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5% of direct marketing budgets are currently spent on developing existing customer value, this figure is expected to increase to 50.6% by the end of 2005.

It follows that a renewed focus on customer development requires investment into the acquisition of a rich and comprehensive understanding of the customer base – outside of what they are currently buying from your organisation. This may sound simple, but there have been many examples of organisations not being able to press knowledge gathered from transactions and customer surveys into commercial action (witness the backlash against CRM systems investment). In fact, research has indicated that nearly half of CRM initiatives fail not because of technological issues but because the data feeds are of an inferior quality. This underscores the critical importance of an accurate data basis for any customer data initiative.

Nevertheless, the customer survey has continued to rise in prominence. Although by no means a new invention, the customer survey is no longer confined to measuring customer satisfaction. Today, companies are beginning to routinely question their customer base on their habits, tastes and preferences in order to aid cross-selling, inform the choice of new markets, outlet management, and more. In the light of the shifting priorities of UK marketers, CDMS decided to canvass the opinions of marketers in top 1000 UK companies, across key industry sectors, in order to understand and quantify the importance and value of customer surveying.
The Why’s and Wherefore’s of the customer survey

Customer data is a precious asset. While transactional data can provide insights into how customers spend their money with a single company, gathering and using customer preference data can help companies get a birds’ eye view of broader spending patterns. This has three primary uses: sales optimisation; increasing the efficiency and effectiveness of communication channels; improving customer retention strategies.

•Rich data on customers’ habits, tastes and preferences enables companies to get a much more rounded view of how customers behave and what they buy with other companies. This not only opens immediate cross-selling opportunities, but also informs the strategic development of the business by providing insights into which markets to penetrate, which to withdraw from, and which to steer clear of. When a major retailer decided to establish an online presence, it principally used customer surveys to ascertain which product lines would be most welcome online, and which could be fulfilled at an economic price/cost.

•The customer survey is now widely used in preference to enhancing the customer database with lifestyle survey data – not least because it is easier to persuade consumers to respond if they have an existing relationship with you. Moreover, customer surveys will tend to produce a more rounded spread of respondent types than lifestyles surveys. Preference data is also valuable addition to transactional data for joint promotional initiatives that require each partner to demonstrate a thorough understanding of their customers in order to identify ‘best fit’ brand matches.

•Understanding customer preferences can also be used to improve the cost-effectiveness of customer communications. By asking customers how they prefer to be contacted, companies can immediately begin to identify opportunities to cut communications costs by reducing the use of less popular channels. If a segment of the customer base resents being telephoned at home, they are unlikely to be responsive to any calls at all. Conversely, customers may be more responsive if they are contacted through the channel for which they have expressed a preference. Indeed, surveys conducted amongst the customer base could well reveal that a significant portion of customers would prefer to receive their bills and statements electronically. Recent studies have found that the transition from paper-based billing and customer communications to electronic alternatives is already generating substantial print and despatch cost savings for UK plc.

•Customer satisfaction surveys have long been staple methods used to encourage loyalty and improve retention rates, but carefully applied customer preference data can often also play a part in making customers feel valued. While consumers will generally not take kindly to being bombarded with third party marketing communications triggered by inappropriate use of data gathered in this way, attempts to tailor customer service can cumulatively amount to a more satisfied customer base. A prime example of this is the practice of surveying customers with a view to sending them discount vouchers that match their preferences; voucher redemption data can then be used to refine the next wave of vouchers offered, so that the rewards are more closely tied to individual preferences. Savvy customers recognise the usefulness of providing organisations with personal data for more relevant communications and offers.

•Many companies will choose only to survey the most profitable or potentially profitable segments of their customer base, reasoning that the cost of canvassing the views of the entire base would not justify the insights gleaned. In this way, the value of the most profitable customers can be developed still further and the data gathered used to inform prospecting decisions.


Not so fast…!

