A Customer Expansion Strategy for Accelerated Revenue Growth
- A customer expansion strategy is a roadmap to grow customer affinity. It turns first time buyers into repeat customers and repeat customers into advocates. And that makes customer affinity the company's most valuable and durable asset.
- A customer expansion strategy answers the question, how do I systemically improve customer affinity to increase customer acquisitions, lifetime value and retention?
- It's a complex question, which is why the answer lies in a 6-component framework. It's a process that specifies the right target customers, the maximum customer value, a customer centric culture, the ideal target operating model, a Go-to-Market plan for execution and governance to ensure business results.
The overarching goal of a customer expansion strategy is to increase customer affinity. Customer affinity is essential because strong customer relationships are a leading indicator of increased customer purchases, referrals, customer share and retention; all factors that deliver significant and sustained revenue growth.
Customer affinity also translates to lower cost of sales, accelerated new product introductions, word of mouth referrals and customer advocacy. Even better, it creates a protective barrier against competitors offering similar solutions and benefits.
Achieving customer affinity is one of only four sustainable competitive advantages. It's a differentiator that is not easily duplicated by competitors or displaced by new technologies. In fact, growing mutually rewarding customer relationships creates a connection that can withstand disruptive technologies, competitor encroachment and the erosion of other competitive advantages.
But achieving customer affinity at scale doesn't occur without a plan. The below customer expansion strategy diagram illustrates the 6 components to achieve customer affinity and the downstream revenue and profit objectives.
The 6 Components of a Customer Expansion Strategy
Know Your Customer
First, the company must precisely identify its Ideal Customer Profile (ICP). The days of imprecise target markets, diluted value propositions and broad-based customer or market pursuits are behind us.
Defining your ICP is part of becoming a data-driven, customer-focused business and directing your time and money to where they will earn the highest return.
The ICP defines the perfect customer for your company's solutions. These are the customers who are the best fit for your products or services. The ones that get the most value and tell others about their experiences. The ones that don't churn and have the highest Customer Lifetime Value. The one you want more of.
The ICP uses data to measure and segment customers by fit. Data can cluster or group customer characteristics, attributes or behaviors to show the highest fit customers and their contribution to the company, measured in things like purchase volume, profitability, customer lifetime value and tenure.
The ICP forces focus. It enables sales and marketing to better direct campaigns, messaging, offers and investments to the best fit prospects that incur the highest conversions and deliver the most profits.
Knowing your customer also includes knowing your buyer. For B2B companies that means knowing each buyer in the purchase committee. Customer personas are the most effective technique to gather and orchestrate buyer data that can be applied for more effective marketing and sales conversions.
Demonstrate Clear and Compelling Value
The second step is for the company to coordinate all its resources and assets to deliver the maximum customer value.
Be clear that value is the value the customer receives from the company and its solutions. Not the value to the company. That means you need to really understand the customers' top goals, not reposition the company goals as though they are benefits for customers. That doesn't work.
Defining value is a two-step approach of understanding customer problems and articulating clear and compelling solutions.
Customers don't care about your product or service. They only care about what it can do for them. So, to solve for the customer, you must first truly know their problems and pain. And to do that you need a method to continuously harvest customer intelligence. Otherwise, the company misdirects its limited investments.
Fortunately, we're in the age of the social customer. They will tell you what they want, and how to improve your products or services, if you ask them. Companies that collaborate with customers during product design, manufacturing, distribution, sales, service and returns create more valuable products and services.
Below are some of the methods to harvest customer intelligence.
With the right customer intelligence, the company can more effectively articulate its solutions succinctly but powerfully.
That's important because customers are constrained by time and overwhelmed with options. They want to quickly understand what makes one company different than the next and one product better than another.
Value-based messaging should be conveyed with a unique value proposition (UVP). The UVP is powerful because it's a concise statement that defines value from the customers perspective. It distinguishes the company from its competitors and drives contrast. And contrast drives customer decision making.
Unless your value proposition shows a big enough surplus between the customers' problem and your solution the status quo will prevail. Unless your value proposition shows a big enough difference between your product and the competitors, the customer will choose the most familiar or low-cost solution.
Assure Customer Centricity
The customer expansion strategy must organize the company around the customer; not the other way around.
Most companies say they are customer centric, but their customers tell a different story. They instead say that most companies are really self-centric, product-centric or much more internally focused than externally aligned with customers.
A revealing study from Bain & Company found that 80% of companies believe they deliver superior customer experiences. However, the research also found only 8% of customers agreed (Source: Bain & Company, Customer-Led Growth diagnostic questionnaire.)
Without putting the customer at the center of your business, any attempt to create customer affinity is a fool's errand. Customers are smart. Company self-proclamations suggesting that customers come first, without a real customer centric culture, are quickly recognized as lip service and called out publicly. Companies don't get to decide how customer-centric they are, customers do, and they will make their opinions known in social networks and online media.
