Customer Optimization (AMGT350)

Okay. Welcome Back to Volume two groups.

I did not mean that, that one.

Okay. We were talking about customer equity and its effect

effect on loyalty or really, it's loyalties effect on customer

equity. So we're definitely as marketers and as managers, we're

definitely concerned with retention.

Right. How many of our customers are retaining?

That's what loyalty really is.

So there's really a couple of different ways that we

can look at.

This first is the progressive variable, which says, you know

what, losing customers is more like a volume dial rather

than on an off switch.

Right. It's not like we lose a bunch of customers

today and then none tomorrow.

I mean, that could happen, but that's not normal.

Right? We don't, we don't say, okay.

We lost no customers in january, lost a bunch in

february. That's not usually the way retention works.

Right. It's progressive.

It's a variable that changes pretty often.

Right? So, um, we're always losing some customers.

Uh, this could be various reasons, right?

We're not saying we know the reason necessarily but we're

always losing some customers just to measure, it's just a

matter of like does the dial turned down and we're

just losing very few customers right now?

Or is the dial turned up and we're losing more

customers than usual?

And then that's like wow something's wrong.

The fact that we're always losing some customers really is

you know kind of brings me back to the I.

D. C.

Model and says like hey even though we should be

focusing on developing the value of current customers, this is

why acquiring new customers is still an important factor.

You can't just rely on your current customer base.

You still have to be acquiring new customers because you're

always losing some customers, right?

But it's important to measure whether the dial is turned

up or is the measure is a damn right.

You got to compare this because you need if if

the dial is turned up and you're losing to cost

too many customers over a given period of time than

what you're used to or what you expect, something's wrong.

And you need to investigate it right now.

A multifaceted variable that we could need to look at

too, is that it's a possibility that customers are leaving

based on different relationships across business units, right?

They it's possible that um I guess it just means

that it's difficult to track why people stay or why

people go right.

Maybe they had a bad interaction with customer service.

We could probably track that.

But maybe not.

Maybe they never called customer service.

Maybe they had a bad experience with the product or

maybe they didn't like the way they were built.

And so they actually had they called in the accounting

department had a bad experience there.

It's really difficult to understand why people stay, why people

go um, Right?

We can survey them, but like most time people aren't

going to want to be serving on why you're staying

with the company.

And a lot of times people don't, we can't really

reach out to a customer who's left us unless they

leave us some really nasty feedback, which does happen quite

a bit.

So it's just defining retention.

You just need to understand that there's some difficulties here,

right? Um, It's also important to understand this idea of,

so customer attrition is kind of the rate at which

we're losing customers, right?

But and so attrition and defection are two different things.

So a customer.

So if we're talking about retention, how many customers we

keep attrition and defection are more of like, well, how

many are we losing?

So it's different way of measuring it, right?

So we should look at attrition is saying like, okay,

well, how many customers are we losing based on results

from circumstances that are kind of out of our control,

Right? Um Maybe it's uh, maybe they've retired.

Maybe they've moved out of the area.

Those are not things that we control as a company,

but we've lost some customers.

So again, if we're looking at the dial, if the

dials up, but then we investigated and find out, well,

it's just nutrition.

A lot of people just moved out of the area

because of their retirement age.

Um then we would know that like there's, which is

nothing wrong that we did in the strategy, right?

That's a good example of like around here.

I know there's like, I know like out of the,

the Hanford site with all the different contractors, they were

definitely worried in the last few years that the population

of workers is really high and they are all going

to a lot of them, a big population of them

will retire in the next couple of years, probably you

guys are going to school so you can build their

roles right now.

So, so if they retire and leave the area, businesses

are going to want to know like, oh, we've lost

customers. Well, why?

And if that's part of the, why, then you can

live with that, right?

But if it's defection, meaning the customer chooses to move

to a different business or to move to your competition

or to never buy from your period again, that is

more concerning.

So if you can figure out a way to measure

attrition versus defection, that can be very valuable.

Um, so when you're looking at retention and you say,

Okay, we're retaining, on average, we're retaining 70 of our

customers. It goes up and down based on the volume

dial gets moved up a couple percent down, a couple

percent each month.

And then you take a look at that at 30

that you've lost.

And you say, well, how much of it was due

to attrition, how much of it was due to defection.

And that would be very, very helpful.

Right? The key is to make sure that when you're

looking at this stuff, you don't have to measure everything.

You just need to measure what matters, right?

Maybe maybe measuring attrition is not really that important or

maybe just getting an attrition number is good, but we

don't need to dig in too much to figure out

why they, why they moved out of the area, Right?

But measure what matters.

I think I've got a graphic here.

I think this is a cool yes, sir.

So, um, this is a really good example of why

measuring what matters is so important.

Okay. We're basically talking about there's efficiencies and like what

helps the overall bottom line of the company the most.

And this is like a win for marketing.

Right? So we've got four companies here, amazon, Ameritrade, E

Bay and E Trade.

Okay. And what we're saying here is that the customer

equity is in this first column, right under my chin,

right? 2.5 billion.

1.4 billion.

2.1 billion.

1.8 billion.

Um, and then what it says after that is says,

okay, If we get a 10 improvement in one of

these areas, that's how much it will change.

Um, our customer equity and right.

And we said customer equity is basically what the company

is worth.

So if the cost of a new customer, let's look

at this column right here.

If the cost of a new customer is reduced by

10%,, right?

