Agency: Adam & Eve
By Jonathan Harman, Carlson Marketing, campaignlive.co.uk, Friday, 10 October 2008 12:00AM
An obvious feature of a crisis is the way it makes people behave rather strangely. We know, for example, that jumping up and down and cursing wildly will not unblock a photocopier minutes before a presentation is about to take place, but we still do it. Pressure is a funny thing. Even normally reliable individuals can crumble at a crucial moment and, like John Terry stepping up to the penalty spot, make a fatal slip-up.
The same is often true of brands. Earlier this year when Egg, renowned for its customer focus and high satisfaction scores, pondered how best to address a problem, its normally reliable judgment must have clouded over. Telling stable but unprofitable customers that their credit was being withdrawn was a tricky brief, and the letters that went out triggered a PR storm for the brand. But, contrary to the famous ad campaign, drama is often made from crisis, and the economy is staring down the barrel of a pretty big one right now.
The credit crunch will dominate headlines for some time to come and, for many brands, the future is full of tricky choices. Clients will be under greater pressure to monetise their customer base and sort the wheat from the chaff. When the economic outlook was rosier, marketers were content to account for customer value based on a predicted future. But in the current climate, businesses need value, and that means cutting costs, even at the expense of future value. Promises made to customers in the past are now under the microscope. Increasingly, businesses are deciding their interests and those of their customers have become misaligned to the point where action must be taken for these relationships to survive.
From the customer's perspective, a major part of the problem is that we've lived through some good times of late. Extracting value from customers has always been important, but many companies were happy to reduce the conditions of a service for the sake of the clarity of proposition; some even launched loss-making products with the expectation that customers would buy additional products and services once a relationship was established.
The internet has made it much easier for customers to compare products and services. Therefore, businesses that have failed to make it sufficiently easy to buy additional products or to build in reasons to buy more from their brands have been unable to justify the original investment. Customers have been conditioned to become more demanding. Faced with so many alternatives, their expectations have grown accordingly. Until recently, they could ask for more and more, confident that brands would bend to their will, without placing any conditions on purchase that would ensure profitability.
But now reduced consumer demand and over-supply is putting pressure on margins, not to mention the rising costs of borrowing, food and fuel, the net result being stagflation. This leaves us with a set of very awkward conditions. Essentially, the relationships between many businesses and their customers have become mismatched: customers have high expectations of brands, yet some have ceased to be as worthwhile to these brands as they once seemed.
The status quo now suits neither party. Demanding customers can no longer expect to see their needs met, while belt-tightening will see brands shedding any unprofitable accoutrements to their services. The outcome of this is that churn is becoming increasingly important. As the higher cost of living prompts customers to review their relationships with brands, finances will be biting hard on businesses. There may be a reluctance to invest in longer-term relationships in anticipation of future multiple product holding, exacerbating the overall problem. It's a difficult conundrum.
You only have to pick up the papers to see how this issue is already in play. As in the case of Egg, companies are seeking to divest themselves of unprofitable customers, or are placing additional conditions on continuing relationships. If you take the financial services industry, this means increases in arrangement fees for mortgages, fees for transferring credit card balances and lengthier, more explicit lock-in periods for credit.
Some airlines began introducing fees for checked-in baggage a while ago, but more are now joining them - Air Asia did so in April. Likewise, passengers on airlines that have marketed themselves as "low-cost", such as Ryanair, are now finding that extra fees are pushing costs closer to those of the more established rivals. Indeed, it is those that have acquired clients on the basis of low-margin or loss-leading products, for whom this problem is particularly acute. Even more so when the misalignment has grown over time, leaving unprofitable customers who have sky-high expectations.
So what can a brand do about this? The temptation is to attempt a "one size fits all" realignment. But this is a dangerous tactic. Nobody likes to hear that they're not as valued as they thought. Whether it's a frequent-flyer scheme, a gold credit card or a "privileged" mobile phone package, even if we hardly notice or use the benefits when we have them, we certainly don't like to hear they are being taken away.
Any kind of mass movement of customers from a good deal to a worse one is likely to see many leave the fold along the way. Fine, possibly, in the short term, but real danger may lurk further down the line. Realigning customer relationships risks negative publicity on a global scale, and it's just a mouse-click away.
The solution is an individualised, relationship-driven approach; and this is where direct agencies can make a real impact. We've been running Carlson Relationship Builder, a long-term research initiative examining relationships across industries. The latest phase involved almost 2,000 consumers, and the results were striking: while it seems many brands are doing a decent enough job of winning attitudinal loyalty, they're not yet turning that into more engaged customers who buy more products and refer the brand to others. So, even in this relationship-savvy age, a trick is being missed.
Rather than make profit judgments about groups of customers, unprofitable customer relationships should be identified at an individual level and product offerings tailored accordingly, with regular review periods, built-in flexibility and trade-offs. In this way, a business can set its customer relationships on a more even keel. It is about using personalisation to engender more honest and flexible relationships that should eliminate the problems of major misalignments. The approach helps with profitable customers, too, building in "switching costs" through personalisation of conditions.
Our research suggests this approach strengthens relationships, and in these testing times, relationship marketing could be a brand's most effective means of defence. Identifying strong relationships among a brand's customer base, and crafting one-to-one strategies to build on them, is a huge and largely untapped opportunity.
- Jonathan Harman is the president EMEA of Carlson Marketing.
This article was first published on campaignlive.co.uk