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How Vulnerable Are You to Customer Defection?

by Laura Patterson  |  
March 15, 2011
  |  6,460 views

In this article, you'll learn...

  • Five factors for maintaining successful customer relationships
  • How to identify your most vulnerable customers
  • How to calculate your company's vulnerability index

In the early '90s, the term "customer relationship management" (CRM) joined the marketing lexicon. Though the idea is often thought to refer to the implementation of some kind of technology, the real idea behind CRM is that the management of customer relationships is a business imperative.

CRM is about deciding which customers or segments to target, and then developing customer acquisition, retention, and growth plans that will attract and keep your best customers. CRM is really about making your customers the heart of your business.

Our job as marketers is to acquire, grow, and retain profitable customer relationships to create a sustainable competitive advantage.

How do you measure customer relationships?

We've all come to accept that creating customer loyalty is an integral part of any organization's strategy and focus. Various factors influence the success of any customer relationship initiative. Here are five critical success factors:

  1. Clearly defined business outcomes related to customer acquisition, retention, and growth
  2. Agreement about who the customer is and what they want and need from your category (and you)
  3. Well-defined customer segments (and their desired behaviors) and customer-experience objectives
  4. A documented, integrated customer strategy
  5. Explicit measures of success, and the data and processes needed to support the metrics

Customer satisfaction and loyalty are two of the most common measures of success. A variety of models are used to measure and quantify customer loyalty, ranging from simple recency and referral models to RFM and customer lifetime value models. Recent research is examining those models to ascertain which, if any, truly measure customer loyalty.

Many organizations would agree that a loyal customer...

  • Stays with the brand despite competitive offers, changes in price, negative word-of-mouth, and product failures
  • Increases business/engagement in some way
  • Actively promotes the brand to others

Though there are many approaches to measuring customer loyalty, one metric that many organizations should consider is the Vulnerability Index.


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Laura Patterson is president and founder of VisionEdge Marketing. For 20+ years, she has been helping CEOs and marketing executives at companies such as Cisco, Elsevier, ING, Intel, Kennametal, and Southwest Airlines prove and improve the value of marketing. Her most recent book is Metrics in Action: Creating a Performance-Driven Marketing Organization.

Twitter: @LauraVEM

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Comments

  • by Dhana@Loyaltics Tue Mar 15, 2011 via web

    I learnt something new today. Thanks Laura.

  • by Patrick Zuluaga [PMZ Marketing] Tue Mar 15, 2011 via web

    Hi Laura, Definitely a must for the larger organisations. For small businesses the simple KPI of churn rate is still a good measure to track - what do you think? Patrick

  • by Epoxy Custom Badges Wed Mar 16, 2011 via web

    Nicely presented information in this post, I prefer to read this kind of stuff. The quality of content is fine and the conclusion is good. Thanks for the post. Epoxy Custom Badges

  • by Anita Wed Mar 16, 2011 via web

    Thank you for article Laura. Please clarify what need to be considered as "high index" and "low index" (i.e., from 0 up to ...)?

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