MonetizeCX case studyCustomer lifetime value management andimpact of customer-centric approach analysis& changes in an ICT company in CEE region.

This content was meant for reading, rather than presenting.Requires approx. 15 minutes reading time.

Intro➢ Customers are always an asset to every company.

So let´s stop to perceive them as a liability.

➢ MonetizeCX = we believe in customer-centricity. Making customers center of your business, satisfied and then monetize the relationship.

➢ We have a unique framework: we can help you change how you manage your business in 5 steps.

➢ In the following content, you´ll see an example of our approach, based on real data and activities in an information and communications technology (ICT) company in CEE. Their customers are primary end-users and operates on a subscription model.

Intro➢ Customers are always an asset to every company. So let´s stop to

perceive them as a liability.

➢ MonetizeCX = we believe in customer-centricity. Making customers center of your business, satisfied and then monetize the relationship.

➢ We have a unique framework: we can help you change how you manage your business in 5 steps.

➢ In the following content, you´ll see an example of our approach, based on real data and activities in an information and communications technology (ICT) company in CEE. Their customers are primary end-users and operates on a subscription model.

Content

PART A – SITUATION AND COMPLICATION: Finding the key challenges and opportunities.

Analysis 1: Acquisitions costs effectivityAnalysis 2: Company classification Analysis 3: Trends in customer baseAnalysis 4: Loyalty impact on profits Analysis 5: Actionable segmentation

PART B - RESOLUTION: 5 steps to customer-centric growth

Step 1: TOP customers and how they get thereStep 2: Pain points in customer journeysStep 3: Wow effectsStep 4: Selection of changesStep 5: CX pilots and measuring

PART A – DATA ANALYSIS AND INSIGHTS

Analysis 1: Acquisition volume vs. customer lifetimeMost of the value created by acquisitions is subsequently lost in the churn

Implications:

➢ Very high customer acquisition volume fueling the growth of 29% in lifetime value (LTV) is completely offset by the huge percentage of value lost due to customer churn which amounts to -35% of whole customer base lifetime value.

➢ Such a low customer loyalty implies a substantial risk to future profits in case of a market change resulting in a decrease in sales.

➢ Low impact risk with medium odds identified: without new sales, customer base value would decrease to its half in only 24 months’ time. For most of the companies, this would be a point of no return to healthy operations.

➢ High impact risk with low odds identified: market changes resulting in a decrease in sales conversion rates to acquire new customers by 30% is present. Decrease of customer base by 50% would then be reached in less than 36 months.

Primary cause? Company´s operations focus sales is disproportional to efforts put into building loyalty:

• Personal disbalance: 10-times more employees in sales than in retention.

• Marketing disbalance is 1 to 8: only one big campaign throughout the year addressed to existing customers compared to 8 campaigns attracting new customers.

However, the value gained by acquisitions proportionally ONLY equals to the value lost in the churn. Not 8 or 10x more. This means huge operational inefficiency.

This company belongs to: Opportunity burner categoryRead about five stages in a company lifetime and their challenges to customer experience.

A/ Quick growth (rocket start)

Startups and companies usually in their first 1-3 years. Their customer base is still smaller, so is the churn thus little motivation to manage it. Acquisitions are the main driver ofthe company growth and often the only focus of the managers.

While the need for the company leadership to deliver superb customer experience is rarely feltimportant at this stage, it is the right time to imprint the customer centricity into the DNA of the company.

B/ Healthy growth (plane flight)

The situation every company wants to get and stay in. Customer base generates most of the profits while acquisitions still significantly contributeto growing profits and customer loyalty remains high.

Customer centricity seems to be already present in company culture. There are product design frameworks, feedback reports and organizational structure that delivers a consistently good experience to customers. This is a great beginning of a journey to exceptional CX. Such a competitive advantage is very hard to replicate.

C/ Slow & steady (tanker pace)

Large existing customer base which does not change much. This is usually the case of a business environment with significant barriers for customers to switch the product/service provider, barriers to enter the market or an extremely rigid product with low margin.

Focus on a great customer experience often may seem unimportant, due to the long customer lifetime. However, barriers of entry can be regulatedand/or dissapear and market quicklydisrupted. Bute good CX and loyalty cannot be built overnight.

E/ Unavoidable decline (plane crash)

Profits are decreasing every quarter/year, existing customers are shifting to the competitors and higher marketing expenditures do not translate into sales accordingly. Changes in overall business strategy must be made to survive.

There is probably more than one problem in the business situation. It could be a failing sales model, outdated product, operational inefficiency or many more. However, perhaps the real reasons are lost contact with actual customer needs. Dramatic change towards customer-centricity in corporate culture is the only cure.

