Your customers are the Potter, Your value proposition the Clay

A few weeks ago I critiqued the popular RFM model of customer segmentation, mostly for its un-actionable results, but also for its abandonment of a customer-centric approach to marketing. Too often I observe, or am a recipient of, a marketing strategy built on the fatal assumption that the needs of a potential market can be sculpted to fit a company’s value proposition.

No doubt you’ve been on the sour end of this stick; a direct mail offer or sales pitch that is beyond your price range, or is simply irrelevant. This is the result of a marketing team that asked the wrong questions: “Who do we want our customers to be, and what do we want them to buy?” Smart marketers need to avoid the tendency of drifting into fantasy consumer land, where customers bend like wet clay to the desires of the Master Marketing Potter.

On the contrary, we live in a world of increased globalization, where savvy consumers know what they want, have deep access to product information, and are a single click from your toughest competitor. This is why customer-centric companies will continue to outshine and eventually bury those that start a campaign simply with their margin goals in mind.

Don’t misunderstand me, EVERYTHING in a for-profit business must come down to just that, profit. But hopefully your company is shooting for long-term profits and sustainability, as opposed to quick cash and a temporal existence. This being the case, we can see a clear distinction between those companies that develop their products and promotions according to the dynamic consumer market, and those that don’t. Consider Apple, Toyota, Wal-Mart. All companies that have consistently asked the right questions: “Who are our customers, what do they buy, and how can our Value Proposition meet their needs?”

The answers to these questions will most likely result in a “Persona“. Which, according to Leigh Duncan at mpdailyfix.com, is “a representative profile, which summarizes a key demographic target”. Whether or not you institute the use of Personas to drive your marketing efforts, the idea is worth wrapping your head around in order understand the customer-centric approach.

Successful companies are just as in-tune with the psychology, behavior, and needs of their potential market as they are with their own financial goals. This results in more than just increased sales, but it results in repeat customers, viral exposure, insight for relevant upselling, and the potential to forecast changes in demand to win market share.

My advice is to switch positions with your customers: Envision your products and services as wet clay in the hands of a dynamic and demanding Consumer Market. How malleable is your Value Proposition?

It’s All About RELEVANCE— A Broad Introduction to KPIs

To achieve your goals in the Age of Information, there are few principles more vital than that of Relevance.

For our purposes, Relevance is: the ability to sift out the circumstances, variables, possibilities, and data that do not give insight into the progress of your goals, in order to make a decision that will achieve those goals based on what matters, and nothing else.

In the last half-century technology has given us access to monumental amounts of information as quickly as we want it. Radio and television were the first widely used mediums of information that broke the limitations of proximity. Before long computers were used to parse and extrapolate data, delivering new insights on whatever input the user provided. And finally, the Internet matched the achievements of radio, television, and computing, as well as gave the world a platform to effortlessly share its wealth of knowledge. From an information standpoint, society has bit off way more than it can chew; the foundation of Relevance is knowing what to spit out.

And while the broad subject of Goals (“What should my goals be?”), Relevance (“What affects the achievement of my goals?”), Limitations (“What prevents me from achieving my goals”), and Foundations for Achievement (“What are the methods of execution?”) are important for every individual who has goals, our discussion about Relevance thus far has been a precursor to the central topic of this post: Key Performance Indicators (KPIs).

A Key Performance Indicator is a super-concentrated piece of information that delivers maximum insight into the progress of your goals. In other words, Key Performance Indicators are the most Relevant factors in your decision making progress. If you have specific and clear goals for your business, then Key Performance Indicators do exist for those goals, whether you’ve been using them or not.

The concept of using KPIs has grown tremendously in the realm of Web Analytics, where mounds of Internet information is available and reported to website owners that are interested in how people use their website. Working for a company whose primary sales channel is the Internet, I am VERY interested in how people use our website. No surprise that I was introduced to the concept of KPIs by the works of Web Analytics Guru, Eric T. Peterson. If you have a website, intend to have a website, or like the idea of having a website I STRONGLY encourage you to read Peterson’s set of Web Analytics and KPI books.

Of course, even brick-and-mortar businesses should recognize the tremendous value of the KPI/Relevance philosophy. If you want to save time, react quickly to problems, identify channels for increased success, and make smart decisions, then you are interested in the principle of Relevance. Focus on the concentrated pieces of information that help you achieve your goals, keep that information readily available, and use it to drive your business decisions.

I’ll leave you with a line from Eric T. Peterson’s Big Book of Key Performance Indicators,

“Any KPI that, when it changes suddenly and unexpectedly does not inspire someone to send an email, pick up the phone or take a quick walk to find help, is not a KPI worth reporting.”

Writing Exercise: Forced Associations

In hopes of jump starting my early morning brain (it’s 11:02 AM right now), this is my first step toward a daily habit of “preliminary mental exercises” intended to get my mind in the game and increase productivity at work, life and all therein.

I’ve decided to complete at least one mental exercise a day, as warm up to the heavy mental lifting that often follows during the actual workday. Below is a creative writing exercise picked up among a long list of exercises at Fictionwriting.about.com. This exercise forces creativity by requiring the author to make associations between seemingly unrelated words, chosen randomly from a dictionary. Here we go…

spoony: foolish sentimentality in love.

vituperate: to overwhelm with wordy abuse, to find fault with.

sapid: agreeable to one’s mind, to one’s liking.

(all these have the makings of a love story.)

