Building Customer Relationships: Four Steps to Successful Customer Relationships
What customer relationship actually means and why it is so valuable
- What is the customer relationship?
- Why is the customer relationship important?
- What are the success factors for a good customer relationship and how do you measure it?
- Four steps to a successful customer relationship
- Conclusion
We all know that customer relationships are highly valued in a business. They should be planned and maintained - only then can businesses and customers benefit from a successful, needs-oriented relationship.
In the following article, we first deal with the question of what constitutes a customer relationship. We then try to make it measurable and present you with four steps you can integrate to improve your customer relationships.
What is the customer relationship?
The relationships between customers and companies are constantly changing and can be divided into different phases. Every phase is very valuable for the company and should not be left to chance.
It starts with the moment a company is noticed, here already counts the first impression. The assumption that the relationship with customers ends with the click on the shopping cart quickly proves to be false. The customer relationship is ideally not or only terminated after several purchases.
In order to maintain customer relationships, a CRM tool and the corresponding process are necessary. Customer satisfaction serves as the basis for a good customer relationship and can be made measurable using various metrics. In the next step, we will look at the various phases of the customer life cycle in detail according to Fink.
Why is the customer relationship important?
The 6 phases of the customer lifecycle in accordance with Fink 2022
In order to make customer relationships more tangible, the use of a model can be helpful. This approach has the advantage that companies can consciously develop strategies for each part of the relationship with the customers. Between the selection of the product, the first purchase and a further purchase, there are far more steps than the click on the shopping cart in the online store. The model considered here divides the customer relationship into 6 phases, the phases are: Discover, Explore, Buy, Use, Ask, and Engage.
First and second phase: Discover and Explore
First of all, we have to define when customers can be described as such. Before a customer relationship is established, there must be a certain amount of brand awareness. Prior to first contact with the company, up to 60% of the purchasing decision is already made. In the best case, the company is already known to the customers before the first research.
In the phase before the first purchase, contacts are referred to as leads. Once a lead has become aware of the company, the Explore phase begins. The first contact with the company should be made as easy as possible for potential customers, for example through the website or social media interactions. In this phase, offers are compared and information is already obtained about the product. The lead is served relevant ads through targeting. Even in the early stages of the customer relationship, a good accessibly and personal customer service is highly valued. A mix of bots and personal support is suitable here to meet the requirements of the customers.
Third phase: Buy
In the processing of the purchase, leads become customers. In the online store, a good user experience is now important because the purchase could be abandoned if there are difficulties at check-out.
Fourth phase: Use
In the subsequent Usage phase, customers should definitely have the opportunity to continue being accompanied. For this, various ways offer themselves, such as with free material provided on the purchased product or the brand. In return, companies are rewarded with loyal customers who are usually open for upselling.
Fifth phase: Ask
To transform customers into loyal brand ambassadors, good customer service must be offered consistently over the entire customer journey.
Customers expect multiple channels of communication, for example via social media. In the Ask phase, companies should be able to answer the questions of customers on all their channels.
Sixth phase: Engage
Customers in the Engage phase should remain connected to the company after the purchase and re-purchase if necessary or become brand ambassadors. Artificial intelligence can help by pointing out the timing when customers are considering changing the service provider.
What are the success factors for a good customer relationship and how do you measure it?
To analyze the various success factors of a customer relationship, various metrics are used. When analyzing multiple metrics and not just using a target value, you get a good overview of the course of the customer relationship.
Acquisition Cost
The Acquisition Cost metric per converted lead can break down the costs of the campaign to individual people. It is calculated as follows:
Acquisition cost per converted lead = Acquisition expenses / Number of acquired customers
Campaigns aiming to gain new customers are expensive, so it's worth looking at the possibilities to interact with the existing customer base. For example, by improving an existing loyalty program. 64% of customers who belong to a program say that they are more likely to buy because of it. 35% would prefer the brand where they are part of a loyalty program to another brand. But the statistics also show that only 50% of memberships are active. Sleeping members can be best woken through targeted marketing, and for this, CRM data is essential.
NPS Net Promoter Score
The loyalty of customers is hard to prove. However, satisfaction can be approximated through behavior analysis, purchasing tendencies, and measurement satisfaction. Satisfaction can be represented with NPS Net Promoter Score. Here, customers are surveyed and asked to express their answer on a scale of 0 to 10. For example:
“On a scale of 0 to 10, how likely are you to recommend Brand X product or service to your friends and family?”
Customers giving a 0-6 are classified as detractors, a 9 or 10, they are seen as promoters. Passive customers mostly give a 7 or 8 according to this classification.
If a company has a high NPS, it is likely that customers recommend the products to their friends and family. A customer with a high NPS is probably also a loyal customer.
RPR Repeat Purchase Rate
Another figure is the RPR, which measures how many percent of customers make more than one purchase from the same brand. The formula is:
Number of recurring customers (over a certain period) / Total number of customers (in the same period) = RPR
The higher the RPR, the more likely it is that customers are satisfied with the company.
