Monday, September 25, 2006

Linking Hidden Activities to Customer Value

My last two posts have dealt with activities that affect customers but are invisible to them: back-office analytics and information security. How do you fit these into a Customer Experience framework?

Actually there are several means of connection. The most obvious is to expose the activities to customers directly, by featuring them in advertising or building them into customer-facing activities. A sales forecasting system could alert customers to sales on items they are likely to order or warn that an item in their shopping cart is about to go out of stock. Even security measures can be promoted as a customer benefit. The value of the exposed activity can then be measured like any other adjustment to the customer experience, by comparing performance of customers who are exposed to the activity with results from customers who are not.

But what about activities are customers never become aware of? More accurate sales forecasts or smarter store layouts can lead to measurable revenue increases. Other behind-the-scenes changes can reduce costs and thereby raise profit margins. Security enhancements and disaster recovery preparations can be valued like other risk-reduction methods using standard financial techniques. Whether these changes can be tied to specific transactions or must be allocated like indirect costs, they can be applied to customer value calculations.

Stated more formally, indirect activities can impact customer value in at least five ways:

- as part of the direct experience (e.g., alert customers to anticipated stock-outs)

- as customer knowledge (e.g. describe the activity in advertising )

- through improved customer management (e.g. use response analysis to improve campaign segmentation)

- through improved product economics (e.g. lower manufacturing costs yield higher profit margins)

- through improved business economics (e.g. lower overhead costs yield higher business profits)

This may seem like beating a dead horse, but the point is really important. Customer value is THE primary metric of Customer Experience Management. So if Customer Experience Management truly encompasses all business activities, then it must be possible to measure all business activities in terms of customer value. This gives businesses a consistent measure—change in customer value—to compare otherwise unrelated decisions. Such consistency is one of the key benefits of a Customer Experience Management approach.

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