Business-model-canvas-Customer Relationship

© Entrepreneurial Insights based on the concept of Alex Osterwalder

This post explains the Customer Relationships Building Block, that represents the fourth building block in the Business Model Canvas. The article starts with explaining the 1) customer relationship building block. We then look at 2) categories of customer relationships and a 3) case study.

CUSTOMER RELATIONSHIP BUILDING BLOCK

This building block dictates the nature of the relationships that an organization will develop with its various customer segments. A company could choose to communicate with its customers through people or automated means. The customer relationships that an organization opts for are based on the company’s business model and greatly impact the overall customer experience. The relationships are dependent on three main motivations that are explained below.

Customer acquisition

Customer acquisition is the process of persuading a customer to select your organization’s product over choices available in the market. Businesses usually spend a lot of resources evaluating the tradeoff between the cost of acquiring a customer and the value the customer provides to the company.

A number of mediums and tactics are available to entrepreneurs today who are interested in acquiring customers for their business. These are elaborated on below.

  1. Content Marketing: for entrepreneurs with limited resources Content Marketing is a very appealing and useful alternative. Though a lot of organizations may opt for this medium, it has been proved extremely effective for those who have employed it intelligently.
  2. Search Engine Optimization: Content Marketing automatically means you have your name and information relevant to your brand and your company available online. The more people are exposed to it and share it, the higher your content will rank in search results, which is one of the most effective ways of getting your product noticed by your target customer.
  3. Email Marketing: the resulting traffic directed at an organization from content marketing and search engine optimization can give entrepreneurs access to a rich resource of potential customers. When customers subscribe to receive information and news regarding your product, you have managed to acquire a customer without having to invest in an extensive sales force.
  4. Copywriting: words have a powerful impact on the way your product will be positioned and perceived by the customer. Copywriters can play an instrumental role in ensuring the success of your brand positioning as well as attracting the right customers to your products.
  5. Conversion Rate Optimization: the more your company starts attracting customers, the stronger your chances are of acquiring them by making minor tweaks to your content and outlook.
  6. Social Media Marketing: despite the popularization of social media as a customer acquisition tool, it cannot be depended on exclusively to get word of your product out in the market. When used in collaboration with other tactics, however, social media can elevate your product significantly in your target customer segment’s estimation.
  7. Analytics: it is not just enough to mobilize word of your products through the media mentioned above. If companies do not use data gleaned from one or more of these resources and analyze it to better understand their customers, they are not taking full advantage of the investment they have made.

Customer Retention

Customer Retention refers to the long-term relationship a company establishes with its customers. The more repeat customers, a company has, the more it is assured of champions who will market its products and help it acquire additional customers.

Below are some strategies businesses can use to retain their customers and form long-term relationships with them.

  1. Stand for Something: customers are more loyal to brands that they identify with or which they feel represent traits and characteristics that they would like to emulate. So it is imperative for a company to select what its brand stands for and communicate that to its customers.
  2. Utilize positive social proof: websites that provide customers with facts that show how the use of their product will improve their social standing are more likely to help the company retain customers in the long term.
  3. Invoke the inner ego: customers are automatically more inclined towards a product based on how much it reflects qualities that they feel exist in themselves. This is called implicit egotism and can be a very effective weapon. Companies only need to know their customers inside out, have complete understanding of the language they speak, their wants, needs and desires to be able connect with them and show them how the company and its products are an extension of themselves.
  4. Use the words they love to hear: certain words have a deep impact on the buying behavior of customers, and if the product fulfills the promise of these words, customer retention becomes easier.
  5. Reduce pain points and frictions: if you address a pain point for your customer or resolve a problem for him, you will be retaining him for much longer.
  6. Realize that budget is negligible: most companies balk at giving back to customers without realizing that giving them a discount, even if it is a small one, will wow the customer and keep him coming back for more.
  7. Utilize surprise reciprocity: surprising the customer by providing them with a boon like a discount or a free add-on, unexpectedly, will stay with the customer longer.
  8. Make it personal: by providing a personal service to the customers, you increase your chances of creating a repeat customer.
  9. Speed is secondary to the quality: often, companies make the mistake of picking speed of service over quality, thinking customers would appreciate the tradeoff. However, studies have shown that customers are more likely to come back if importance is given to quality.
  10. Customers enjoy businesses who know them: the more time an employee spends with the customer, getting to know them and therefore providing a level of personalization, the more likely it is to reassure the customer that the company truly knows him and therefore keep pulling him back to the brand.
  11. Choose the right platform: it is important to know what communication channel is preferred by customers and to utilize this channel to the fullest to keep their presence ensured in the customer’s psyche.
  12. Make it a communal effort: all elements of the organization must be fully engaged and kept in the loop when it comes to servicing a customer. The aggregated effect will greatly improve the overall experience.
  13. Get people started: loyalty programs are more likely to be used if companies get past the customer’s initial resistance and ensures that customers are automatically signed up for such schemes. Once the ball is rolling, customers are more likely to stay the course.
  14. Get ideal customers to be VIP’s: humans are competitive by nature and studies have backed this observation up by showing people appreciate being assigned to a particular customer class if there is a class below them in the program.
  15. Label your customers: customers are more likely to keep coming back if associating with their brand puts a label on them.