Operationalizing customer centric business processes is best done with a customer strategy framework. Customer strategy research findings revealed that four customer strategies stood above all others. They are shown below.
Finally, recognize that achieving a customer-centric business isn't just the right thing to do, it's the profitable thing to do. A research report from the Tempkin Group, titled The ROI of Customer Experience, found that customer-centric business leaders enjoyed an 18.4% advantage over peers in customer willingness to buy more, a 19.2% advantage in terms of reluctance to switch brands and a 19.5% increased likelihood to recommend.
Ask your CFO to apply those increases to your customer share, customer longevity and customer referrals and show the cascading effects to both top line revenues and bottom line profits. You will probably find the revenue impact to be more substantive than any prior company program.
Organize Your Target Operating Model
Good customer strategies are holistic and enterprise-wide, not departmental or fragmented.
The customer expansion strategy must be aligned from bottom to top and across all lines of business in order to communicate, collaborate and convert prospects and customers across all points of the customer life cycle.
Nothing infuriates customers like inconsistencies between departments of the same company. Nothing frustrates CEOs like departments that fail to align with the company's priorities. The strategy should show how customer information is shared across departments and how each department's most important objectives create results that roll up to achieve the company's revenue and profit objectives.
The below example is a data-driven model that shows how lower level activities roll up to departmental outcomes and then roll up further to the company's priorities.
Only when the customer expansion strategy directly supports the company's business priorities does it become something the company cannot live without – which makes it both wildly successful and sustainable.
Execute the Go-To-Market Plan
The Go-to-Market plan drills down to execution delivery. Once you know what customers want and what each department needs to contribute to meet the company's revenue goals, you can create an execution plan that engineers the customer and company outcomes and achieves forecasted results.
To make the plan data driven and measurable, we often illustrate it as a value chain roll-up that includes growth strategies, evidence-based best practices, the most salient metrics and the forecasted payback.
There is usually a value chain execution model, sometimes called a blueprint, for each customer facing department. The below diagram shows an example for the Marketing department.
A recurring pattern among slow growth companies is that they don't know what strategies or best practices deliver the biggest financial returns. So, they pursue the easiest or most familiar instead of the most effective.
That results in a best-case scenario of low, incremental and often temporary growth, or a much more likely scenario of maintaining the status quo. The above blueprint diagram can model different scenarios to discover the most effective and least cost pathway to achieve the top goal. The above model is also effective in allocating the customer strategy throughout the organization in a measurable way.
Governance is needed to ensure forecasted business results are realized. That requires oversight and controls to monitor, measure and report on the most important business performance objectives.
The four critical success factors for effective governance include the following:
- Transparency. This means sharing the measures that most clearly show customer strategy progress and payback, and whether the program is on track or not
- Inspection. This is the regular cadence to review the most essential measurements, vet progress and ensure consensus understanding
- Adaptation. This step is the process to implement change when results show deviations from plan, or when we need to re-steer execution toward an outcome; it may include implementing remediation plans or course corrections; and
- Accountability. This defines or aligns resources with success measures. Everyone has their role, and every role has its responsibilities
Measures That Matter
In helping clients, we often find that companies are not measuring their progress with the most effective metrics. That contributes to wasted efforts and investments because they are chasing indirect or inefficient performance goals.
To accelerate your progress focus on the following metrics.
- Customer Lifetime Value (CLV). This is often the top customer affinity metric. That's because it's an efficient and highly effective measure of a company's relationship with its customers and a leading indicator of future revenues and profits. It also helps shift the view of a customer from a transaction to a relationship, recognize customer relationships as assets, reposition customer focus from short-term profits to long-term lifetime relationship value, and directly impact all other customer-centric measures.
Customer Lifetime Value is influential because even small increases multiplied by the number of customers creates large revenue growth.
- Repeat purchases. Follow-on purchases are often bigger ticket and higher margin sales. Even better, they contribute to customer affinity. Tracking repeat customer purchase volume also shows fluctuations to customer retention. Measure this metric as both an absolute value and a proportion of total sales.
- Multiple product purchases. This metric demonstrates a shift from product favoritism to brand preference and is a clear indicator of customer affinity progress.
Other customer affinity metrics include referrals, customer engagement, Net Promoter Score (NPS), Customer Satisfaction (CSAT) score and brand engagement measures which may include things like website visits, the volume of social media engagement and online customer testimonials. While online engagement is an indirect measure, it is effective in measuring customer enthusiasm for your products and company.
The Point is This
Most businesses understand these components, but few apply them with the level of rigor needed to achieve superior financial results and competitive advantage. Even fewer can see their companies as their customers see them.
These six components are sometimes part of a CRM strategy. When automated with CRM technology the customer expansion strategy can be systemically executed, measured and refined. Companies that excel in all six components will turn customer affinity into their most strategic and profitable asset.