My column this week in Expansión, Spain’s leading financial daily, is called “Clients and sustainability” (pdf in Spanish), a subject that I have been working on for some time now.
One of the first uses of information technology in business was to automate processes that previously had been carried out manually, such as accounting or preparing salary payments. This initial phase was chaotic, with some silos of digitalized information here, data there, making it nigh impossible to manage customers data in a single, aggregated location.
Then came ERPs and CRMs, the centralization of data bases, and the first wave of programs able to analyze data from all our files and to calculate variables focused on the utilization of the relationship with the customer: the point was to optimize everything, to extract the maximum consumption by whatever means and at the highest price. This might be done through promotions, by designing cross-selling or up selling, all aimed at increasing the value of the relationship. This approach, dominated by Customer Lifetime Value, or CLV, no longer works in the world today, which is characterized by a two-way relationship, access to huge amounts of information, and clients with a voice who are able to generate a lot of publicity that can boost or harm a company’s reputation.
Needless to say, new realities require a new approach. The trend toward greater transparency in communication is matched by an increasingly important parameter: creating a sustainable relationship with the customer. This means using individualized analyses to assess the potential value of a customer beyond strictly financial parameters. We need to see competitiveness in a different light, which means progressively adapting to a scenario in which we can see that the old parameters are less and less useful.
Below, the article in full:
Clients and sustainability
The first uses of technology were to mechanize processes and tasks that until then had been carried out by hand. Accounting, preparing pay checks and other jobs were partially automated, producing huge numbers of data bases that often caused chaos when one tried to access information about a client, only to find that it was stored in many different places.
Next came efforts to centralize all this and to come up with programs to analyze information. Suddenly, it was possible to work out the value of a client, segmenting the information in ABC curves or to optimize it through CLV, or by a applying methods such as cross-selling or up selling.
But we now find ourselves in a third, very different phase. The idea now is to deal with customers in the knowledge that communication has changed dramatically, with customers how having a voice that can be heard. Every customer is a potential spokesperson who can benefit or prejudice a company. In short, companies are what customers say about them. Every contact counts, and conditions all that we thought we knew about that client.
In such an environment, analyses now have to measure the sustainability of the client relationship. A great customer who buys our products or services can turn against the company if he or she discovers that they have been conned for many years on the basis of trying to get as much money out of them rather than trying to build a sustainable relationship with them. We’re talking about sustainability based on information; about individual customers. Very few companies are doing this yet, and the change will be slow, but have no doubts; it’s going to happen.
(En español, aquí)