D/ Opportunity burners (rollercoaster)

The company at this stage can still produce significant growth relative to its large customer base. However, due to low customer loyalty, the lifetime of customers is getting shorter and big portions of profits are melted in the churn. So the company spends huge amounts of money on attracting new customers while profits don’t change much.

From the CX perspective, this is a position with the biggest potential. If a company implements customer-centric approach well and early, and customer loyalty starts to increase, healthy growth is not only possible but thanks to already present acquisitions also highly probable.

Analysis 2: Optimize acquisition costs based on lifetime valueLow margin products should be marketed via cheaper marketing channels.

← Customer acquisition costs in this company consist of direct marketing costs, direct commissions, and non-direct semi-fixed staff costs. In the case of our particular company, commissions depend on a value acquired, thus never exceeding lifetime value. On the other hand, direct marketing costs are not variable enough based on the type of the customer and product offered, non-direct marketing costs are high andcustomer support is the same for low and high-value customers.

New customer journeys for low spending customers should be designed and customer care split up to different levels based on customer lifetime value.

↑ Customer types and their behavior are strongly influenced by the way they have been acquired and the campaign they have reacted to. In the case of our analyzed company, early adopters of a new product show a higher churn rate. Customers acquired later are much less eager to change their provider.

Two main approaches must be considered. Either address the need forever new features required by this customer segment or focus on the majority of customers who are more conservative. The decisionshould be drafted base on future lifetime value projection compared to costs of product development.

Analysis 3: Customers are drifting towards the averageDue to the commoditization of services/markets, customers no longer feel the benefits of more expensive products.

↑ In time, both low and high-value customers are drifting to the mean. This means alack of product differentiation. What appears as an overall value-neutral trend might be crushing margins later on if this trend occurs on the whole market. Lack of meaningful product differentiation leads the company into price competition, hence lowered margins. In this situation, superior customer experience would represent a new dimension to the product, which is very hard to replicate.

↑ While upsells are usually company (push) driven, thus controlled, service level downgrade is mainly customer-driven, spontaneous. Although downgrades a very important signal of missing customer satisfaction, in our particular company, downgrades were not evaluated as such and they did not lead to any follow-up action. This lack of focus wasted a significant portion of upsell efforts.

Analysis 4: Customer experience impacts customer lifetime value Correlation between customer experience (NPS metric) and profit is confirmed and causal. Promoters have twice the probability of cross-selling and half the churn and consequently 25% higher lifetime value.

↓ We have evaluated changes in customer spend over a longer period of time after getting the NPS (Net Promoter Score) data. Results are very straightforward: spend of customers with the lowest score thought the year dropped by -4% compared to spending growth of 6% of the happiest customers.

↓ What is driving the change in customer value? Mainly churn and cross-sell. Happy customers are more than twice as likely to buy another product within a year and 60% less likely to churn than unhappy customers.

↓ Different churn and cross-sell dynamics results in promoters’ life-time value higher by 25% compared to detractors.

There is a huge potential in improving customer experience. If the whole customer base has the lifetime value of promoters, then the overall gain is a 6% increase in revenues.

Analysis 5: CX vs spend matrix - a fresh view on the customer segmentationSpend-based segmentation is too static compared to our very actionable spend/loyalty segmentation which identifies the right customers for cross-selling, acquisition and retention.

Spe

nd

/Gro

ssM

argi

nb

ello

w a

vera

ge |

ab

ove

ave

rage

= 20% of customers= 30% of revenues

High spenders with the highest risk of churn.

= 21% of customers= 33% of revenues

= 9% of customers= 15% of revenues

What type of the customer is happily spending the most?

How have they got here?What is their persona and

journey?

= 25% of customers= 11% of revenues

= 18% of customers= 8% of revenues

= 7% of customers= 3% of revenues

These customers are happy but spend below par. Cross-

/up-sell close rates should be above average.

detractors neutrals promoters

Customer experience scale (NPS)

#1 action – cross-sell or upsell here

#3 action - attract morecustomers like this by

making them your promoters

#2 action - remove pain points from their customer journeys

to retain them

PART B – RECOMMENDATIONS AND ACTIVITIES

5 steps to shift to a customer-centric growthHow we increased profit based on superior customer understanding and experience

Step 1:

Identification of top customer segment – the „A“ customer segment (part A of this analysis)

Step 2:

„A“ persona definition and the uncovering of gaps in the customer journey.

Step 3:

A pilot for „A“ customers to increase loyalty and segment size.

Step 4:

Employee culture and engagement. Getting ready for more.