The value of customer surveys is undoubted, however such an undertaking should not be attempted without having first developed the strategy and infrastructure to handle the data streams that will be generated. A rich dataset detailing the habits, tastes and preferences of the customer base needs to be underpinned by a robust data management system. Merely gathering mountains of data does not itself produce an uplift in customer response; in order to make the data obtained from the combination of transactional and customer survey data actually actionable, it must be based upon a coherent and intelligent data infrastructure.

Not only do companies run the risk of squandering the value obtained from the (often costly) exercise, but an ill-devised data management strategy may have a detrimental effect upon brand perception. If customers’ expectations are raised, it is essential to then be able to meet those re-defined expectations. Having alerted customers to a renewed commitment to understanding their preferences, it will not be acceptable to fail to observe basic data cleansing routines. The practice of running the customer database against a combination of industry suppression files must be scrupulously adhered to. In an extreme example, sending mail-shots to the recently deceased, for example, will undo all the good work that has been done to make the deceased’s spouse feel valued, and may cause such distress that the damage done to the brand image will be irreversible. Equally, mis-spellings, crude targeting or lack of channel integration will damage corporate credibility.

The recent spate of legislative initiatives designed to protect consumer privacy do not impose any substantial restriction on customer communications, focusing instead on unsolicited prospect communications. This means that there is no excuse for crudeness when it comes to customer communications. Customers are an organisations’ greatest asset, and treating their data with respect will pay immediate and long-term dividends.

Industry sectors

Retail
Retailers did not display widespread commitment to surveying their customer base, with less than half (49%) conducting regular surveys.

The priority for retailers seems to be firmly focused on acquiring deep data on how customers behave and spend in-store, in order to spot any unexploited gaps in consumer spending patterns. Retailers are fortunate enough to have at their disposal a rich seam of transactional customer data, which is as yet not yet fully exploited. Evidently, retailers are focused on mining the depths of this data source before committing themselves to understanding their customer base within the wider context of more general spending and behaviour. Many have launched loyalty programmes, the success of which is based upon the ability of the retailer to intelligently use the data gathered to communicate intelligently with their customer base, and achieve measurable financial return by delivering timely and relevant cross-selling and up-selling opportunity offers to customers.

The largest retailers also often have the benefit of in-house database marketing systems, facilitating the process of extracting actionable customer insights. Some of the largest retail operations have now purchased their database marketing companies, adding weight to the idea that retailers are placing more importance on customer data capture, management and analysis.

However, in neglecting to consider the implications of examining only current transactional data – at the expense of longer-term strategic planning – retailers can run the risk of becoming too insular in their approach to customer insight – potentially leaving the door open for shrewd competitors to gain first mover advantage.

Banks: Of all the industry sectors involved in this research, the banking industry showed the greatest commitment to questioning the customer base about their habits, tastes and preferences. Nevertheless, given the high lifetime value of banking customers, it is surprisingly that the proportion was not higher still.

Banking customers are notoriously loath to switch supplier, meaning that – unless there are serious grievances – banks enjoy far lower customer turnover than other industry sectors do. Consequently, banks’ emphasis is not on short-term tactical campaigns to stem the tide of customer defection, but more of an ongoing commitment to understanding their customer base, in order to cross-sell where appropriate and increase lifetime value. Indeed, it is widely recognised that the more financial products a consumer holds with a banks, the less likely they are to defect, making it all the more crucial to communicate with customers in the most appropriate way to ensure their continues loyalty.

Knowledge about customers’ habits, tastes and preferences will be invaluable to banks looking to open new routes to market. The leading supermarkets, for example, are all penetrating the financial services sector, each with its own brand ‘personality’. Choosing the reseller that has the right ‘fit’ will require a proper understanding of the customer base, and how they behave, and purchase, within a wider context.

Utilities:
A relatively large proportion of utility firms also regularly survey their customer base (58%). In the wake of the days of widespread customer poaching following the de-regulation of the industry, utility firms have been looking to develop existing customer value by expanding their product portfolio. As the core products are highly commoditised, utilities have found it difficult to differentiate on the basis of price, and there has consequently been much discussion of utility firms branching out into other industry sectors through affinity partnerships. Some have dipped a toe in the water, embracing the concept of the utility company as an all-round home services supplier: many have yet to venture into new territory, although all will eventually get there. However, this heightened commitment to getting to grips with the customer base is very likely explained by this new focus. Utilities companies are preparing to branch out into other complementary areas and are sensibly beginning this process by eliciting as much information as possible on customers’ habits, tastes and preferences, using the insights gleaned to inform decisions on which markets to enter, and how.

