Drew's Note:

Managers are typically taught to things that can be easily quantified and reported on a balance sheet. Stop for a moment to answer this fundamental question: "What is the purpose of any business?” On the face of it, this question seems pretty easy to answer. Most managers would answer: "To make a profit."

But that's the wrong answer. Profits are an outcome. They only tell us if our business strategy and execution are viable.

Peter Drucker, widely considered the father of modern management, argued that the common belief that creating profits was purpose of a business was not only wrong, but harmful. It causes us to make bad business decisions and lose sight of those things that delight customers. He summed up the actual purpose of business this way: "There is only one valid definition of business purpose: to create a customer."

The mark of success for a firm, and therefore the ultimate objective of its strategy, is to satisfy customer needs and wants at a sustainable profit. Whatever strategy and tactics we employ to gain competitive advantage must ultimately be based upon our profitably providing a better solution for customers.

Managing Customers as Assets

Customers are the ultimate asset for all profit-making organizations. They provide all of a company's real value. Paradoxically, customers are one of the few aspects of a business that are not managed as an investment. This oversight negatively impacts profits in multiple ways, including inefficient resource allocation (via suboptimal company-customer interactions); product design and launch failures (via poor fit with customer needs); and unstable cash flows (via increased customer defections and price sensitivity).

Therefore, if customers are the primary asset, the ultimate aim of any business strategy should be to maximize the net present value (NPV) of customers to the firm. While on its face such a statement may seem academic, this is much more than a theoretical maxim. Researchers consistently find firms that adopt a customer lifetime value framework for customer selection and resource allocation strategy significantly outperform their competitors in profits and shareholder value.

But this doesn't just happen. It requires the successful integration of all areas of management -- accounting, finance, marketing, operations, and human resources -- in profitably addressing the needs of customers. Below is a good place for us to begin.

Accounting. Analyze the profitability of your customers. Research conducted by the Harvard Business School finds that most customers for most firms do not produce an acceptable rate of return (i.e., they are not profitable). In fact, for most companies, the top 20 percent of customers in terms of profitability produce all of a company's profits, the middle 60 percent break even, and the bottom 20 percent lose the company money. Paradoxically, revenue is a terrible predictor of customer profitability. The highest revenue customers tend to be the most profitable or the least profitable.

Managers need this information to effectively run their businesses. They need to know who their profitable customers are and what behaviors are associated with profitability.

Finance. Incorporate customer metrics in your financial models when making investment decisions. When prioritizing investment decisions, pay attention to the projected impact on the future value of customers to the business. Analysts cannot consistently beat (or even meet) the market -- in the language of finance, they don't add alpha. Research finds that this is because intangibles that reflect the strength of the company-customer relationship are excluded.

For example, analysts are generally skeptical of the impact that customer satisfaction has on a company's market value. Analysts tend to view customer satisfaction information as "soft" data because they don't understand how satisfaction data links to a company's bottom line. Because it is intangible, they frequently regard it as a money drain.

Our own research found that incorporating customer satisfaction into standard models used in investment finance significantly improved the ability to pick winners versus losers. And the winners dramatically outperformed the market by 2 to 1.

Marketing. Put more focus on current customers. Marketing activity has largely focused on persuasion -- the ability of the company to change someone's attitudes or behavior. And while that is a critical role of marketing, too often this gets translated into simply persuading someone to try something for the first time. An old saying goes, "A good salesman can sell anything once. The trick is getting them to buy again."

But it is not as simple as focusing on customer retention either (i.e., getting them to come back). Today, customers buy competing products from multiple companies with seemingly no real loyalty. In other words, customers divide their wallets among competitors.

Consequently, one of the most important elements in improving financial performance is getting customers to allocate a larger share of their wallets to the firm. A McKinsey study found that focusing on share of wallet had a 10 times greater impact than focusing on retention alone. Research demonstrates that the strongest driver of share of wallet is customer loyalty.

Therefore, the primary goal of marketing must be the creation of loyal, long-term customers out of first-time or occasional buyers. Accomplishing this requires a clear understanding of what makes customers want to be loyal. Gathering and understanding customer needs is the job of marketing.

Operations. Make certain that company-defined quality and customer-perceived quality are aligned. Because operations are often focused on the creation and distribution of products and services, there is a natural tendency for managers to focus on meeting technical specifications.

