A Long-Term Relationship

By Henry Canaday

Theoretically, if a company wants its sales team and others within the company staff to seek certain objectives, one way to achieve those objectives is to manage and measure their behavior. Another way is to reward them for specific behaviors that reach these company objectives.

Sounds simple. But first you have to understand what company objectives require. Enter CLV. No, it’s not a new reality show. But it is a new reality in sales. And in the American system of short-term gain quarter by quarter, it may be the most revolutionary concept since the Continental Congress.

Customer lifetime value (CLV) is about building a mutually beneficial, long-term relationship that will lead to recurrent and profitable sales. CLV is about creating and maintaining value in these relationships, based on trust and satisfactory experience, according to Rick Blabolil, president of Marketing Innovators.

Long-term relationships? Recurrent and profitable sales? Can there be such things? In a word, according to experts at the cutting edge of this field, yes. That being the case, how can companies attain CLV?

Group Effort

On the seller’s side, everyone builds CLV: marketers, salespeople, service reps, and invoicing and accounts-receivable staff. It can be strengthened or weakened at all customer touch points. Because buyers also have an entrenched interest in fruitful, long-term relationships, CLV requires buyer action, as well. The two sides – buyer and seller – need to work together to achieve this long-term, halcyon approach. And many already are. Consider the intricately involved channel relationships with such companies as Walmart, where suppliers have people, so to speak, on the inside.

There are tensions now between sellers and buyers. In tough times, salespeople and managers want to accelerate sales, and that does not encourage long-term trust. For buyers, “it’s all about price,” says Blabolil. Lower pricing limits the service and other factors necessary to build CLV.

Sellers and buyers must commit to one another’s long-term success if CLV is to be maintained under these tensions. Both must understand the margins and pricing necessary to maintain service levels and know when service must be trimmed to accommodate lower pricing. “You can’t do everything for free; there has to be an ROI,” Blabolil emphasizes. “Today, CLV is about how much you can do and make a profit.”

CLV always requires everyone who touches the customer to work from the same message. “There has to be coordination of many touch points, whether calling, texting, or visiting customers, whether salespeople are closing deals or service staff members are resolving problems,” Blabolil says. Coordination means that everyone must stay in the loop and be aware of the latest developments with each customer, whether handling recent purchases or payments received from a financially stressed buyer.

Sales 2.0 technologies can facilitate coordination and communication by tying marketing tightly to sales, tracking customer touches, and getting suitable messages to customers. Sellers must ensure that each customer knows how important he or she is without intruding on customer privacy.

CLV can be measured by the volume of repeat sales, customer-retention rates, or customer-satisfaction tools. The elements that lead to higher CLV can also be measured. Quality of product, satisfactory or excellent service, pricing, and frequency and quality of contacts with customers are all important.

Building and rewarding employees for CLV start with knowing as much as possible about each customer, especially buying frequency and interests. This information, which should be in an up-to-date and accurate database, determines the behaviors that marketers, salespeople, and others must undertake to build CLV. These behaviors should be part of the incentive and recognition programs.

“Build a baseline of what you need, then set activity objectives,” Blabolil advises. “If sales reps do X every two weeks, in six weeks they will get Y orders. When they touch people with phone or text messages or take samples to the customer’s office, they are driving toward closing. Reward for that.”

Incentives should be based on past experience, expanded by thorough pursuit of CLV. “You may have eight behaviors that increase repeat purchases, so you give incentives for each. If doing all eight doubles results, double the incentive for completing all activities.”

Nonsales staff should also be incentivized for relationship-building behavior. Marketers can receive incentives for closed, repeat sales, not just for sales activity. Service reps can be rewarded for solving problems promptly.

Social media plays a part in building CLV. Many companies monitor social media to spot problems quickly and understand how their brand is perceived. “This is faster and better than surveys,” Blabolil insists. “People are more candid when responding anonymously on the Web.”

Firms use social media to show customers and prospects that they take customer sentiment seriously and work to resolve issues. Using social media is faster and more effective than using traditional media, because the message reaches the audience that is discussing your company. “If the world is talking about you, don’t you want to be part of the dialogue?” Blabolil asks.

Should salespeople blog to build CLV and in turn be rewarded for blogging? It may be too early to tell. Understanding the effects of blogging is difficult, and companies are still cautious about staff participation in social media.