Despite this fresh approach to the range of products and services they offer, utilities are also keen to personalise the core commodity product. If energy products, for example, can be made to appeal to different segments of the base – such as environmentally-friendly or price-sensitive customers, retention levels are likely to increase. Once preference data has been gathered, personalised offers and discounts may also be directed at customers to help increase retention rates. In the same way, knowledge of customers’ bill receipt and payment preferences (direct debit, e-billing presentment and payment, paper billing etc) can also encourage loyalty and prevent defection to a competitor that has managed to under-cut on price.

Traditionally, many utilities held very shallow data on their customer base. This was further compounded by the problem of integrating new technology systems with numerous different legacy applications, especially after the spate of mergers and acquisitions. High switching rates also made tracking customer records something of a challenge. Attention to customer preferences again must be supported by similar attention to the basics of data hygiene and management. Utilities will have to work hard to shake off their legacy of inattention to data accuracy if they are to successfully realise their ambitions to make the transition from commodity product provider to home services supplier.

Insurance and Pensions
As highly intermediated industries, the insurance and pensions sectors are evidently not yet putting sufficient emphasis on investigating the opportunities that exist to increase customer value and promote retention. While 51% of insurers regularly surveyed the customer base, only 48% of pensions firms did so – the lowest proportion of all industry sectors surveyed.

Given that insurers are attempting to differentiate on the basis of service rather than price, it is surprising that there was not a greater commitment to understanding customer preferences. The unpleasant experience of a few years ago, which saw insurers pursuing the unsustainable practice of pricing for market rather than for risk, coupled with the time-sensitive nature of insurance marketing campaigns and infrequent customer interactions would encourage widespread enthusiasm for getting the most from customer interactions – or so one would expect. Major concerns about the under-performance of the pensions industry in the UK and Europe is encouraging consumers to look into self-administered alternatives. In particular, the buoyancy of the domestic property market, combined with low interest rates, is prompting many to make buy-to-let property investments as an alternative nest egg. Many of those not tempted swap their unproductive pension plans for investment property, are switching funds in order to obtain the most productive fund.

Having a wealth of customer data at your fingertips enables the insurer or pensions firm to speak in the right way to their diverse customer segments, and appeal to different lifestyles. However, as intermediated industries, customer data must also be used to support the channel. The trend within the insurance sector is to move away from direct insurance, back towards indirect. Here, detailed customer data will be invaluable in helping the pensions and insurance firms choose, develop and support the channels. Knowledge about who your customers are will be key to selecting the intermediaries that are the best match for the customer base. In turn, the intermediary will be in the best position to sell your product if they have been passed lifestyle information about the various customer segments. These insights will also allow the intermediary to bundle your product with other products and services in the most appealing fashion for these audiences.

Conclusion

Our research indicates that the customer survey is now adopted by a majority of top tier businesses. Evidently, UK plc is now anxious to move beyond an understanding of how their customers behave with them, towards a truly holistic customer view – fed by knowledge of broad customer preferences, tastes and habits. Acquiring deep data on how customers behave with other organisations has many uses. It is indispensable to organisations planning their long-term strategic development, informs cross-selling, and can even promote customer loyalty and develop profitability.

Yet, many organisations are still struggling to integrate disparate sources (internal and external) of customer information. For many, the “single customer view” remains some way off. The message is clear: understanding the customer is crucial to business development. However, any new research initiative will produce additional data feeds, and must be underpinned with a robust data management strategy and infrastructure.

Failure to abide by best practice data management standards may cause brand damage and squander precious customer information. Deep, accurate, recent customer data, on the other hand, will produce insights that provide organisations with a competitive edge, giving them the confidence and ability to meet, pre-empt and exceed customer needs and expectations.