Customer understanding is critical to ensuring a business remains profitable. While new customer acquisition also plays an important part in growth, unless customers are encouraged to remain and increase their custom and loyalty it will be difficult for a business to reap any real dividends. Clearly, therefore, investors should be putting this understanding under scrutiny and evaluating whether the business before them is viable.
So, why aren’t more investors armed with an arsenal of searching questions to ask during their investor briefings? Knowing what to ask will help determine how mature a businesses’ data management practices are, thus showing potential return on investment.
Here are five key questions which institutional investors should be posing to businesses to validate whether existing data management practices are able to sustain growth and profitability.
Do you know your share of customer?
It is critical for an investor to see that the target company is continuously listening to its customers, and are responding appropriately to customer requests. Therefore, having an overview of each customer’s spending habits is key for the business (and the investor) to understand what share of the customer’s potential wallet the business holds. Every day customers split their spending between various providers; understanding how much share a potential customer is spending in its product/service equips the target company to see what the growth potential is for each customer. Pinpointing where the growth potential sits will highlight to investors that the target company has access to crucial insight needed to generate an even larger share of the customer.
How many newly acquired customers are still buying a year later?
If the target company is unable to keep customers and entice them to spend more it can become very expensive. Particularly as over the past five years the cost to acquire a new customer has increased by over 50% (according to Hubspot research). This is why retaining and developing existing customers is fundamental to business growth. If the investor questions whether recently acquired customers are still spending a year later, it will make it clear whether the target company is using customer insight to its full potential and this is a potent measure of whether the target company will succeed in the long-term.
What do your best customers look like?
If the target company is using customer insight efficiently, they will be able to build the perfect customer profile, and can focus recruiting efforts on sourcing lookalikes. Ensuring the target company has this insight is extremely valuable; in some cases the customers which at first glance are categorised as the best customers, as they maybe purchase frequently, can in fact be the least profitable (if they only ever purchase further to an incentive, for example), therefore customer insight can show that there might be some customers the business is better off without.
If a business reveals that its best customers are in decline, this is a critical warning sign for the investor. Where best customers are in growth, does the company understand why?
Do you have an integrated online and offline view of your customer behaviour?
In different markets, online or offline marketing might have the edge. Our research consistently highlights that it is companies which combine online and offline techniques which produce the greatest, most sustainable, commercial results. There are now a variety of techniques for amalgamating all behaviour/transactions of a customer into a single, 360-degree view, and only if the target company can achieve this will customer insights be valid and actionable.
For investors, it is key to ensure a business has an effective and well managed strategy for managing its customer data in order to see potential for growth. Investors need to probe the business for their key customer figures to establish how advanced their customer relationship strategy is, as well as identify which tools are in place to effectively manage and analyse the available multichannel data for future growth.
Patrick Headley is chief executive of Go Inspire Group