Step 5:

Company-wide roll-out to cover the other segments.

Step 1: Identification

of top customer

segment – the „Rate A“

customer.What? We identified the loyal and/or satisfied and/or high spend customers – the „A“ customersegment. This is the key segment they didn´t want to lose. For the „C“ segment we focusedon the identification of those with the highest margin and slight dissatisfaction.

Why? Delivered outcome: (a) customer analysis and segmentation of the base to establish the sizing. (b) Identification of „Rate A“ customer based on satisfaction and Gross Margin. (c) other new approach segmentations, including those seen in part A. of this presentation.

Step 2: „A“ persona

definition and uncovering of

gaps in the customer journey.

What?If not current outdated demographics, what are the characteristics that unify persona in the „A“category? We found it out. And what is her/his customer journey and what are the gaps betweentouchpoints expectation vs experience? And particularly Momenths of truth where they couldhave made the difference.

Why?Delivered outcomes: (a) Detailed profile of an „A“ persona, including income situation, spend, use cases for services/products, main problems and goals.(b) Its customer journey describing what is the way of interaction with the company. (c) Gap analysis – where the company overdeliver and where it misses the promise.

Step 3: Pilot for „A“

customers to increase

loyalty and segment size.

What? After we understood, we (a) finetuned their experience and also (b) created with customer acquisition activities to find and attractthis profile of customers on the market. Pilot initiatives introduced and in an agile way finetuned.

Why? Delivered outcome examples: (a) increased CES/ NPS/ Loyalty projects. 4 agile pilot projects including back-office operations, way of interacting with clients as

well as new metric (CES) deployment to track transactional satisfaction. (b) In pilots, we improved CES score, NPS and ROI of marketing activities based on better CAC : CLV cost vs control groups. This

gave us the confidence to make it broad.

Step 4: Employee

culture and engagement

What?

If we want to get from pilot to wide deployment, we needed to win the minds and hearts of our employees.

Why?

Delivered outcome examples:

(a) activities for identification of most customer-centric employees (Behavera Culture Fit assessment), (b) customer room for all employees to show the key persona, their love and hate points to engage employees naturally, (c) new code of conduct introduction, (d) trainings for not only the fronliners, (e) CX company awards introduction and more.

With this, we were ready to go beyond „A“ customer segment and pilots.

Step 5: Step 5: Making it

big -company

wide roll-out

What?Initiatives to work, engage and improve the customer experiencefor „B“ and „C“ customer segments for the company.

Why? Delivered outcome examples: (A) understand the personas in these segments (as stated on

slide 14.)(B) remove pain points in service and accelerate love points in

relationship to make the positive move (as stated on slide 15.).

Achievements?Achievements!• We segmented the company´s base in a whole new way.

• We identified the A, B and C rate customers based on CLV.

• We identified what channels get new customers that stay longer and gave marketing the

profile of the ideal customer to acquire the customer with the highest possible CLV.

• We worked with „A“ customers and achieved +20% dynamics in CES and NPS scores in a

short timeframe with the help of fixing the hate points and expanding the love points.

• We identified the most engaged employees, made CX champions of them and sparked

the CX in the whole organization to win the hearts and minds of the employees.

• We expanded the activities to the rest of the company customers in a few weeks.

• Overal CES dynamics: +20% in a few weeks.

• Overal NPS dynamics: +5% in a few months.

• CAC decrease: -11% in a few weeks.

• CLV increase: +4% for A customers in few months lead to millions of revenue increase.

• All this delivered in a sustanaible way with current employees and a very reasonable

cost.

One more thing: The Cost of InactivityYou may think – „Very good, but let´s wait until next budget.“ Or „Let´s wait until thenew person is on board“. etc.We are a different opinions. Let us tell you why this ICT company perceived ourcooperation not only important but also urgent:

• They didn´t want to be obsessed by the product instead of obsessed paying withcustomer/customer profiles anymore. They wanted to change their outdated wayof market operation.

• Didn´t want to spend marketing ineffectively – their valuable resources (bothmarketing and personal) on customer segments/customers which were bringingless and less (or negative) ROI.

• Doing Customer Experience (CX) in mass meant for them a lack of focus on the mostvaluable customers, who could bring you accelerated revenue growth by betterunderstanding them. Means before they were doing „CX as an art instead ofscience“.

• Wanted to balance focus from topline to bottom-line growth leads to difficult andmore costly revenue growth.

Curious, how all this would look like in your company?Let´s figure it out together!

Let´s set-up a 30 minutes Skype call, no strings attached.

Reach out to: peter.kmosko@hotmail.comor call +420 725 426 404 and talk!