Upsell Ratio
The Upsell Ratio is also suitable to identify loyal consumers. Loyal customers are usually more open to new products from a company than recently converted leads. A high upsell rate indicates strong loyalty of the customers.
The Upsell Ratio is calculated by dividing the number of customers who made two or more purchases over a certain period by the number of customers who made only one purchase over the same period.
The larger the price difference between the purchased products, the greater the loyalty indicated by the Upsell Ratio.
Active Engagement Rate AER
If a company runs a loyalty program, it is also worth looking at the Active Engagement Rate AER. Here, it measures how many percent of customers participate in the loyalty programs. Passive participants of the programmes are not considered. Activities include actions within the loyalty programme, recommendation or similar. The number of active members is divided by the total number of members.
Customer Lifetime Value CLV
The CLV determines the potential total revenue from customers. There are different formulas depending on the requirements for complexity, usually with the parameters of contribution margin, repeat purchase rate, lifespan, and customer acquisition costs.
A low CLV means that customers do not buy repeatedly, while a high CLV is a sign of loyalty. Customers with a high CLV buy repeatedly and stay longer. A CLV is considered good if it is three times as high as the Acquisition Cost. The satisfaction of customers is not included here, nor the reasons for their loyalty. For further strategy finding, it is worth combining with the other metrics.
Interim Conclusion:
Metrics allow businesses to include customer loyalty in their business goals. In addition, it should be part of the goal setting to understand why they are loyal or why they only buy once.
Four steps to a successful customer relationship
Focus Customer Journey on Emotions
The metrics mentioned make clear how valuable each individual customer can be for the company and how expensive it is to bind new customers to the company. Emotions play a very big role in the entire customer journey. How customers feel before, during, and after a purchase already determines whether they will consider making another purchase. If companies understand this, they can expand the customer journey accordingly and be there in every phase. The described six phases (Discover, Explore, Buy, Use, Ask and Engage) of the customer journey should always appeal to the emotions of the customers to increase the emotional bond to the company. For a good overview Customer Journey Maps are helpful.
Regular data analysis for a personalized customer journey
Behavior and preferences of customers can change at any time. Therefore, it is advisable to perform regular analysis of customer data. Customer groups should be segmented and addressed as personalized as possible. Statistics show that customers are willing to provide personal information for a better shopping experience. These include, for example, the email address, date of birth, and gender. To achieve the best possible results, regular AB tests should be carried out. These are a fast and effective way to test new ideas. Especially in the area of email marketing, it is worth testing in the different customer groups. Newsletters have the highest return on investment. Here, by testing and adjusting the time of sending, language, and images, the revenue can be further increased.
Provide a possibly pleasant shopping experience
If the shopping experience at a company is perceived by customers as unpleasant, loyalty decreases significantly. In addition, a consistent omnichannel experience should also be ensured. This includes a positive experience with customer service. One of the main reasons why customers do not consider buying from the same company again is a negative experience with customer service.
Maintain loyalty programs
In order to fully exploit the potential of a loyalty program, all existing customer groups must be served as best as possible. In addition, cashing in on benefits should be made as simple as possible to prevent frustration. Ways to redeem points in the form of donations to charitable organizations make loyalty programs interesting for a larger group of customers. Another approach is the option to pay the point difference to the next reward within the program with money. Rewards then appear more accessible and increase the motivation of customers.
In order to keep the engagement high, special features and challenges should be offered that correspond to the preferences of the customers. For this, a corresponding data analysis must be carried out.
A major problem of loyalty programs is that customers are in up to 17 programs at the same time and lose track. Here, reminders about the point status or similar can help.
It may also be useful to link loyalty programs with other suitable companies to increase the halo effect of their own company. But these partnerships want to be well maintained, otherwise it can quickly lead to frustration with customers.
Conclusion
Customers have a large selection for almost every product from which they can choose their desired product. The differences are often marginal and most options are available at a click. In order to lead a successful customer relationship, customers must be emotionally convinced by the company, the brand, and the product.
Personalized as well as pleasant shopping experiences are expected. In addition, the accessibility of the company plays a large role. It should be invested in the analysis of customer data and actions should be taken based on the findings.
A loyalty program that is not maintained or personalized brings neither customers nor businesses any value. Measures should be taken based on the behavior and preferences of the customers. Customer relationships can be improved by regularly testing and adapting communication, thus increasing satisfaction. Through the analysis of the resulting data, companies can better understand their customers' behavior and incorporate it into the customer journey.
These CRM tools can help you build a successful customer relationship:
HubSpot CRM
Salesforce Sales Cloud
CentralStationCRM
Pipedrive
weclapp
Anabell Oeynhausen ist CRM Managerin bei NOMOS Glashütte. Nach ihrem Studium des Kommunikationsdesigns und der Wirtschaftsinformatik sowie mehreren Stationen im Bereich des digitalen Marketings in der Luxusindustrie liegen ihr Themen der digitalen Transformation besonders am Herzen.