While the quality movement of the 1980s has done a great deal to establish standards of technical excellence, we have a long way to go to achieve user-defined excellence. It matters little if a firm is meeting its internal guidelines if these are disconnected from the customer.

We must always remember that the customer did not design the process, and they don't care that the system we have designed makes our lives easier. It needs to make customers' lives easier. So when designing and implementing any process, we need to experience the offering as customers do (i.e., shop our own stores).

Human Resources. Establish a climate for service in the organization. By service climate, we mean the procedures and behaviors that get rewarded and supported within the company with regard to customer service. Research consistently demonstrates that service climate is positively linked with lower turnover, higher customer satisfaction, and improved financial performance.

While we all pay lip service to the importance of employees in serving customers, too often we manage in terms of their operational productivity at the exclusion of all else. How many employee evaluations actually include customer metrics as part of the formal criteria? The reality is that most employees are rewarded for completing tasks. Few, however, are rewarded for making customers happy.

A Holistic Strategy

Too often we as managers think about strategy in terms of our own functional area: marketing strategy, operations strategy, finance strategy, etc. But each of these strategies should exist as part of a holistic company strategy. A winning strategy focuses everyone in the organization to come together for one cause: to profitably create and keep a customer.

Timothy Keiningham is a world-renowned authority in the field of loyalty measurement and management, and Global Chief Strategy Officer and Executive Vice President for Ipsos Loyalty, one of the world’s largest business research organizations.

Lerzan Aksoy is an acclaimed expert in the science of loyal management, and Associate Professor of Marketing at Fordham University. They are coauthors of a new book, with Luke Williams, entitled Why Loyalty Matters and creators of LoyaltyAdvisor, a web-based tool that analyzes your loyalty across multiple dimensions proven to link to your success. LoyaltyAdvisor is the product of a global effort, the most comprehensive study of loyalty ever conducted.

Every Friday is "grab the mic" day.  Want to grab the mic and be a guest blogger on Drew's Marketing Minute?  Shoot me an e-mail.

Photo courtesy of Shutterstock.com

Take a minute to read about my marketing cohort Jay Heyman's experience with Zappos and learn.  (e-mail subscribers...click on Jay's name.)

What's so memorable and talk-worthy about Jay's story is that one employee, not a corporate policy or CEO but one customer service rep who had clearly drank the brand's kool-aid took an extra five minutes and did something remarkable.

I think it's noteworthy that Eric's (the customer service rep) gesture was remarkable because it was personal.

After reading Jay's post, as a business owner, I found myself wondering these three questions.  I'm thinking you should be asking them too.

Would every one of my employees recognize an opportunity to deliver a remarkable and personal moment?

Would every one of my employees choose to seize that opportunity?

If I can't answer yes to the first two questions...what am I doing wrong...or do I have the wrong employee?

But fast forward to today and you see those same baby boomers being overwhelmed at the array of decisions (based on choices) they have to make every day.

Walk into any mobile phone store and just count the number of phones available.  It's staggering.  Then, you have to figure out what each one does...and why it matters to you.

No wonder it is often easier for us to check out, than to check all the options.

Consumer research shows that the American consumer is suffering from choice fatigue. A study (by Sheena S. Iyengar from Columbia University and Mark R. Lepper from Stanford called "When Choice is Demotivating") found too many choices actually frustrated shoppers. People were offered either 30 choices or 6 choices of jam and then given coupons to purchase what they sampled.

Of those that had the opportunity to sample 30 only 3% made a purchase, while of those given 6 choices ten times as many or 30% made a purchase. That's a huge difference.

To better understand how we all react when faced with too many choices watch this brilliant TED talk by Barry Schwartz -  author of The Paradox of Choice: Why More Is Less. In this talk, he explains how and why the too many choices are paralyzing us.

So what does that mean for you and me?

It means that there is power in simple.  Our customers are time-starved and information-saturated.  Make it easy.  If you have to give your customers a lot of choices -- group or organize them in a way that allows their brain to sift through the options more logically and quicker.

It also means that we need to recognize that having more choices doesn't necessarily give us an edge over the competition.

