Avoiding Dash-Boredom in Business Reviews
"The Pivot", Blog of Pivot Point Analytics. Sept, 2020. By Thad Wengert
Leadership staff meeting. Monthly business review.
Those aren’t words that instill excitement. You get a long deck full of numbers in 8-point font. A few hours. Each leader recites that things are pretty much OK. The only vigorous part of the meeting is debating when conflicting numbers are correct.
Those are not the ingredients you need to meet your team’s potential and surpass your competitors. But that will change completely within two months.
The two missing ingredients are
A vital strategic challenge
Metrics which challenge and motivate change
Any athlete performs better when faced with a challenge. What is your company’s single most essential challenge that your leadership team can rise to?
Think on that while you read this example.
Pivot Point works with a B2C manufacturer / distributor with progressive products and a respected brand. Customer acquisition costs were a large % of revenue. B2CM’s leaders knew it was expensive to grow. Their digital agency analyzed the situation and recommended becoming more efficient with that spend, and B2CM had other initiatives to trim costs.
That “growth with cost control” direction is good, but as a strategy, it’s simplistic and half-baked.
It doesn’t tell us WHY. You could say the same in every business. It’s “motherhood and apple pie”, a true statement that sounds good, but is intellectually empty because it doesn’t explain anything (see B. Mintos The Pyramid Principle for a great treatment of meaningful strategy statements).
It’s not operational. HOW are we going to do that? Can the manager of ______ function do something different today with that directive? If that isn’t clear, the company isn’t going to really change direction.
It introduces conflicts, not clarity. My decisions to cut cost in shipping my function might increase your cost in customer service. Product management’s cost cuts might be the features that Marketing relies on. Even the agency who suggested it will have a hard time: if you cut to lower-cost media, you get less qualified customers. There will always be trade-offs, but they shouldn’t be bigger and louder than the call to a new direction.
It applies directly to no one and inspires no one. You can’t rally an organization behind something which can be interpreted as applying to someone else. Especially when it’s something negative. “I can’t cause growth; I run customer service.” “I can’t cut cost; I already am running as lean as I can.”
Most company strategies I’ve seen are simplistic like this and mostly useless for changing the company’s direction.
B2CM was wiser. They sensed that the problem was not the cost of acquiring. They asked the right question: what is the lifetime value of a customer, that is, the value of the asset (the customer) they were acquiring?
That question really has several pieces:
Can we even discern our customers? B2CM had plenty of data and piles of reports. But there was no customer ID that was persistent over time. They couldn’t count customers or repeat orders. Did they have a loyal customer base that sustained the business, or were they watching a revolving door of one-and-done customers?
They had solid data, so we combined various physical addresses and digital IDs into a persistent Household ID.
Second, which customers are the best ones? We cleaned up the revenue data a little, to get customers’ lifetime spending. And we captured the main cost drivers.
Finally, what distinguishes the “best” from the “rest”? At every company, we find substantial differences in behavior from even before their first order. Commonly we see differences in:
How they were acquired. Not all marketing sources are equal.
What products they buy in the first order or two
Purchase cycles and habits
Levels of discount
Customer service contacts
Sometimes demographics / business characteristics
Those differences are what we need to know to create our strategy, because they are the most atomic level: our customers interacting with us.
So we arrive at the first ingredient to avoid dash-boredom and inspire your team: the core strategic challenge.
At B2CM we uncovered that high percentage of customers - far higher than they hoped - were single order “one-and-done.” And - a nugget almost literally of gold - after a second order, customer value accelerated: quicker order cycle, rising order value.
The “grow with cost control” strategy might get them 2 or 3% lower cost, and only for new customers. Getting a second order from a customer would increase profit for that customer by 250% or more, and probably at a lower cost than acquiring new customers.
The strategy, then, was to turn from acquisition marketing to relationship marketing and to cultivate their large base of single-order customers, with a rallying cry that everyone from the warehouse to engineering to customer service could get behind: “MISSION #1 IS ORDER #2.”
How? With their new understanding of customers, they had clear directions. One, their loyalty platform was working, so they could double down on that messaging. Two, certain acquisition sources tended to attract more “best” customers, as did certain products, so they could shift marketing spend and content.
Would you say this strategy that will spark change? Above, we said it has to
Tell why. We boiled it down to a single sentence. “Too many of our customers only order once, so mission #1 is order #2.” Certainly, some primary research will add color, but we now know the problem we have to tackle.
Tell how. Our exploration of “best” vs “rest” customer behavior gave marketing several immediate changes to make. Leadership can also task product management, customer service, and supply chain to find ways to better compel and serve repeat customers.
Minimize friction. This isn’t a world without tradeoffs, but the ways to get a 2nd order are clearer and fewer than to get to a very general and inherently conflicted strategy like “increase acquisition and reduce costs”
Involve everyone. Everyone touches the customer some way, so it’s an easy task for leadership to take our simple rallying cry to every area and keep it top of mind.
B2CM recognized they had a challenge, and they asked the right question, “what is customer LTV?”
We built the capability to understand customers and showed what distinguishes the “best” from the “rest”.
We arrived with them at the core challenge: getting repeat orders.
We formulated that into a vital strategic challenge, to shift from acquisition to relationship marketing, and put that into a rallying cry everyone could understand.
And we used the new understanding of customers to point to immediate changes.
They now had HALF of what they needed to avoid dash-boredom and energize the company.
The other half ensures they are pivoting and making progress on customer relationships.
In the next article, we put the right metrics on a single-page scorecard.