Among her observable features there was nothing I first appreciated; no impression that lingered beyond a glance or quality that pulled her from a crowd. Yet it was just this, her lack of impact, that stirred my curiosity, and eventually my attraction.

“Why!? Why!?” I asked myself. There were hundreds of boring girls I’ve never had to ignore, yet this one took all my effort to remain unnoticed. It was neither her face nor her figure, or even the sound of her voice, although I would come to love all these qualities later. But it was the undefined, a general sapid quality that followed her and filled the air in which she stood.

My attraction grew so dense and unmanageable that I soon felt threatened by her. And our personal interactions had now been reduced to a series of awkward and minimal exchanges, induced mostly by cordiality. It’s embarrassing to recall, but at both home and work, no matter how my thoughts began they always ended with some spoony day dream.

Within a month from when I started to ignore her, my attraction was in striking bloom. And I was not only mindful of her unobservable features, but had grown to be fully aware of all those qualities that stun a man’s mind when he’s in love. It was around this time that I arose early on a Thursday morning, more absorbed in my infatuation than ever and anxious to see her. Thursdays were particularly important.

I jumped off the bus and hurried to the bagel shop, running just a few minutes late because of some unworkable hair gel, or hair. There she was, scurrying across the street with thoughts surely set on her Thursday regular, a warm cup of coffee and blueberry muffin. About 20 feet ahead of me she neared the bagel shop and stretched out her long, slender hand to open the door when… WAM! A large, burly man with the same speed, twice the weight, and half the awareness suddenly slammed into her. She toppled over without so much as a stumble, and the man’s face was instantly struck with startling concern.

It was when he gave his hand to apologize and help her that I witnessed the most shocking transformation of a human being as I had ever seen. His apology was met with a volatile and genuine vituperation of words that lasted nearly two minutes. As she spouted profanities and insults I watched as each of the qualities I had come to appreciate quickly melted away. Even her brightness started to blend into the environment, and she crawled back into that crowd of persons who don’t need to be ignored.

Measure What Matters… Critique of the RFM Model

I’m always interested in new strategies that could deliver deeper insight into our customers and would-be customers. But since burying my head into the mountains of marketing and management resources available, I’ve noticed a danger that managers can often fall into… Paralysis-by-Analysis. This is the tendency to crunch and re-crunch the numbers from every angle before deciding to crunch them again, and if there’s time, take a course of action.

Good marketers will bind themselves to ACTIONABLE analysis only. Whether it be customer survey data, customer behavior data, industry trend data, competitive analysis, or any other analysis activity, let us keep this question on our minds, “How will this information help me market MORE accurately and effectively.

I put the emphasis on “MORE” because you can waste your time tracking metrics that tell you something you already know from an ACTIONABILITY standpoint. Even if some new insight into your customers can enhance your marketing efforts, it needs to be approached from a cost/benefit perspective. In other words, “Will the changes I make to my marketing program from this new insight produce enough ADDED profit to justify the resources (time, energy, money) it takes to retrieve that insight?”

I asked myself this same question when looking into the Reach/Frequency/Monetary (RFM ) model that is used by many catalog retailers. Hats off to Mark Sakalosky over at Clickz.com, who wrote an excellent piece that educated me on the RFM Model. In a nutshell, RFM is a way of segmenting your customers according to how much they spend, how often they spend, and the last time they purchased from you.

Lets take a look at some possible scenarios with the RFM Model:

Goal (1.) Identify all the customers who rarely shop but purchase big ticket items when they do. Develop a marketing campaign targeted to increase the Frequency of purchases, essentially converting the customer to a more valuable RFM segment.

Goal (2.) Identify all customers who haven’t purchased in a while, but purchase big ticket items when they do. Develop a marketing campaign targeted to increase the Recency of purchases, essentially converting the customer to a more valuable RFM segment.

QUESTION: Is there a marketing campaign on this earth that will accomplish Goal (1) without simultaneously accomplishing Goal (2) ? This is just one way that the RFM Model seems to produce truly un-Actionable data.

As Marketers, we need data that can be used to form a marketing offer that appeals to the attributes of a specific customer segment. To be fair, some of the information delivered by the RFM Model can do this. And it makes more sense for catalog retailers, who heavily depend on the orders of their subscribers to implement the RFM Model.

But before you go through the pains of tracking, mining, and retrieving purchase behavior and customer information, consider segmenting your customers based on information that can help you form specific offers. Here are some good segments to track:

(1.) Order Value: One of the 3 elements of the RFM model, segment customers according to their average order value and give them an offer for products in their price range.

(2.) Product Category: Segment customers according to what they’re interested in and give it to ‘em.

(3.) Geographic Location: Offer an “Alabama Special Offer”.

Of course, there are many ways to segment your customers into meaningful groups. The key word here is “meaningful.”

Another problem with the RFM Model is that it reverses the customer-centric rule of marketing. Instead of discovering the desires of your customers and offering products to meet those desires, the RFM Model starts with your desire to get all of your customers to the “highest score” possible by increasing their Frequency, Recency, or Purchase Value. This can produce irrelevant offers that are out of touch with what your customers want.

Unless you work for a catalog retailer or have already implemented the RFM Model, I would focus on segmenting your customers where your Value Proposition meets their needs. This is the insight upon which high-performance marketing campaigns are built.

P.S. – I would love to hear other marketers’ opinions about the RFM Model.