If you are going to offer lots of variety -- be sure you have a good reason for doing so, and be sure you help your consumers navigate through those choices.

Or they might not choose you at all.

Photo courtesy of Shutterstock.com

While fear paralyzes, comfort just makes us lazy. When things are going okay and business is good are you out there working it?  Are you staying in touch with existing clients?  Reaching out to former ones?  Looking for that new business prospect? Probably not.

That’s why marketing efforts cannot be effective without being a part of a schedule.  It’s just too easy when things are going well to just let things slide.  But, if part of your week’s schedule, week in and week out, is to make 5 cold calls or schedule lunch with a former client – then it will get done.  It’s habit.  And if it isn't habit -- it is scheduled.

If you don’t get into the habit, that comfy place you’re in now is going to shift sooner or later.   And then you’re going to gear up a marketing effort – and be frustrated when it doesn’t work instantaneously.

Marketing isn’t something you start when the ship is leaking.  Effective marketing is consistently and regularly talking to your key audiences.  Just like the ground absorbs the rain water better when it comes in a light, all-day rain, your potential customers will hear you much better if you talk to them regularly, rather than shouting at them when you need their business right away.

Don’t let fear or comfort control your marketing.  You take control.  Put a simple written plan in place.  Build it into your workweek, your planner and your habits.   Feeling a little less comfy?  Good.

Photo courtesy of www.Shutterstock.com

Through research, they determined that because of the rise in the number of people going on to university, there are now over 3 million people in the UK whose interest in world affairs, travel, news and politics suggests an unconscious affinity with what The Economist reports on every week. The Economist describes these people as the “intellectually curious.”

So their new "Red Wires" campaign uses the image of a wire-jumper walking through a city on a series of red wires and the tagline “Let your mind wander” as a metaphor for the inherent pleasure in connecting different ideas, and how this is reflected in the wide-range news and analysis available in a copy of The Economist.

Watch the video below (e-mail subscribers click here) and then tell me....do you think they successfully delivered their message or did they get their wires crossed?

The ad began showing in movie theatres on July 1 and will also be used on broadcast TV.

Fear.

There is a sweeping attitude (although many who have it won’t even see that they’ve been infected.) that it’s better to be safe, bland and expected when marketing.   Many marketing execs and even some agencies are just not willing to stick their proverbial neck out and risk being bold or different.

What is there to be afraid of?  You might get noticed? You might inspire reaction from your consumers? You might get someone’s attention? 

You don’t have to do it the way you’ve always done it or how your industry does it. I’m not advocating being wild just for the sake of it.  Do it in your voice.  Have a good strategy.  Just deliver the message in a way that is a surprise. 

Take a look at your recent marketing efforts.  Are they staid?  Expected?  Would you notice them if you were the audience?  Do you make a bold statement?  A startling promise? Do you say something that you haven’t seen someone else say this month? 

If not, the fear bug might have bitten you.  Want the antidote?

Resolve to stick your toe in the waters of bold. Come on in, the water’s fine!  You’ll love being heard for a change. 

Next post we’ll talk about Fear’s partner in crime – comfort.

Stock photograph courtesy of www.shutterstock.com.

As Facebook and other social networking sites continue to grow by leaps and bounds... many privacy issues are also cropping up.  Most of us end up blending our personal and professional lives on Facebook and sometimes that can get a bit uncomfortable.

We've talked about the issue of whether or not you get to have a private life anymore, if you're active in social networking.  But, there are some things you can do to protect your own privacy and also, the privacy of the people you are linked to/friended.

This has been a growing concern of mine, so those of you who are my Facebook friends (link to the right if you are not) might notice a few changes in my own settings after researching and writing this post.

Ten Privacy Setting You Should Consider:

Use your friends lists -- everyone doesn't have to see everything.

Remove yourself from the Facebook Search results -- if you only want to be found by people you reach out to -- this is an easy fix for eliminating most of the unwanted friend invites.

Remove yourself from the Google search -- Facebook listing seem to grab great Google juice.  So if you want to be found, leave it be.  But if you'd prefer more privacy, you can remove yourself from the listings.

The dreaded photo/video tag -- this one has cost people jobs, relationships and their own dignity.  With a simple change in privacy settings, you can make it so that no one (or just those you choose -- think friend lists) can see those tell all photos and videos.

