Customer profitability is an entire business process challenge, say leading experts
Customer profitability and measurement have always been challenging to implement. Therefore, it is very is important for marketers to identify their customer properly and ensure that they are reaching the right customers that will help them earn the maximum profit. So, in a customer-centric organisation, measuring customer profitability has become a business imperative.
Adgully, in partnership with DAN Consult, turned the spotlight on ‘Profiling Customer Contribution – Issues & Barriers’ in an exclusive webinar as part of the ‘Back to the Whiteboard’ series. The discussions centred around finding out what should be the right approach for the Retail & Consumer Goods industry when it came to managing and navigating customer profitability.
The panel consisted of some of the best thinkers in the field. Moderated by Ajay Row, Partner - Data, CRM & Martech, DAN Consult, the panellists included:
Ranjani Krishnaswamy, General Manager - Marketing, Tanishq
Ritesh Ghosal, CMO, Croma - Infinity Retail Ltd
Amitabh Pande, Marketing Head, IKEA India
Sameer Wanchoo, CMO, Eureka Forbes
Pankaj Bhatnagar, Senior Vice President, Netcore Solutions
Prosenjit Ghosh, National Head - Playstation Division, Sony India
Responding to the opening question on do marketers really understand customer profitability, Amitabh Pande started with his comments by saying that traditionally for the people who have grown from the old school of marketing, it’s not something that comes naturally, it’s something that we’ve learned over the years. “I would like to reflect on my journey as a marketer and I would like to say that it is little bit of a dilemma that we as marketers always deal with. On the one side we have a desire to expand our reach and fill up the funnel and get more consumers to our brand, while on the other side you want your existing consumers to come back again and again to make it more profitable or be at the bottom of the funnel. So, a short answer to your question, ‘Yes’ and ‘No’ – it’s not always easy and it’s a dilemma we live on a day to day basis as marketers.”
On being asked if she thought she had a good handle on customer profitability at Tanishq in her past avatars, Ranjani Krishnaswamy replied, “Coming from an FMCG background, schooled at Levers, at Tanishq it is a world that I’m unravelling because there is so much data that you can draw insights from, there is so much opportunity to use the multiplicity of data to be able to customise for customers. So, from my point of view, I feel it’s a journey, and some industries are at a better place to optimise this journey vis-a-vis others.” She further said that typically from a mindset perspective, it requires a paradigm shift because coming from a typical FMCG where homogeneity, reach, acquisition, scale all those have been the ones we’ve been schooled in. So, to suddenly start thinking about conversions, about lifetime value, transactions, I think a lot of us are learning. “It’s a journey, but I’m glad we’ve started and at Tanishq we’ve been around for 23 years and being in a position to look at data up close and personal, the journey has been a little bit more evolved that I have seen in my past avatars” Krishnaswamy added.
Responding to the question on what he thought about marketers understanding customer profitability, Sameer Wanchoo, too, said that it was a journey. “I would not say that we have perfected the art, but we are getting there. Slowly and steadily, learning and improving. Customer profitability for me is not just a marketing challenge, it is an entire business process challenge. It’s all about changing your business processes, first to identify the customer segments, identify which of them are profitable and then tweaking your entire business processes for that consumer segment. To give the example of Eureka Forbes, we have a unique business model, where we not only sell consumer durables, but we also service them year after year. And 85 per cent of our consumer after 7th year upgrade to our own machine. So, for us to manage this customer journey and customer lifecycle is extremely critical because a profitable customer for us is worth his weight in gold, because every year he is the repeat customer for us, he needs to be given the best service and we also identify which customer is to be given what kind of services.”
Adding further, he said, “It’s a journey and we are on the right path. We are doing this day in and day out. But have we perfected the art? I would say not sure we’re getting there. Profitability is very critical and we are trying to translate that into actionables on the ground, because ultimately it’s not only about data collation and identification, it is also about scaling up, it’s also about affecting and making a change in business.”
Sharing his thoughts on data and customer profitability, Ritesh Ghosal said, “More than what marketers understand about customer profitability, there’s a question about organisations’ demand from the marketers. When I started working back in the 90’s, I was fortunate enough to work with leading marketing guys of that time. I always found them very focussed on driving customer profitability, they may or may not use the phrase ‘lifetime value’, but they were always very clear that a marketer’s job is to build repeats, build retention and to create value. One of the things that I picked up is that marketing is the only expenditure that can be amortized. All other expenses are to be consumed in the same year.”
He further said, “So, it’s not as if marketers didn’t get it, it was there all along. Somewhere along the path, a lot of organisations started looking at marketing as an act of creating communication, calling it ‘marcom’ rather than marketing. A lot of organisations have reduced marketing to the act of creating communication rather than creating demand or building value. In the world of e-commerce, you have this new animal called ‘performance marketing’, which is nothing but sales promotion in the digital world. So, the focus has shifted to traction today, rather than building customer value. I think the trick is for the marketer to understand the difference between all of these things and really focus on the one thing, like one of my former bosses said, “Marketing can be amortized”. Which means, as a marketer you are responsible for creating value beyond what you’ll consume this year.”
Prosenjit Ghosh added here that the customer journey begins when the customer acquires the product. “So, it is mutually beneficial if we add value to that, which means that I profit if the customer profits – it’s as simple as that. So, during the customer’s journey, when he has acquired the console, if we are able to add value to the way in which, for example, the Play Station that he is using, by suggesting software or services that are relevant to him, a lot of value is added to the product that he is using. In case of Play Station, it’s a very monopolistic product in India. It’s more by peer reference that we get more consumers here and it gains more profits, which means if this consumer is utilising or benefitting from the product, he is most likely to advertise it to make it benefit others.”
Ghosh believed that this applied to all brands. “Gone are the days where we used to think ‘Profit Only’, now it’s like ‘I Profit, You Profit’. We have benefitted immensely from this approach, engaging one of our KPIs that we internally formulate for ourselves – ‘How actively can we engage with our consumers?’ ‘How can we enrich this journey?’ By doing this, I think that is one of the key reasons why this category is doing so well in India.”
Here, Pankaj Bhatnagar mentioned about the concept of ‘Velvet Rope marketing’ and said, “It is absolutely critical for us to look at who are the right customers contributing to our profitability and if we look at the rule – while we all know about the 80-20 rule, there is a rule in profitability which says 20-200, that is, 20 per cent customer contributes to 200 per cent of the profit. To summarise it, that is what Velvet Rope marketing does. Identifying the right customers who contribute to most of your profitability and then start delivering the right experience. We are living in a privileged world, we have the tools now which give us access to data from all across the world for customer interaction that help us to bucket our customers as best customers and next best customer and then could be the rest of the customers. The experience for each customer would be different, based on the profitability and KPIs that you intend to major from that particular customer to your business – that is exactly what the concept of Velvet Rope marketing is.”