That sounds awesome.

It's like, whoa!

We got new cut, we're bringing in new customers and

it's costing us 10% less to bring them in than

it used to.

It sounds great, Right?

But what we find out is that customer equity only

increases by about half a percent to 1.5%.

It's pretty small, Right?

So it's like, Okay, that sounds like a good number

that we reduce customer acquisition by 10%.

But it doesn't really help the economic value of the

firm as much as we would think it would.

The other one is margin, right?

And margin.

We're all super like aware of it and understand that

it's important, right?

So if product margins right, our profit are difference between

the price and the cost.

If if we could increase that margin by 10%, which

is huge.

I mean keep in mind that like costco's margin is

11 on things.

If we could raise the product margins by 10%,, the

customer equity level basically goes up by that same amount.

Okay. It says, hey, if we have, um, you know,

$2.5 billion in, in customer equity at amazon and we

increase our margin by 10% which would be a lot

right, amazon not to start charging you 10% more or

reducing their cost 10% more, Then they could actually increase

that 2.5 billion by about 10 by about that same

amount of margin.

So that's a lot better than so.

So right there will tell you, wow.

If you only have those two choices, where should you

spend your money figuring out a way to increase your

margins or figuring out a way to make it cheaper

to find new customers would be an obvious answer to

go for the margin easier said than done.

Right? People are gonna be super stoked when you start

raising their prices.

Now, the last column there says, what about if we

get a 10 improvement in retention?

What if we do 10 better in keeping our already

current customers?

Okay. So if we can increase customer loyalty by 10%.

It multiplies Customer equity.

Big time.

And now we're talking about like if we can increase

retention by 10%, we're looking at about 30 of a

boost to our customer equity base.

Right? That's huge.

Um Right.

So, Uh well let me just reset miss restate that

one more time.

A 10 boost in customer loyalty.

10 boost in customer loyalty For these four companies showed

that it would increase the company's overall value by about

30%. That's pretty mind blowing.

In my opinion.

These are billion built, multibillion dollar companies.

If you could increase The value of those companies by

30%, if their stock went up by 30%.

Oh my gosh, you're talking about billions and billions of

dollars. Right?

So, you know, because traditionally, um, everybody talks about the

importance of acquisition, acquiring new customers, right?

We talk about mergers and acquisitions.

All of these companies here have bought out other companies.

They've acquired other companies and they do that so they

can acquire other customers.

But look at how little of a difference that makes.

So what it says is, it says, measure what matters

and probably understand here that save your money on acquisitions

and instead take that money you are going to use

to buy out another company and instead sink that money

into retention and creating loyal customers and you could really

build the value of the company.

So I just think that's a fascinating graphic.

Um, so what are some of the main factors then

in customer equity?

Because forecasting customers future behaviors and estimating the financial impact

that they're going to have is never going to be

simple. Right?

But at least there's some straightforward factors, these factors that

at least contribute to increases or decreases in that customer

equity number.

Right? So like right off the bat, we know that

hey, if we can acquire more customers or customer equity

should go up.

Now. I've, I've a talent put italicized.

I put italics on like kind of the ones I

would. This is a longer list.

But I think if I was you, I would focus

more on the one like they're all important.

But the ones that are in italics or even the

ones that I feel like are the most important.

So not just acquiring more customers but acquiring customers who

are more valuable.

Right? So that's marketing's job is to say, oh, I

got some hot leads for you and I would focus

your time on these ones because I think they've got

long term customer lifetime, long term, strong lifetime value.

If you increase your profit per customer, right?

The margins that will help your customer equity.

Just as we saw, if you can reduce the service

cost per customer, that will help, right?

Because that will actually help your margin if you can

reduce the cost.

We talked about that a little bit where we're talking

about interacting with the customer and how we can actually

find people who don't even work for us to help

the customer sometimes.

Um Or we could sell the customer additional products or

services. We talked about that.

We talked about the I.

D. I.

C. Model and customization.

The last two are super important, reduce the rate of

customer attrition, keep people from leaving.

That's going to make the huge bump, right?

If you can increase that by 10%.

We saw those other companies.

Their value is going to go up by 30 and

last but definitely not least because I put this one

in italics as well improve the willingness of the customer

to recommend us.

The term that I use here.

Net promoter score.

This is not something that I made up.

This is a term that's out there for marketing for

for for companies.

It was developed by a company called SAT metric systems.

Um, and well, it was a common, it was, it

was a conglomerate between set metrics and a company called

bain and company.

And then this, this guy named fred Reichelt.

And what they did is they said, let's figure out

a measure that we can use to say, well, what

is the difference between customer satisfaction and dissatisfaction based on

the customer's willingness to recommend our products or to recommend

our company or to recommend our brand?

Right? So it takes a look at customer satisfaction or

customer dissatisfaction and said, but, but it's, but it's all

based on it's trying to get a is trying to

take the temperature of the customer and saying how willing

are if these questions that you've seen in surveys, how

willing are you to recommend our product?

How willing are you to recommend our brand to one

of your friends or your acquaintances?

That's a net promoter score And it's super, super important.

And if you can basically say, is that if our

net promoter score goes up, if people are more willing

to recommend us, our customer equity goes way up because

the long term value of those customers who are recommending

us just went way up.

Okay, Okay.

I'm running up against the clock again.

I'll come right back with volume.

Customer Optimization (AMGT350) - vol. 2

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