Why is Customer Centricity important?
What is Customer Centricity and what does it mean for a company to be customer-centric?
Customer-centric (also called client-centric) businesses focus on providing a positive customer experience before, during and after a service or product purchase. In doing so, businesses can build a precious customer relationship, drive profit and gain competitive advantages. Customer-centric companies, like the Swiss bank PostFinance, pay attention to their most valuable customers and how to satisfy them.
Accordingly, if you concentrate on Customer Centricity, your client defines the core of your business. Companies that best identify customers’ needs and create sustainable solutions can enjoy a long period of customer loyalty. Furthermore, they can avoid useless products, long-winded processes, bad customer service, poor quality, all of which benefits your customer, as well as an unfavorable brand image, which benefits your company. To learn more about how the Customer Centricity approach creates advantages in business, keep reading.
Customer Lifecycle, Customer Experience & Customer Value – The elements of Customer Centricity
To implement Customer Centricity within your company, you must first understand its three main axes Customer Lifecycle, Customer Experience and Customer Value, placing the customers themselves in the center for the purpose of strengthening the customer relationship.
From the moment you attract a potential customer’s attention, the individual Customer Lifecycle begins. It is essential to understand the process a customer has to go through to interact with your company, as improving it may help increase the corporate revenue for potential as well as existing customers. Through managing and sustaining the Customer Lifecycle successfully, a company remains competitive in their business field.
The Customer Lifecycle can be defined in five phases: first encounter, acquisition, transformation, retention, and loyalty.
First encounter customer
In the first phase, a company tries to reach out to potential customers. This first contact can take place through Facebook ads, an email or the personal recommendation of a friend, for example. To make this first contact happen, a company must place its marketing activities where the potential customers are. The goal of this phase is to generate awareness for the company.
When a company has made the first encounter with a potential customer, the next goal becomes clear: direct them to your website or office and convince them to convert into real customers.
In this phase, your customer transforms from a lead into a paying customer. It is important to realize your customers’ needs, gain trust and build a relationship with your customer. This transformation is only successful if you manage to give your client the feeling that he or she is heard and appreciated.
As soon as you have gained a new customer, your company should do everything possible to satisfy the customer’s needs and maintain an intact customer relationship. A study by McKinsey (Tallyfy), showed that by reducing customer churn anywhere from 5% – 30% you can increase the revenue through upselling or renewals up to 95%.
Finally, loyalty is the phase that closes the Customer Lifecycle. There is nothing more desirable than a customer who is completely satisfied, regularly hires you or purchases your products and recommends your business to others. This form of loyalty guarantees that customers will stay with your company and spread good reviews, which is likely to create orders and give you a good image. Therefore, striving for loyal customers should be the ultimate target for every company.
This theoretical Customer Lifecycle from the company’s perspective can be transformed into a real example. As the image below shows, depicting the Banking Customer Journey (from a study of Spark Works), a customer goes through six steps with crucial touchpoints throughout each step. As a company, it is essential to focus on the process of how and where to create touchpoints, how to provide relevant information, acquire customers and keep them satisfied so that, in the end, they become loyal customers.
How to calculate Customer Lifetime Value?
It is safe to say that some customer relationships are more valuable than others. Assessing your most valuable customers is critical to a company’s continuing growth and success. So, how can you do that?
The Customer Lifetime Value (CLV) is a forecast of the total value of one customer during the whole customer lifecycle and provides information on how much value a company will gain from the entire lifecycle based on one particular customer relationship. Since a company never knows how long an individual customer relationship will last, CLV allows companies to estimate a customer’s financial value over time. In doing so, CLV helps companies determine how much money they should spend on attracting new customers and how much recurring business they can expect from particular customers. By using CLV, you segment your customers and find those who are the most valuable to your company; ultimately, those you should focus on. This way, budgeting, segmenting and prioritizing can be forecasted and even improved.
The formula for Customer Lifetime Value is:
et : expected sales of a business relationship in period tCustomer Lifetime Value Formula
at : expected investment in a business relationship in period t
i: Minimum interest rate for discounting based on uniform reference period (discount rate)
t: time period (t = 0, 1, 2, …, n)
T: expected duration of the business relationship
Although it may look complicated, the CLV consists of two parts: the current customer value at time t and the potential value of a customer in the future. For the forecast of this potential value, numerous data about a customer must be collected and analyzed. If there is no available data available, empirical values or reference values can be used.
Customer Experience describes the overall experience a customer has with a company during his or her Customer Lifecycle: from the first point of contact (e.g. the impression of a website) to the last point of contact (e.g. the usage of the product.) the company must be recognizable and tangible at every single contact point that a consumer encounters during his or her customer journey.
Deloitte stresses that Customer Experience is the most crucial distinguishing feature for a company in the digital age. As products and services become more similar, prices more competitive and markets more transparent, the Customer Experience becomes more significant. Only companies that intensively take to heart the customers’ wishes, create an individual, lasting customer journey and will be able to distinguish themselves permanently from competitors and profit from a sustainable customer relationship.
