Why Customer Centricity Is (Still) the Secret to Business Success
Whether you're clicking around on LinkedIn, reading the Wall Street Journal, or talking with colleagues, clients, friends or family, it's hard to avoid the reality of cost-cutting in the U.S. market. Companies of all shapes and sizes are choosing to respond to the volatile, post-pandemic economy by tightening their belts in the form of laying off staff, reducing ad spend, and trimming expenses.
But contrary to what some brand leaders might think, embracing such survival tactics isn’t a tried-and-true formula for weathering the economic storm. In focusing so much on what seem like logical money-saving measures, brands are getting away from what the late, great Peter Drucker argued was every business’ main purpose: creating and serving customers.
There’s plenty of data to support the claim that brands aren’t prioritizing customers the way they used to. According to Forrester's most recent Customer Experience Index, only 3% of companies across 13 industries are currently "customer-obsessed." And for the first time in the history of the study, there was a drop in customer experience (CX) quality, reversing gains made through the pandemic.
It’s time to change course. All signs point to economic headwinds remaining strong for the foreseeable future while consumer expectations increase. I want to make the case for why customer centricity is the best way forward, with advice on how your brand can become customer-centric so that it can achieve long-term sustainable growth and the highest degree of actual company value.
the benefits of a customer-centric approach in 2023
In order to not only survive but thrive in today’s business climate, brands must get back to creating and serving customers. And the reason is simple: The benefits far outweigh the risks.
For starters, putting the customer at the center of your strategy can lead to increased customer loyalty and retention. According to a recent study commissioned by Acquia, 75% of American consumers say they’re more likely to be loyal to brands that understand them. By understanding your customers' needs and providing products and services that meet those needs, you can build strong relationships and develop a base of loyal supporters who will continue to buy from you for years to come.
“Customer-obsessed companies report 2.5 times higher revenue growth than non-customer-obsessed companies.”
A customer-centric approach can also lead to increased revenue and profitability. Just ask Forrester (again), which found that customer-obsessed companies report 2.5 times higher revenue growth than non-customer-obsessed companies. By identifying your most valuable customers and tailoring your sales and marketing strategies to meet their needs, you can increase the frequency of purchases, encourage customers to spend more money per transaction, and attract new customers who are likely to be a good fit for your business. This can result in a stronger financial position for your company.
Finally, a customer-centric strategy can lead to a stronger reputation for your brand. When you prioritize customer satisfaction and create products and services that meet customers’ needs, you can ensure that your company is seen as one that cares about its customers and is committed to providing a high level of service. This can also result in increased brand awareness, positive word-of-mouth marketing (which can be extremely powerful when you consider that 90% of consumers say positive reviews have influenced their purchase decisions), and solidification of your company as the clear-cut leader in your industry as a whole.
identifying your most valuable customers
To become customer-centric, brands must first adopt a new way of looking at the data they have—data by customer rather than by product—and then identify their most valuable customers. Data by customer is the key because the fact is the 80/20 rule—which basically states that about 80% of your business comes from about 20% of your customers—is real.
We see it in our business, especially on the Health & Wellness side with Vitamins, Minerals & Supplements (VMS). It’s not quite 80/20 for us, but it’s close. So, we take the rule to heart. We focus more on those who are likely to return and build relationships with them.
Many brands make the mistake of going the other direction and trying to appeal to everyone. The problem is, this simply isn’t possible. Nor is it smart. Every product or service has a target audience, and companies must focus on this group—and build strong relationships with those in it—to achieve success.
One effective way to identify your most valuable customers is through the CLV formula. (Some in the industry call this LTV, but in the interest of staying focused on the customer, I’ll stick with CLV.) This formula calculates the total value a customer will bring to your company over the duration of their relationship with your brand. By understanding the value of your customers, you can make strategic decisions about how to market and sell your products or services.
To calculate CLV, you will need to determine the following:
Average Purchase Value: This is the average amount of money a customer spends on a single transaction. To calculate this, divide the total revenue generated from sales by the total number of transactions over a specific period.
Purchase Frequency: This is the number of times a customer is expected to purchase from your business within a given period, such as a year or a month. To determine this, you can use historical data on how frequently customers make purchases or industry benchmarks.
Customer Lifespan: This is the length of time a customer is expected to remain a customer of your business. To determine this, you can use historical data on how long customers tend to stay with your business or industry benchmarks.
Gross Margin: This is the amount of revenue you keep after deducting the cost of goods sold (COGS) and other variable expenses associated with a sale. To determine this, subtract the cost of goods sold from the revenue generated by a sale.
Once you have these metrics, you can use the following formula to calculate the CLV:
CLV = (Average Purchase Value x Purchase Frequency x Customer Lifespan)
For example, let's say the Average Purchase Value is $50, the Purchase Frequency is twice a month, the Customer Lifespan is two years (24 months), and the Gross Margin is 50%. The CLV would be: ($50 x 2 x 24) x 0.5 = $1,200. This means that the average customer is expected to bring in $1,200 in revenue over the course of their relationship with your brand.
With that information, you can pinpoint which customers are impacting your bottom line the most, segment all your customers by value level (an exercise that can be time-consuming but critical to building a solid, customer-centric foundation), and make educated decisions about sales and marketing strategies.
what’s next
We’ll dive deeper into customer centricity in the weeks to come, so stay tuned for more on a topic that is crucial to business success, no matter how the economic environment changes.
Netrush has been helping mission-driven brands maximize CLV across every channel for more than a decade. To learn how to make customer centricity a bigger part of your company’s overall growth strategy, contact us today.
ABOUT THE AUTHORJustin Marshall is the Chief Experience Officer at Netrush, which he joined in 2021 as its Chief Growth Officer. Over the last two decades, his focus has been on building customer-centric strategies, messages, and programs for brands that want more valuable relationships with those who buy their products. Before Netrush, Justin served as President of Wunderman Thompson, where he worked with best-in-class brands in technology, telecommunications, apparel, and consumer packaged goods (CPG), with an emphasis on helping brands leverage Amazon’s ecosystem to reach high-value customers in unique ways. Connect with Justin on LinkedIn.
