Michael Johnson is the Marketing Department Chair at the Wisconsin School of Business and the co-author of “Managing the Customer Portfolio”.
At the time it just seemed to make common sense.
Why spend all this marketing money chasing after new buyers while ignoring the customers you’ve already got? Why not redirect some of that acquisition budget toward retention of existing customers and simply get them to spend more with you?
The logic was so obvious that when Leonard Berry presented his paper on “Relationship Marketing” in 1983(1) he never thought of it as a “breakthrough” idea. His intention was to simply remind marketers that their job was not only to find new customers, it should be to retain the ones they already had. In that era marketers never gave much thought to what happened after the sale. They figured it was the job of customer service to keep customers happy.
Berry positioned “relationship marketing” as a way to create extended value for customers. He urged businesses to shift their marketing strategy from a narrow focus on demand generation to more of a customer orientation. Part of marketing’s mission, he proposed, should be to win “lifetime customers” through enhanced service (what we have since come to call customer experience).
When Berry published his paper it was the first time the term “relationship marketing” had ever appeared in the academic literature. For many years afterward, his idea lay more or less dormant, up against the mass market mentality of the time. By the early 1990s, however, relationship marketing had evolved into a rising school of thought, endorsed and promulgated by such influential heavyweights as Phil Kotler, V. Kumar and Jagdish Sheth, amongst others, who foresaw the impending demise of the classical marketing model due to media fragmentation and the collapse of the mass market.
Relationship marketing got a further boost at the start of the 2000s when the concept of customer equity(2) began winning a growing number of proponents. Its central premise was that customers should be thought of as a business “asset” whose value appreciates over time. The true value of a business lay in the future cash flow of its “portfolio” of customers. A bedrock principle underlying this idea was that not all customers are of equal value – some are worth investing in more than others. Thus marketers were urged to pay particular attention to the most valuable customers to avoid losing them.
This new “customer equity” model provided the fiscal framework for relationship marketing. But it never had much chance to enter mainstream thinking, trampled by the rush of marketers to embrace Web 2.0 and the mobile and social media revolution that followed. Even to this day most brands are far more interested in gaining market share than maximizing the lifetime value of existing customers. And that is because most marketers are still conditioned to own as much of the addressable market as possible. So they continue to give disproportionate attention to market growth at the expense of existing customer relationships. Which is why 42 years after Berry published his paper, marketers still lack a cohesive planning framework for “customer portfolio management”. Even more disheartening, they have yet to crack the code on striking the right balance between acquisition and retention spending.
Yet, according to Michael Johnson and Fred Selnes in their book “Managing the Customer Portfolio”, the companies that succeed in future will have mastered the practice of strengthening relationships with customers. In their book they present a systematic framework for converting weak relationships into stronger ones. The key, they believe, is to segment customers into “relationship segments” based on the degree of customer satisfaction, attitudinal loyalty and brand preference along with key behavioural indicators such as retention and growth trajectory.
Michael Johnson is a renowned academic and prolific scholar, having written six books. He achieved early fame when he helped to develop the first customer satisfaction index in 1989. His methodology and econometric modeling subsequently laid the groundwork for the launch of the American Customer Satisfaction Index in 1994.
I began by asking Michael his perspective on the current state of marketing and whether it was a good or bad time to be a marketer.
Michael Johnson (MJ):: Well, I think it’s definitely an interesting time. We had an AI symposium, AI applications in marketing, last week here at the school. And most of the applications right now are in the marketing domain. But marketing has sort of seen this transformation, yet incredible variance in terms of how people interpret it. I think one of the problems is people still see it as sales and advertising as opposed to taking a market and customer orientation of the firm.
So I know a topic we’ll get into is reliance on simple metrics, but we get too focused on what’s become simple metrics. But I see our students today, and as one of the practitioners put it last week at our symposium, it’s not going to replace, AI is not going to replace people in marketing, but marketers who know AI are going to replace those who don’t. So it’s going to have its influence. But I think we can play off just the variety of what it means to be a CMO these days. We’ve taught executive seminars to CMOs, and the job descriptions are all over the place. They can be very narrow, they can be very broad. So I think the state of marketing is, it needs to continue to evolve. It’s been slow to evolve in some ways but the pace of change is going to be pretty incredible in the years to come.
Stephen Shaw:: Yeah, absolutely. And let me just ask you about the CMO function itself, because it struck me that for a while there, the CMO title was out of favour, that you were hearing chief revenue officer or other titles that almost combined functions within the company. Has that been your observation as well? That the very, as you say, the job descriptions vary dramatically. Is that related to the fact that the C-suite today actually doesn’t understand what marketing does?