Whether we like it or not, the current recession will separate the weak from the strong. For many organizations, I believe the deciding factor will be how well they recognize…
The linchpin of an effective recessionary strategy is aggressive customer focus!
In a downturn, customers’ assumptions about the future are driven by fear and uncertainty more than objective financial realities. Any recession generates the obvious and predictable belt-tightening; customers delay necessary purchases, choose more inexpensive options, and avoid discretionary spending. However, it’s critically important to recognize that, beyond these generalities, each recession produces it’s own unique pattern of changes in customers’ needs, priorities, and behaviors. As a result, a recession can create opportunities for organizations that can understand these changes, think creatively, and use the situation as an opportunity to strengthen relationships with their most valuable customers.
One of the worst things an organization can do during a recession is to take its eyes off of their customers. However, when threatened, most organizations have a tendency to adopt an inwardly-focused, “survival mode,” mentality. They focus on operational and financial controls and stop investing in what appears like discretionary initiatives aimed at strengthening relationships with customers. By taking their eye off of the customer, they end up accelerating customer and revenue attrition while undermining their longer-term competitive strength. There are three things we’d recommend based on the work we’re doing to help our clients deal with this challenge:
1. The first priority is aggressive focus on and investment in your best customers and prospects. During a recession, a relatively small number of your best customers will provide an even larger share of your profits, while the often larger ranks of marginal or unprofitable customers will create even more of drain on the system. The first thing to do in a recession is to clearly identify who your most valuable customers are and invest in strengthening relationships with those customers. This includes collaborating with those customers to understand and address their changing priorities, restructuring your offerings around their unique needs and, as necessary, restructuring financial terms. It also includes focusing sales efforts on the most valuable, winnable customers and making sure that you’re not wasting resources on customers that are not going to buy and that are unlikely to be profitable.
There are many classic examples of the benefits resulting from aggressive, customer-focused investment during times when competitors are retrenching. For example, Dell invested in their customer-centric telephone ordering and pull production systems during the 1990-1991 downturn. As a result, Dell was able to capture the strongest competitive position when the economy sprang back. Singapore Airlines invested $300 million in new seats, entertainment, meals, flight attendant training all aimed at their most profitable first-and business-class customers. As a result, they were able to not only survive, but remain profitable in the aftermath of the 1997 Asian currency crisis and emerged in stronger competitive position.
A lot of the work we’ve been doing is focused on helping clients collaborate effectively with their best customers. This starts with the analysis required to clearly determine who their best customers are and continues with the implementation of joint planning processes, closed-loop satisfaction management practices, as well as, more agile, open, and collaborative product development and service processes. In addition, we’ve been helping clients optimize their selling activities by starting with a clearer understanding of how their customers’ buying priorities are changing.
2. The second priority is watching, talking with, and listening to customers more closely in order to identify creative ways to address subtle changes in their needs, priorities, and behavior. It’s critically important to NOT rely on your traditional assumptions about what’s important to customers. Instead you need an informed view of how your customers’ needs and behaviors are changing as dark clouds appear on the horizon. You need to think creatively about ways to meet those changing needs and address those changing behaviors in order to strengthen the relationship, generate more value, make their lives easier, or make their businesses easier to run. Not surprisingly, customer behavior will increasingly be driven by emotion rather than rational consideration. By getting closer to customers you can identify ways to proactively address customers’ emotional needs and reactions. Here are a few of the overarching behavioral shifts we’ve been observing as the recession continues to take hold:
- Sympathetic Frugality and Inconspicuous Consumption. Most people who are struggling don’t want it to show; they’ll make compromises in order to keep up appearances. However, even the customers that are doing well are becoming more cautious as they see friends and colleagues cutting back or losing their jobs. Appearances matter. Inconspicuous consumption refers to purchasing goods or services that convey a lower socioeconomic status. People who have, so far, been unaffected directly by the recession don’t want to rub it in. As a result, we are starting to see a regression towards a more socially-neutral mean. While the customers that are struggling will buy up in order to keep up appearances, the ones that aren’t will tone it down. I expect we’ll see an echo of the “grunge” music, fashion, and lifestyle movement that arose out of the recession of the early ’90s. This creates opportunities for clever, customer-centric marketers.
