If you run a business which depends on regular subscribers, like a mobile network, there is a simple equation which dominates your life. It is:
The number of customers you have (Number)
x
how long they stay with you (Loyalty)
x
How much money you make from them each month (Spend)
If you make Number, Loyalty and Spend all move in the right direction, good things will happen to you. If not, you are in trouble. I told you it was simple.
Driving “Number” is obviously about acquiring lots of customers. Driving “Loyalty” is about good retention programmes – encouraging people to want to stay with you and persuading potential lapsers not to leave. Driving “Spend” is about up-selling – encouraging customers to buy more services and become more “entangled” with your products.
Here’s the thing, though. The same basic logic applies to all businesses, not just to subscription ones. And yet, outside the world of the telcos and financial services companies, very few businesses manage themselves in this way.
Take retailing as an example. Walk down your high street, and 9 out of 10 of the retailers you pass would not even know what those three key numbers are today, let alone how to make them go up. Ask a retailer how many customers it has, and it will start talking about “footfall”, but that isn’t the same thing at all. Footfall measures the number of anonymous people who have walked into your stores, not how many actual customers you have. When you get to the Loyalty and Spend, and start asking about customer lifetime and customer value, things get even worse.
Whether you are buying books or electrical goods or clothes, if you can think of a retailer you’ve shopped with multiple times but who has no idea who you are or how much your business is worth to them, then they have got it wrong.
Managing a retail business using the disciplines of a telco is not easy – it means measuring different things and engaging with customers in different ways. The prize, however, is enormous – the value that big retail brands could generate by tracking the value of individual customers is huge. Retail is a high fixed cost, low margin business. Even reducing defections of valuable customers by a tiny amount, or encouraging some lower value customers to get more engaged and spend more, could literally double the profit of many high street retailers.
If it was easy, we’d all be doing it. I’ll go out on a limb and assert that there is no retailer in the UK properly managing its customer base in the way I’ve described, including the ones I’ve worked in. That’s because doing so means changing almost everything about the way the operation works. I’ll be writing more about this in the coming weeks, but don’t just leave it to me – let me know what you think, and any examples you can find of best (and worst) practice.