The fundamental idea behind Customer Experience? It focuses on the customer as well as the customers’ needs. Their wishes and desires should not only be satisfied throughout the company’s contact points but also surpassed with innovative ideas. This way, a company’s service or product becomes a necessity for the customer.
The main goal of the Customer Lifecycle is to keep a customer satisfied, so that he or she feels valued and encounters a great (Customer) Experience with your company. Each customer has a specific value over time for a company, also known as the Customer Lifetime Value. On the other hand, each company has a specific value for a customer, which leads us to the last part of the Customer Centricity approach: Customer Value.
In addition to the Customer Lifetime Value, a company also has a specific value to a customer, known as the Customer Value. In essence, it is the satisfaction a customer experiences while interacting with your company’s process, product or service. Consequently, Customer Value is the personal perception of each customer. As a customer-centric company, you should keep customers happy and their needs completely satisfied to gain higher Customer Value.
PostFinance is a role model when it comes to increasing Customer Value. They have a large customer base, provide relevant information at every Post office and their employees can consult customers in four languages competently. Setting up an account is easy and can be done online. Their products and services are innovative and focus on customer needs. One customer said this about PostFinance’s service: “I feel like PostFinance is a solid choice and I can trust them (…)”. What more does a company want? (Download our free case study on the topic of the future of banking)
Challenges and advantages of customer-oriented corporate management
Companies that integrate Customer Centricity as a central component within product development, continuously face the challenge of return on investment. At first glance, it may seem expensive and that we are going to take into account every customer’s wish (which is, simply put, not possible). However, the advantages of Customer Centricity are mainly medium to long-term. In addition, Customer Centricity increases customer loyalty. This results in several economic advantages, such as lower advertising costs throughout the acquisition phase due to satisfied customers who recommend the company to family and friends. Relationships with loyal customers also results in learning valuable information about customer’s interests and needs, which can be especially useful when developing new products.
Further, Customer Centricity is a great approach for preventing negative buzz and allows a company to withstand the occasional but unavoidable shit storm, due to the fact that customers are more likely to stand up for the company. Additionally, successfully implemented Customer Centricity can increase the Customer Lifetime Value enormously.
“What would my most valuable customer want even if he or she may not know it?” Always keep this question in mind. Doing so will help you focus on customer-specific issues, needs and desires. Plus, it guides you through the three axes of Customer Centricity including:
- Customer Lifecycle, the ongoing journey of your customer from their first encounter until the moment you have completely satisfied and fulfilled their needs. The Banking Customer Journey above illustrates this Lifecycle from the customer’s perspective.
- Customer Experience, how happy your customer is with your process, service and product. Spark Work’s case study about “The Future of Banking” has shown that PostFinance provides the most customer-oriented service, which leads to a positively perceived customer experience.
- Customer Value, how valuable and important your company is to your customers. The McKinsey study “The Business Value of Design” emphasizes that those companies that hold the design capabilities to foster Customer Value, increase their revenues and shareholder returns at nearly twice the rate than their industry counterparts.
Be customer-centricby putting your customers in the center of every business operation. Doing so will give you a competitive advantage by providing an excellent customer experience, leading to happy and loyal customers, which is likely to positively impact your revenue and save costs.
Spark Works supports you in becoming a customer-centered company
Forget endless surveys – at Spark Works, we start with the user. Through in-depth interviews, observations and on-site service testing, we uncover your customers’ behavior and needs in order to develop profound, radically novel products, services, and business models, which will benefit your customers.
We develop various customer journeys that visually sketch the course of the customer experience (from the first contact, through the process of cooperation to a long-term relationship) and identify the most important interactions, existing discrepancies as well as strengths and weaknesses. You will discover where your customers are and what their needs are. At Spark Works, we can help your company live the Customer Centricity approach.
Coming up in the next blog
Customer Centricity is crucial for the success of your company from both an economic and an image-based point of view. In our next blog, we will provide a checklist about the steps your company should take to become customer-centric.
By Alan Cabello, Senior Partner
Explore more about Customer-Centric
- Brand Trust: Customer Experience / Kundenerlebnis
- Builtvisible: Marketing theory: understanding customer value
- Deloitte: Das Erlebnis macht den Unterschied: Customer Experience als Schlüssel zum Erfolg von morgen
- Esteban Kolsky: CX for Executives
- Harvard Business School: Managing Churn to Maximize Profits
- InSites Consulting: How customer centric is your organisation?
- McKinsey & Company: The Business Value of Design
- Ryte: Customer Centricity
- Super Office: 37 Customer Experience Statistics You Need to Know for 2019
- Tallyfy: Customer Churn: Definition and 6 Ways to Reduce It.
- Tallyfy: Definition – What is the Customer Lifecycle?