Posted on: Monday 19th of January 2015
It’s goes without saying that marketers want to get closer to customers, to build deeper longer-lasting relationships and to drive brand loyalty. But is the dream of getting ever closer to customers always realisable?
The dream of CRM
The dream has its origins in an early realisation of the potential power of data. Via CRM programmes, loyalty schemes and so on, brands would gather more data about their customers. This data would yield deeper insights. In turn these deeper insights would help the organisation improve its customer offerings – developing products and services that better met customer needs and wants and better targeted marketing talking to the right people, at the right time, in the right way.
By using data to align what the company did better to what its customers wanted, the brand would offer greater customer value, earn customers’ loyalty and their willingness to share even more information. This would then drive another round of product, service and marketing improvement: a recipe for a win-win virtuous spiral where both customer and company benefited from a data–driven, data-sharing relationship: ‘closeness’
Even better, because rivals and competitors did not have access to this data, they couldn’t make the same degree of targeted product, service and marketing improvements. They would therefore be unable to build as close a relationship with customers, leaving them excluded from the virtuous spiral. This was a recipe for sustainable competitive advantage.
CRM’s intrinsic limits
Yet, for the vast majority of brands, the dream has eluded them. Why?
We can see why if we look a little closer at where this strategy has been more successful, as with loyalty schemes like Tesco Clubcard, Sainsbury’s Nectar and (to a lesser extent) Boots Advantage Card.
They share some common characteristics. The shopper is shopping frequently, so the exchange of data and the build-up of insight takes place rapidly. The shopper’s purchases account of a large percentage of their total requirement – say, 80% or more of the customer’s total grocery spending. The transactions involve significant sums of money on an annualised basis and as a a percentage of the consumer’s total spending. And, the product/service is highly ‘tweakable’. For example, a retailer with 40,000 stock keeping units in a store can tweak what items it stocks, how and where it displays them, in-store promotions, price points and more – store locations, opening hours and so on. Data-driven insight can have real operational impact.
The thing is, this combination of frequency, high spend, high share of purse and high operational/product/service tweakability is rare. Most products and services (and therefore relationships) lack one of the key ingredients. For example:
- If something is purchased once every 2, 5 or 7 years (such as cars, furniture or carpets) it’s hard to build a ‘relationship’ around this purchase. The same is true if it’s episodic, like a DIY project.
- If it’s relatively low spend or low share of purse it’s probably not ‘relationship building’ material. Relatively low cost items like electrical goods like kettles or ironing boards are hardly springboards for meaningful and deep relationships. In categories like clothing and entertainment, most consumers want variety, which means they tend to be repertoire buyers, buying from many different suppliers. This means that any transaction data that’s captured gives each single supplier a very restricted and potentially misleading view of their behaviour.
- Products and services like petrol, energy and mortgages may require regular and considerable payments but they have low operational ‘tweakability’ – it’s much harder to use data to drive insights to tweak underlying operations in ways that can palpably improve products, services or the customer experience.
For these reasons, only a small minority of brands have been able to use customer data to create a relationship-driven virtuous spiral, built around genuine improvements to products and services. Instead, the focus has shifted more towards advertising and promoting products and services that already exist.
Seeing relationships from the customer point of view
If we look at relationships, as well as products and services, from the customer’s point of view, we can see similar barriers to ever-increasing ‘closeness’. Evolutionary psychologist Robin Dunbar notes that most individuals only have five or so really important close intimate relationships in their lives. They then have a much wider circle of 150 or so of ‘nodding’ relationships, acquaintances where they know the name and the face and have the odd polite conversation.
If human beings only invest a significant amount in a handful or human relationships, do we really expect them to invest far more in a wide range of relationships with brands?
Households’ relationship management challenge
Most consumers probably only have the time, energy and interest to have a ‘close’ relationship with only a few suppliers, where there is a clear return on their investment in this relationship. For the rest, it’s more about ‘acquaintice management’ than ‘relationship management’.
As we found in our research into the emerging market for Personal Information Management Services (see page 22 in particular), most households find themselves managing around 100 different ‘core’ relationships with multiple different suppliers across their key life departments (home, money, health, travel, work and learning etc). Many of these relationships require ongoing interaction – you have to pay your energy bills for example. But in reality, what most consumers want here is something that is efficient and arms-length – something that ticks over with minimal investment of time, effort or attention – not a deep, close relationship.
In fact, looking at relationships through the eyes of the customer, they tend to fall into one of three ‘buckets’.
- ‘Important’ relationships worth investing time, attention – and, perhaps, emotion – into, either because this investment delivers a palpable return in terms of improved service and value, or because there is a high emotional commitment (to passion brands such as, say, Manchester United Football Club). Most individuals probably have just a handful of such ‘close’ relationships with brands.
- ‘Maintenance’ relationships, where there is ongoing interaction of sorts – paying bills, getting customer service when needed – where the prime goal is to ‘get it done’ with as little time and effort as possible.
- ‘Butterfly’ relationships, where there is something particular I want or need – a new dishwasher or weekend break for example – look for it, buy it, and er … that’s it.
Different types of relationship
When we think about how movements like CRM and loyalty schemes have evolved, they have tended to accommodate themselves to these three buckets:
- a small minority where there is a relationship customers actually want to invest in. This involves relatively rich data sharing.
- many more where the relationship never gets much closer than ‘efficient maintenance’. This is where a large proportion of day-to-day CRM activity has ended up: billing, customer service. Here, the focus is on administrative, transactional data sharing.
- many more sporadic ‘butterfly’ buying occasions where the focus is on advertising and promotions to sweep up those consumers who happen to be in the market for that particular item right now. Here the focus is on demand related data.
The vast majority of these relationships are not ‘close’ and they are unlikely to get any closer. They are and will remain arms-length. They all involve data, but different types of data, with different degrees of data sharing: e.g. the data needed to efficiently manage billing, or to target advertising and promotions.
Focusing on the relationships customers want
Brands need to be aware of, and sensitive to, these differences. Seeking to build one type of relationship when another is appropriate, or assuming it is one when it is in fact another, is a recipe for misunderstandings and misdirection of resources. Being overfamiliar with people can offend.
Intriguingly, the same may be true of Personal Information Management Services. If we look at the distinctions between deep relationships worth investing in, arms-length relationships requiring maintenance, and occasional transactions (the butterfly mode), they map quite closely (though not 100% neatly) to the different types of PIMS:
- a relationship worth investing in: life management services e.g. ‘help me manage my money, or a chronic health condition’. (Because of their role, life management services may be better placed to win these customer relationships than some traditional brands. For example, it may be worthwhile investing in a relationship with a service that helps me manage my money overall, but it doesn’t make as much sense to invest in a relationship with a component of money management such as my credit card supplier, or current account provider.)
- maintenance mode – personal data management services, which enable safe, efficient information sharing under the individual’s control
- occasional interactions – decision support services that help consumers find the right products and services for their particular needs
The bottom line: beware superficial cliches about ‘building closer relationships’ with customers. Relationships are very important. But knowing exactly what sort of relationship is needed and that customers want, and what this means data-wise and operationally, is potentially just as important as knowing what products and services customers want to buy.