Return on customer has become the new imperative for today’s CMO

January 15, 2019 | 4 min read

michael-gawtrey

Michael Gawtrey

Senior Director, Consulting Services

Thought Leadership

ROI or “return on investment” has long been held as the standard for evaluating financial return on business initiatives. With the utilization of cost-benefit analyses, business leads have been developing financials for capital projects, operations investments and a whole host of business-planning activities.

For the marketer, return on marketing expenditure has been the gold standard – with marketers continually trying to increase this metric within their marketing budgets. For many marketers, this means optimizing the mix of traditional and digital channels, targeting specific audiences and continually reallocating funds across marketing programs through a series of performance reviews or testing.

All of this will continue to happen. The CMO has trained the CFO to think like a marketer and regard every marketing channel as measurable. Today’s CMO can assume that the CFO and his/her colleagues know that marketing spend can be evaluated right down to the sales level – whether it be the first click or last, store foot traffic or the opening of an email.

So, what is on the horizon for evaluating marketing investment? ROC or “return on customer.” There are some businesses that have well-established ROC metrics; for example, telcos measure subscriber value through ARPU or average revenue per user. Loyalty marketers have created RFM metrics (recency, frequency & monetary value) to segment and measure the performance of customers over time.

These types of metrics have given marketers a better picture of what is happening at the customer level – whether it be long-standing customers or new ones.

Return on customer answers the question, “How much value can I create per customer?"

What ROC speaks to is a much broader concept – one that is based on revenue and profitability. One that makes the CMO accountable for growing existing customer spend and profitability while acquiring similar customers. ROC requires marketers to be very specific and targeted in their customer growth and acquisition efforts.

For years, verticals such as telcos and credit card companies would blitz the marketplace with acquisition offers and booths at airports or in-store – all with the aim of signing up as many new customers as possible, regardless of quality or real interest in the brand. A whole industry of “hosting” was created to feed the insatiable desire to have more subscribers or more credit cards. This then went digital, with out-of-control display ads whose sole purpose was to acquire whoever happened to be online that day.

What marketers are now figuring out is that building and growing a quality customer base takes more care and attention. The age of ROC is now upon us.

When looking for the “R” in ROC, there are really only three ways to increase customer value:

  1. Sales: Increase sales per customer, i.e., sell more and make more from your existing customers.
  2. Loyalty: Retain customers longer. This addresses the questions: How many customers did we not lose this year, and by extension, how many sales did we not lose?
  3. Cost: Lower the cost to serve. For example, by shifting clients to lower cost channels, offering paperless invoices, etc. Marketers need to ensure these initiatives are truly beneficial to their customers (i.e., they allow them to actually save time or money).

Conclusion

Growing ROC, both at an individual level and a customer portfolio level, takes specific expertise. Today’s marketer needs to leverage the skill sets of multiple marketing disciplines to get this right:

  • First understand who the right customer is
  • Then create the right value proposition for them
  • Finally, find the best way to connect with them on their terms

The companies that are the most successful at doing this do not apply a one-size-fits-all approach. They instead take a personalized approach to the products, services and communications that they craft for each customer. Some engage the customer in co-creation, so the output is a perfect fit for the customer – after all, they helped make it. The next time you are speaking with a CMO, ask them, “So, how is your team growing ROC?”

© Relation1. All Rights Reserved

Privacy Policy | Contact Us | Follow Us