This Recession is not My Recession

This recession is not my recession
Practical suggestions on not behaving like a lemming.

by Andrew Szabo

(First published as an exclusive article for “Progressive Distributor”)

Few would argue that we are now in an economic recession. The pundits’ endless debate now centers onwhether it’s going to be long or short, the landing hard or soft, the impact on the financial markets, the effect on other economies and their effect on America and so on. My first question is: so what? The problem of this macro-perspective is that it speaks little of your business or mine, yet we often wallow in the media’s doom-and-gloom forecast.

Like lemmings, too many business leaders accept these editorials as a foregone diagnosis of the state of their business. It is a self-fulfilling prophecy: They become a contributing statistic to the depressed economy. Like lemmings mimicking another’s behavior, they react identically and fall off the cliff together.

Yet every downturn, crash, recession, or even depression has winners that succeed. Companies not only survive, but thrive, in the negative environment. What are they doing differently? If misery loves company, do the joyful seek a different path? I would suggest two key ideas that can significantly contribute to making this recession not your recession.

Stay out of it
First, resolve not to contribute to the recession. Make a choice not to suffer like everyone else. Instead, be proactive and prosper. Hyatt Hotels in the early ’80s is a classic case study in this behavior. The recession, never good news for luxury hotels, hit its peak during 1981-1982. Several cities already had a glut of hotel rooms but Hyatt resolutely went after new guests, rewarded loyal clients, made cuts only where they were not visible to the guest experience. They opened new properties, hitting the competition hard in several new markets where aging competitors were unable or unwilling to reinvest in their existing properties.

Get on the offensive
Second, take business away from your competition, which will increase your market share despite the total pie shrinking.

Sounds simple enough, but the challenge is in the implementation. There are only three effective ways to get more business.

  • Gain share of wallet. Increase business from your existing
    customers.

  • Promote loyalty. Encourage clients to continue to engage
    in profitable behavior.
    Target customer acquisition. Acquire new business from
    your competition that looks like your best customers.

Effectiveness in each of these areas is highly dependent on the quality of the relationship. Customer relationships are no different from marriages or friendships. They require an understanding of the other party (which entails investing time and other resources). Understanding your customer requires knowledge – gathering comprehensive information, behavioral knowledge and transactional data. It requires a disciplined investment of time and resources in an intelligent process. The technology that holds this all together is often categorized as Customer Relationship Management (CRM).

Practical solutions
Working with Sony soon after its successful launch of PlayStation, we ascertained that to increase market share and sell more games (their bread-and-butter in terms of margins), Sony would have to learn about their customers. Since it sold both the hardware and software through retailers, it had no direct contact or knowledge of its customers, except for the few warranty cards that purchasers returned.

By developing a cutting-edge relationship program that tapped into the psyche of gamers, we challenged the gamers to tell us who they conquered in what game. As a reward, they were admitted into the PS Underground, a “stealth” Web site and loyalty program that gave them inside information on new developments and tips on existing games.

Within 12 months, Sony built a base of 40,000 customer names into a comprehensive customer knowledge bank of 500,000 enthusiastic gamers with known genre preferences. This information was then leveraged into targeted, personalized, marketing campaigns that both gained a greater share of wallet and engendered loyalty, making them resistant to new game launches such as Nintendo 64. Sony crushed Sega, and greatly mitigated the threat from Nintendo’s launch of N64.

Although the implementation specifics are certain to be different from your industry, the underlying principles are directly relevant. Understand your customer by investing in the relationship: leverage the knowledge relevantly.

So how do you go about this?

  • Walk in your customer’s footsteps. What does a day (or days) in the life of your customer look like? By analyzing the interactions between your organization and the customer, you can identify key touch-points where data and information are gathered or exchanged.

  • What would the ideal path look like? Dialogues with an organization’s different stakeholders yield mission-critical customer knowledge requirements. Interviews with customers breed greater understanding of the customer’s needs.

  • Perform a gap analysis between the current and the ideal.

  • Throughout the process it is important to identify the systems (both processes and technology) that may aid or hinder the relationship and the ability to assimilate or leverage customer knowledge.

  • Finally, isolate key points of inflection, areas that are critically important and have significant economic impact. Improving these areas will yield the best return on investment.

Technology is not the ultimate panacea for cultivating effective customer relationships. Technology implementations, like CRM solutions, must be accompanied by a strategic process that examines the organization’s customer relationship practices and incorporates communication.

Whether you are a veteran player or a new entrant, experience reveals most have yet to master this combination of art and science called CRM. For example, the marketing department of a relatively new bank entered vital information about their customers into a contact management program. Loan information was entered into a custom-built system, and the regular banking information was entered into a third application. Despite professing a client-centric philosophy, the systems were disintegrated. No one performed a comprehensive analysis of the bank’s customers.

In summary, make this recession not your recession by choosing to grow your business wisely through the intelligent practice of effective customer cultivation.