“The issue is how to manage it,” Blabolil notes. “Companies are testing the waters to determine the value received and the right behaviors. They do not want to misdirect the efforts of their salespeople.”
And that is what building CLV essentially means: understanding how each action taken by a sales rep or a marketer builds long-term trust with customers.

Farewell Hunters and Farmers

Andris Zoltners, cofounder of ZS Associates and professor of marketing at the Kellogg School of Management, does not think the division of salespeople into hunters and farmers was ever very effective. “One person invests a lot to learn about customers to win the deal, and then he or she hands off to someone else, who has to repeat the process. Customers are often unwilling to put up with the handoff and double learning.”

Reps must already be divided into so many roles by industry, geography, customer size, and sales channel. “If they can hunt, they should also be able to farm,” Zoltners argues.

Zoltners thinks sales roles will continue shifting and that the overall trend will be a movement away from relationships toward value selling and exploitation of new technologies. Or, as he puts it, “taking the fluff and bluff out.” One reason for the shift is that customers are much better informed.

“You used to take them from [steps] one to ten. Now the customer is already at four or five, and some may be at eight and just want price concessions,” Zoltners explains. In these circumstances, successful value selling mostly means doing what the best salespeople have been doing for years, which is, as Zoltners puts it, being “collinear with customers.”     

To get others up to speed, “start with training, then replace as needed,” suggests Zoltners. Who gets replaced? This is not a question of education, experience, or age, but chiefly one of motivation and ambition. “People who maintain vitality will survive,” he states.

Zoltners thinks companies should continue to compensate according to sales results but manage and coach the value-selling activities that lead to these results. Frontline managers must be the change leaders. And rather than incentivizing for each activity, some firms are giving reps software that helps to develop opportunities, profile accounts, and estimate and prove value to customers.  

The ZS founder is cautious about relying on CLV, at least in many markets. “With today’s quick pace of change, I don’t think you can count on any more than three to five years. New products come out, and salespeople alone cannot hold on to a customer.”

Speeding Up Sales with Technology

Modern technology maximizes the impact of short-cycle sales efforts, focuses on very specific objectives, and speeds up sales for short periods, even for widely dispersed salespeople. Deep, accurate, and fast data is the key to making it work.

A major manufacturer of high-end appliances used Rymax Marketing’s MaxSite to spur a surge in sales of very specific, high-value products in three months through October 2010. Rymax’s goal was to clear out certain old products before new models were introduced, reducing inventory costs and aligning sales with production.

The manufacturer gave incentives to those difficult-to-reach but crucial links in the chain: retail-sales associates. All associates were eligible but had to register for the program. Registration ensured knowledge of the program and collected home and email addresses, which were necessary for effective communication. Associates were given initial bonus points for registering, and more than 1,000 signed up.

Associates earned points for the sale of particular appliances. During the first month, point values were doubled to get the program off to a fast start, and points and their corresponding products were adjusted during the next two months to reflect the results of sales to date and shifts in the manufacturer’s priorities.

Each sale was recorded by the manufacturer and electronically transmitted to MaxSite daily or weekly, with points immediately shown on each associate’s customized version of MaxSite. Rewards, which came from a wide variety of popular national merchants, were redeemed using accumulated points.

In addition to providing and customizing MaxSite, Rymax handled all procurement, storage, and shipment. The appliance manufacturer was responsible only for communication, which is vital to effective incentives.

MaxSite did some communicating, as well, showing points earned and rewards available. Registered associates could enter a wish list of rewards, and the manufacturer sent email blasts telling each how far he or she was from this goal. Written materials discussing prizes were also sent to associates’ homes to boost family interest in the program.

The program was self-financing, since the manufacturer set prize values below the sales necessary to earn them. It was so successful that a similar program is planned to take place in the spring.

The Present

With the caveats in mind – a fast-moving marketplace and changing product demands – CLV may be the wave of the future, but it has not yet caught on with companies that supply incentives. This is still a field that relies on goods and services to reward actual sales. While that may be shortsighted, it is at least measurable in today’s terms. But what about tomorrow? Companies that want specific kinds of results tied to specific behaviors will not achieve them if there are no rewards for building the long-term relationships that lead to the results top management wants to see. If incentive companies want to stay relevant, they must offer the kinds of metrics tied to CLV that sales and marketing managers will be asking for across the board.