Tuesday, September 29, 2015

Competing for Customers, Blog 2: The Value of Customer Success

Unlike a house, when it comes to business solutions, why own when you can rent? That's the sentiment of more and more businesses these days when it comes to acquiring everything from the software that runs your company to the boost in power you need from your wind farm. We believe this shift in mindset and buying habits represents nothing short of a sea change in the structure of the modern economy and we rank it alongside the Customer First Revolution as one of the two mega trends businesses must come to grips with in the coming decade.
We define the Subscription Economy as the fundamental transformation from an economy based on high capital-intensive sales of products into an economy based on services that you pay for as you use them, or as specific outcomes are realized.
The Subscription Economy as a pervasive phenomenon is still in the early innings, but its growth is visible all around us and massive disruptions are sweeping through key industries from high tech to transportation to manufacturing. If you intend to win the competition for customers, you would be smart to understand why businesses are flocking to the subscription model of doing business, and begin to think creatively about how you can make your own business "subscription friendly."
Given the fundamental shifts in financial rewards and buying behaviors (and clout) that B2B providers will experience with a subscription model, it's imperative that business leaders have a blueprint for making retention and customer success part of their organizational DNA. We see customer success as the ongoing capabilities organizations bring to bear to ensure their customers are achieving the full potential value from their products/solutions. This is the fundamental difference with other customer focused programs such as customer centricity, loyalty and others. It makes customer value/business outcomes the primary objective and the central theme of what companies should focus on.
The great thing about customer success is the payoff for those who can do it well. As you can see from the chart below, the economics of success are significant and they fall into what we see as three major categories: Preserving revenue, expanding revenue, and referral revenue:

Preserving revenue -- Customer success practices help manage customer churn by ensuring optimal product usage and the loyalty of the customer. Customer churn acts like a negative interest rate, compounding lost revenue year after year and ultimately putting the brakes on your business' growth potential. Companies who are able to reduce churn by 5 points are typically seeing a 20% increase in revenue over five years (Blaisdell, 2014)
Expanding revenue -- While greater customer retention rates drive revenue gains, companies we studied also reported improvement via selling more products and services to existing customers. With most companies, according to Marketing Metrics, the probability of selling to an existing customer is 60-70% (Farris, et al, 2010). The bonus is that thecost of selling to an existing customer is reduced by 80-90% (Scout Research, 2015)
Referral Revenue -- Managing customer relationships and increasing the likelihood of your customers' success helps to drive customer referrals and advocacy. While much has been written about strong word of mouth (WOM) marketing, when customers are achieving their business outcomes they are much more likely to recommend your solution and company to others. In addition, customer success practices, such as providing quantifiable proof points from existing customers and helping new customers justify the investment based on evidence of value, can accelerate the sales process by 20-30% (Mainstay, 2014)
And, lastly, it's worth mentioning that enormous benefits from delivering customer success practices accrue to THE CUSTOMER. What customer doesn't want their provider to systematically assure that they are successful?
The bottom line is customer success pays! The question is, do you really care about customer success?
Jeb Dasteel
Amir Hartman
Craig LeGrande

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