NETTING IT OUT

The Customer Flight Deck is designed to give you 1) a framework for monitoring the quality of your customers' experience; 2) a basis for prioritizing and making operational improvements; and 3) a way to validate those improvements by correlations with increased customer retention, lower customer acquisition costs, and greater customer spending and profitability.

The first step in designing a sample Customer Flight DeckSM performance measurement system is to decide which customer segment you would like to monitor. We recommend that you create a distinct Customer Flight Deck for each customer segment before you try to aggregate common metrics to monitor across customer segments.

Your strategic objectives for each customer segment should derive from your overall company strategy. You may discover that it's wise to rethink your customer segments based on individuals' roles, their underlying motivations, and the contexts in which they find themselves when they have occasion to interact with your firm, your products and services, and your employees and channel partners.

WHAT'S YOUR CUSTOMER STRATEGY?

A Customer Flight Deck, like any other performance measurement system, should be tightly aligned with and integrated into your company's measures of success for its annual plans and its long-term objectives. In particular, before you design a Customer Flight Deck, you will need to understand what the company's goals are for each distinct category of customers you have (or wish to have).

If your company is typical, you'll discover that customer segments differ not only in their underlying characteristics (such as what products they buy, how they use them, how much they buy, etc.), but also in what matters to them. Certainly, all customers want to pay fair prices and be treated with respect, but other drivers of satisfaction matter to them in different ways and to different degrees. For example, quick delivery may matter far more to certain business customers than to consumers, and far more to consumers shopping for holiday gifts than to those same consumers at other times.

Consequently, your company probably has different strategic objectives for different customer segments. Some segments you'll want to pursue aggressively because of their longer-term growth potential. Others you'll want to develop as a newly significant customer base. And still others will be worth retaining because that's where your strategic focus (and profitability!) has always been.

For the purposes of the Customer Flight Deck, your distribution channel partners-retailers, distributors, resellers, etc.-do not count as customers. This in no way diminishes their importance to you. But your relationship with people who use your products is strategically different than your relationship with the people who pass your products on to others. You may find it useful, therefore, to create a "Partner Flight Deck" to track how you're doing in supporting your distribution channel partners. And you should definitely consider working with those partners to create Customer Flight Decks to help all of you monitor the Quality of the Customer Experience you are working together to deliver to each customer segment.

USING SEGMENTATION MODELS

How Many Segments?

Segment your customers based on the roles they're fulfilling when they buy.

In the age of Internet-based personalization, it's easy to suggest that every customer is a segment. After all, companies are quick to tout their ability to recognize and respond to each customer's uniqueness. In her report, How to Build and Analyze Customer Segmentation Models (see footnote below) Lynne Harvey offers useful advice (and cautions) about limiting the number of segments you define. Among her key points is that your segmentation strategy should be directed toward helping you understand how the various customer segments contribute value to your business. This sort of understanding is not advanced by considering each customer individually.

As a practical matter, many of our clients, having engaged in rather elaborate (and in some cases esoteric) customer segmentation exercises, end up dividing their customers into three or four segments. The divisions make intuitive sense to everyone in the company (and to the customers involved). In the travel industry, for example, four segments come to mind very quickly: "managed" business travelers (who book travel using corporate rules, policies, and contracted travel agencies); "unmanaged" business travelers (who book on their own), leisure travelers, and business travelers booking leisure travel.

Notice that this segmentation has little, if anything, to do with specific products or services. That is, there is no airline passenger segment, no car renter, no hotel guest segment. Rather, the segmentation occurs along lines defined by behavior or desire. It's not simply a matter of what customers buy, but rather how they buy and why they buy that way.

How Customers Buy

Companies that work hard to develop relationships with customers are wont to tell those customers how important such a relationship can be to them. Here's a well-known but little-remembered counter to that: You build relationships with people, not with companies. Most B2B companies' CRM systems are organized around accounts, not individual end users. For their part, B2C firms tend to market to households, not to individual consumers. And very few customer information systems take into account individuals' different roles in different contexts.

Consumer-oriented companies might do well to segment customers based on their roles, in addition to household or account demographics. Three types of roles in particular come to the forefront ...

***Footnote***
" How to Build and Analyze Customer Segmentation Models: Applying Customer Intelligence to Segmentation Modeling and Analysis Practices ," by Lynne Harvey, April 19, 2001
***End Footnote***