Boosting sales (upselling)

Companies are forever focused on increasing their sales and often use a strategy called upselling which requires representatives to convince the customer to buy more of their company’s products. By using a combination of linguistics, packaging products and lowering their overall price and selling dependent products, companies ensure that a customer buys as much of their products as possible.

In fact, companies often provide incentive programs that reward employees who manage to boost their sales through the technique of upselling and ask others to emulate the techniques and tactics these employees use. However, such incentive programs are kept strictly under wraps because if a customer gets to know about them, it may break the tenuous relationship of trust between the customer and the customer representative.

Typical Upsells that you may have experienced can be;

  • Asking a customer if he would like to add a drink or fries to his order at a Fast food restaurant.
  • Convincing a customer who is getting his laptop fixed that he should get more RAM, or a bigger hard drive installed.
  • Suggesting to a customer getting their phone fixed that they should upgrade to a newer version of the handset.

Typically there are two techniques that successful upsellers often utilize;

  1. Successful upsellers are often researchers and observers who get to know the customer profile, particularly focusing on their economic, demographic, preferences and social aspirations. This helps the upseller to customize his pitch to the taste of the customer.
  2. Another technique common among upsellers is the use of fear. By letting the customer know that the product may go out of stock due to demand or getting them to buy after sales services or warranties for expensive items by letting on that the product is sensitive and needs to be handled by expert hands.

CATEGORIES OF CUSTOMER RELATIONSHIPS

Customer relationships can be divided into six main categories that may overlap for an organization relating to different customer segments.

Category 1: Personal assistance

This type of customer relationship is characterized by the human touch. Customers have the opportunity to interact with a sales representative while they are making their purchase decision or with a customer services representative for after sales services.

Category 2: Dedicated personal assistance

This type of relationship takes personal assistance to the next level by assigning dedicated customer care representatives to the customer. This kind of relationship takes some time and finesse to develop and is characterized by the representative knowing traits of the customer that he uses to customize the customer experience with the company. Banks will often assign a single point of contact to important customers with long-standing relationship with the bank and a high net worth.

Category 3: Self-service

The Do It Yourself model has been getting more and more popular as organizations seek cost cutting measures that will reflect in the prices given to customers. In this kind of relationship, the company provides all the tools a customer needs to service themselves.

Category 4: Automated services

Automated services are the next level of self-service by providing machinery and processes that increase the convenience for customers to perform services themselves. These kinds of services are usually much more customized and use a customer’s online and buying behavior to create a profile that is then used to provide suggestions to the customer to enhance his/ her shopping experience. Hence, automated services in many ways can be likened to personal assistance because of the customization that goes into the experience.

Category 5: Communities

In today’s social media driven environment, communities are a wonderful way for companies to understand their consumers, get insights into their habits, perspectives and create a platform in which customers can get together and share knowledge and experiences. In this way, not only does the company form a personal relationship with its customers, but these bonds are strengthened by the additional relationships customers form with one another. Glaxo SmithKline is an example of this kind of a relationship. When the company launched a new weight-loss drug, it gave customers a platform to form communities that helped it understand the problems that overweight people face as well as.

Category 6: Co-creation

Companies are increasingly changing the nature of the customer relationship by involving them in the design and even creation of the end product. This gives customers greater ownership over the product and service and often results in the creation of product or brand champions in the market. Amazon encourages customers to publish their book reviews on the web-site so readers can find people with similar tastes and evaluate what they thought of particular books before making purchase decisions. YouTube depends entirely on its customers to create the content that enables the website to boast being the largest video sharing website in the world.

CASE STUDY

Starbucks

Starbucks focuses on creating a long-term relationship with its customers and has largely been successful in this endeavor. By making itself so widely available to its consumers through its unique atmosphere that is uniform across outlets, it assures customers of the same wonderful experience regardless of where they are getting their coffee. Hence, customers have completely integrated Starbucks into their lives. In addition, Starbucks has also created mobile apps and loyalty apps that ensure that customers keep coming back more by providing them with surprise reciprocity and spending on them.

Google vs. Facebook in Customer Relationships

Google and Facebook have scores of customers across the globe and are therefore not dependent on any one segment to keep their business going. This means that both companies are completely free to set their prices, which customers have to go along with because both companies hold the power in their hands. Both companies engage in the Do it Yourself relationship by creating self-serve auction based Ad products, making the companies “Price Deciders” rather than the more typical “Price Accepters”.

Google has had no one customer segment that has accounted for more than 10% of its revenue, making it completely independent. Facebook earned 12% of its revenue in 2011 through Zynga, a provider of social game services and the maker of popular online games like Farmville, Texas Holdem, Chefville, etc. However, despite these revenues instead of Facebook being dependent on Zynga, Zynga is more dependent on Facebook for its revenues.

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