment where increasingly ineffective mass-market strategies are giving way to more complex, integrated approaches across many media channels and outlets.
Traditional advertising tracking studies are proving to be less useful at a time when accountability is paramount. Measures of awareness and consideration are not related closely enough to harder balance sheet measures such as unit sales or the number of new customers or accounts.
A more rigorous alternative approach to understand overall spending and effectiveness employs statistical modeling techniques, such as media mix modeling. This tool can be integrated with customer and prospect segmentation schemes to reveal greater insights into advertising and marketing mix effectiveness.
2. Regularly evaluate what type of customer your demand activity is attracting
Most companies vested in CRM have profiled or segmented their customers to understand their behavioral differences and associated value. Companies needing to attract large numbers of new customers every year should frequently compare high performing existing customers to the profile of newly acquired customers. This approach will help determine if their demand efforts are attracting the right mix of customers to maintain or improve future business volume and financial objectives.
3. Understand how your broad-based marketing is affecting current customers
For many companies, while current customers produce a significant portion of overall annual sales volume, these customers are often overlooked when it comes time to evaluate demand-spending effectiveness. Recent studies have shown that existing customers can be significantly affected by the brand building activities of large organizations, yet few marketing departments regularly attempt to evaluate whether that impact is positive or negative. In an environment where price incentives and discounting are relied upon to drive volume, it’s more important than ever to understand how customer behavior, especially of high value customers, is being influenced. All of the hard work being done on the CRM side of the business could be undone by strategies that emphasize pricing over loyalty.
In Summary
If Ted Leavitt had it right when he said that “getting and keeping customers” should be the fundamental focus of a business, then marketers are long overdue in leveraging CRM learnings to make their demand generation efforts more effective and profitable. In fact, one of the biggest benefits of CRM is that it can produce an even greater, enterprise-level business impact by using customer insight to improve overall marketing effectiveness.
William Duffy, Founder and Managing Partner for iKnowtion, brings over 20 years of data-driven marketing and customer development experience to the iKnowtion team. He has extensive experience in developing and applying database marketing strategies for many Fortune 1000 companies across a variety of industries, including financial services, retail, travel, publishing, entertainment and healthcare. Before founding iKnowtion, he spent much of his career at Epsilon, a database marketing