Not everyone needs to see every picture -- this holds true of your photo albums as well.  You can set privacy settings for each one separately.

Prevent "stories" from showing up on your friends news feed -- is there anything more awkward than when your friend goes from in a relationship to it's complicated or single?  Avoid that embarrassment with a few simple settings.

Keep your application updates from being published -- do you really want people to know you're looking for a tommy gun in Mafia Wars or that you've wasted yet another hour hitting a new high on Bejeweled?

Make you contact information private -- for some people, their cell phone number is public information.  But for others who might have arms lengths relationships at best with many of their Facebook friends...a bit less shared would be good.

Censor your friends...keep their thoughts off your wall! -- I think this is one of the most critical on the list.  You can control who sees your wall and who can write on your wall.  Do you really need your frat buddies sharing stories with your boss?  I'm guessing not.

Keep your friends private -- this isn't just about your privacy, it's about your friends' privacy as well.  Remember, anyone who is a friend of yours can pop onto your friends list and cherry pick them for whatever reason they'd want. 

The beauty of most of these privacy moves is that no one will ever know you've even implemented them.  But you will...because you'll feel a whole lot safer and less exposed.

I found an excellent post on the topic over at www.allfacebook.com that covers all ten of these suggestions in great depth -- including showing you how to alter your settings.

Check it out and protect yourself a little.

Why not let people personalize them with family photos like they do with credit cards?  Maybe someone like Snapfish could work on this idea a bit?

Who wouldn't be happier with a picture of the grandbaby dangling from the mirror and smelling piney fresh?

That's it.  Just that random idea.  If you make a million, you owe me a cup of coffee or something.

I feel a little like Bill Blazejowski from the movie Night Shift. "This is Bill. Idea to eliminate garbage: edible paper. You see, you eat it, it's gone. Eat it, it's out of there!"

(If you haven't see it...rent it.  Hysterical.)

Social media is a collection of great tools that hopefully bring out the best in us as people and companies.  It gives us the ability to connect, collaborate and create communities.

But that doesn't mean it's all that.  (pretty sure that's the hip phrase these days!)

Eric Karjaluoto from smashLAB wrote a very smart post about how you can get the most out of social media, even if you don't want to want to be a social media expert. 

It's well worth the read and maybe even print it off, so that on those days when you worried that you might not be Linked to enough Facebook Tweeters who blog...you can re-read it.

I like water cold.  Really cold.  I'm talking seriously ice cold water, please.  When I am at home, I almost always have a huge insulated glass nearby, filled to the brim with ice water.  Because I prefer the water to be frigid cold, I don't let the level in the glass get too low before I re-fill it.

(I can hear you...what in the heck does this have to do with marketing??  Stay with me....)

I've discovered if I keep topping off the glass, the water I am adding gets colder faster (or the flip side, does not warm up the water already in the glass.)  I am sure this ties to some scientific theorem that I should know...but I am just telling you from experience that this is true.

If I get really engrossed in something and absently drink the water until there's almost nothing but ice left in the glass....it takes a long time for the newly added water to reach the optimum temperature.

To recap....topping off means the water is always very cold (consistent temperature) as opposed to if I have to re-fill almost the whole glass, it takes a long time to get the water cold (inconsistent temperature).

And the marketing point is.....(shame on you if you jumped right down here!)

The same is true of our marketing efforts.  Some organizations go hot and cold on their marketing.  They're aggressive or at least active one month or one quarter and then are dormant.  Or other companies market like crazy when sales are down and when they get busy, marketing falls off the radar.

Or maybe you're particular version is that you only deliver the first half of the one/two punch.  You drop the direct mail piece but you never follow up with the phone call.

Regardless of how or why -- the inconsistency of your marketing hurts you.  It turns a warm prospect into a cold one, by the time you get back around to marketing again. 

You would be far better off to sustain a defined level of marketing (remember the drip method, as opposed to the downpour technique) and then just "top off" your efforts with some add-ons, be it seasonal or situational. 

When you are consistently present and either creating or participating in dialogue -- the "water level" of your prospect's awareness and interest in you stays consistent, so you can build on it over time.

How are you keeping your marketing consistent and then just topping it off?  Or if you're not...why not?