- Exercising Control. People are starting to cut corners in ways that give them the feeling of being in control and of acting responsibly. All inclusive and bundled pricing that creates more predictable and budgetable expense streams will have an advantage. Companies need to look for ways to help their customers regain a feeling of control. This might include measuring the benefits and savings associated with programs, locking in discounts for the future, etc…
- Inexpensive Luxuries. During the height of the great depression, when 25% of families had no income and unemployed labor reached 40%, movie receipts still increased by 22%. As stress and uncertainty levels rise, people naturally look for more inexpensive ways to meet their personal and social needs. This includes affordable entertainment alternatives. Beer, liquor, movies and home entertainment tend to do well during a recession. Product and service organizations that provide affordable alternatives to premium pleasures can benefit from promoting these options. This includes everything from buying your latte at McDonalds or Duncan Donuts rather than Starbucks… to more economically-oriented entertainment, restaurants, hotels, and vacations.
I walked into Whole Foods yesterday and noticed how effectively they’ve redesigned the experience. They’ve launched “Whole Deal,” a more value-focused experience targeted at customers who remain committed to natural and organic foods but are feeling a heightened attention to cost. This experience includes several creative elements that match customers’ shifting priorities : an expanded selection of lower-priced alternatives marketed under their “365” store brand, “Money Saving Meal Plans” and “Budget Friendly Recipes” that provide advice for containing costs while maintaining a focus healthy natural and organic foods. They are even offering “Value Tours” through the store in order to help customers find the most cost-effective solutions. In addition, they are promoting a “Local Producer Loan Program” that highlights the support they provide to suppliers. Overall, they are meeting a challenging situation by finding ways to add more value for customers, rather than just cutting costs.
3. The third priority is identifying and eliminating the negative experience elements that drive attrition. Most organizations unintentionally frustrate and annoy customers in ways that they can’t even begin to understand. Recent studies have shown that, while the economy has been weakening, their tolerance for bad service has been diminishing. For example, a recent Customer Experience Study (conducted by RightNow and Harris Interactive) found that:
- 87 percent of consumers have stopped doing business with an organization after a bad customer experience, up from 80 percent in 2007 and 68 percent in 2006.
- 84 percent of consumers indicated they would tell others about a bad experience – up from 74 percent in 2007 and 67 percent in 2006, In fact, blogging about a negative customer experiences is on the rise: 22 percent of consumers this year have posted negative feedback about a company, vs. only 13 percent in 2007.
- 58 percent of U.S. consumers said that in a down economy, they will always or often pay more for a better customer experience
In many cases, the negative experience elements that contribute to attrition may be relatively easy to fix without major investment. The trick is to be able to clearly identify these things with an unbiased and unfiltered, outside-looking in perspective. Over the past decade, we’ve worked with several organizations to conduct an Urgent, Short-Term Customer Retention Program. Typically, over the course of 6-8 weeks, we can quickly diagnose the specific breakdowns in the experience that are leading to defection or lost new business opportunities. For example, we worked with a business-to-business financial services provider to uncover the root causes for why customer attrition was increasing. Over the course of an 8-week effort, we were able to identify 7 things they could immediately to 3 point increase in retention. This translated into a 12% improvement in the business’ bottom line. These improvements included a new template for on-boarding and initiating new customers, an early warning system for changes in customer behavior that preceded attrition, and expanding the schedule of follow up training for customers.
The way through many tough times is finding ways to intelligently create more value for others. One of the surest ways there is for making sure that you end up being the strong rather than the weak is avoiding the tendency to become self-absorbed and maintain a clear focus on the customers that are, ultimately, the source of your success.