Every bottom line starts at the top. Traditionally, boards have brought particular strength to safeguarding the company and improving bottom-line performance. Now, it is time for boards to focus on topline revenue.
Growth is imperative, with shareholders demanding that boards challenge management to develop sustainable business-building strategies. Business growth is built on a strong revenue stream, which depends on one major factor—the customer. A company will fail to generate consistent and vibrant growth without a tight grasp on who the customer is, what the customer wants, and how the customer is changing.
And today’s customer is changing at a rapid speed.
The customer is the domain of the strategic marketer. Yet, less than 3 per cent of the largest company boards have marketing representation.[i] Adding a customer expert to the board will bring the customer to the fore of board discussions and augment board competency, with proven expertise in creating and evaluating growth strategies.
Filling the strategic marketing vacuum at the board level is increasingly urgent, given the convergence of three factors: the seismic change in customer attitudes and behaviours, the innovation imperative, and the relentless importance of building a company’s brand.
To build a better board—one that is more effective and customer-centric—I propose three main strategies:
- Bring new emphasis to the creation and maintenance of vibrant revenue streams.
- Augment board skills with strategic marketing expertise.
- Cultivate an understanding of new quantum customers and their impact on generating revenue.
“The new customer construct is a double-edged sword. It has the ability to propel or destroy shareholder value at a lightning pace. But with the right marketing strategies, customers can be acquired quickly, less expensively, and from a much wider catchment area.”
Bringing New Emphasis to the Creation and Maintenance of Vibrant Revenue Streams
Historically, boards have focused on short-term results driven by cost-containment activities or mergers and acquisitions (or both). Recent studies, however, have confirmed that organic growth is the most important controllable driver of total shareholder value. A BCG report released last year concluded that “most value creation comes from top-line growth, which accounts for 74 per cent of total shareholder return of S&P 500 top-quartile-performing companies over a ten-year period.”
Many companies and boards face formidable organic growth expectations and are placing big bets on breakthrough innovation and digital projects as transformative solutions to reach these goals. To navigate these perilous waters successfully, boards must weigh the risk of new products and business models against the risk of the status quo. The stakes are high. A McKinsey survey found that only 6 per cent of executives are satisfied with their innovation performance. However, disruption can threaten a company’s ability to persevere. Only 33 per cent of companies facing industry disruption manage to survive and thrive, according to a 2017 BCG report. The board requires deep insight into customers’ values and behaviours to correctly evaluate strategic options.
In many cases, the true expected value of a particular innovation project is impossible for directors to assess. Financial, legal, human resources, and risk professionals do not have domain expertise in growing revenue, understanding customers, or sustaining brand equity. Strategic marketers, however, are uniquely trained to understand the customer and to convert these insights into growth. Chief marketing officers, the most senior positions, are members of the C-suite responsible for innovating products and services to meet customer requirements and fostering customer engagement throughout the customer’s journey. They are deeply steeped in customer analytics and the design of digital solutions for customers. In short, they are champions of the customer and architects of business growth.
Adding Marketing Competencies to the Board
Given the pivotal role that marketing plays in driving financial performance, it is surprising how few boards have strategic marketing expertise at the table. Less than 3 per cent of board seats among S&P Composite 1500 Index companies are held by members with a marketing background.[ii] This is beginning to change, as boards seek experts who can help assess and support growth generation. According to a Spencer Stuart survey, that 21 per cent of companies now identify “marketing expertise” on their wish list.
Evidence is mounting that bringing marketers onto a board can yield real returns. A Marketing Science Institute study analyzed the effect of board-level marketing experience on firm performance by reviewing 64,086 board member biographies from S&P 1500 firms. The study found that boards with one marketing-experienced director saw a 3 per cent increase in total shareholder return over boards with none. The impact was even greater for companies in distress. When firm market share was declining by 1.5 percentage points, the addition of a marketing-experienced director generated an average increase of 6 per cent in total shareholder return. It is not surprising that many companies generating the highest growth rates—such as Amazon, Facebook, and Twitter—all have marketers on their boards.
A seasoned marketer will augment board strength with the following competencies, which are essential to growing revenues:
- Consumer behaviour insights, to frame strategy and innovation decisions
- Familiarity with customer data analytics, to clarify strategy assumptions
- Knowledge of customer experience management, to support resource allocation
- Ability to challenge management, to develop more aggressive or innovative growth strategies
- Branding experience, to mitigate risk associated with the company’s most vital asset
The Rise of the Quantum Customer
Boards must understand today’s customers. They are empowered and dramatically reframing their relationship with companies. The new customer construct is a double-edged sword. It has the ability to propel or destroy shareholder value at a lightning pace. But with the right marketing strategies, customers can be acquired quickly, less expensively, and from a much wider catchment area. The wrong strategies, however, can cause customers to stay away or defect, resulting in revenue loss and reputational risk. A recent PwC study found that 32 per cent of customers will walk away from a brand they love after just one bad experience.
I refer to this new breed of customers as quantum customers because they have a capacity for sudden and significant movement. Quantum customers emerged in the past 10 years after the introduction of digital technology such as the iPhone. The exploding digital world has super-charged conditions to create five distinctive traits that characterize today’s customers: exacting, fluid, future-oriented, fiery, and socially-minded.
Exacting customers demand personalized experiences crafted to meet their individual preferences. Although price and quality remain the top purchase decision criteria, almost three-quarters of these customers see a good experience as a key influencer.[iii] Many industry experts believe that personalized customer experience is now the only truly persistent point of competitive advantage, given the speed with which competitors can mimic product advancements. The PwC study noted above also found that customers will pay a premium of up to 16 per cent for a high-quality customer experience. Unfortunately, less than one-third of today’s companies can be considered truly “experience-led” businesses, which is loosely defined as businesses that invest in customer experience across people, processes, and technology.[iv] The companies that do provide superior customer experience significantly outperform those that don’t, as measured through a range of metrics:
- Accelerated growth rates: 1.4 times
- Increased customer lifetime value: 1.6 times
- Stronger retention rates: 1.7 times
- Higher average order rate: 1.9 times
- Higher employee satisfaction: 1.5 times
Fluid customers switch across brands and adopt new technologies at the touch of a screen. For example, 40 per cent of today’s consumers have a high willingness and ability to shift spend, with an additional 25 per cent building that mindset.[v] This fluidity is due to a combination of factors:
- Wider and more global choice of brands
- Ease of switching
- Rich information resources (more than 90% of smartphone users say they use their smartphone in stores while shopping to compare prices, look up product information, and check online reviews)[vi]
- Rising customer expectations across categories (if Amazon can deliver products within days, or even hours, why can’t every company do so?)
- Intolerance of poor customer experience
These factors create the conditions for fluidity, but they are not the cause. If a customer switches to a competitor, it is because they are not receiving unique or sufficient value to remain loyal.
Future-oriented customers have voracious appetites for new and innovative solutions. A Nielsen study indicated that 63 per cent of surveyed customers want, and expect, their preferred brands to innovate for the future. Similarly, many chief executive officers expect a considerable amount of their company’s future growth to come from new customers, new markets, and new products. Companies and brands that don’t innovate are at serious risk of sinking into irrelevance in the minds of customers.
Fiery customers are highly judgmental, and social media hands them a megaphone to share their opinions. After a bad experience with a company, 42 per cent of customers will post a negative online review or share the experience on social media—a rate that is climbing each year.[vii]
Interestingly, recent studies have determined that postings about positive experiences are also increasing, with 38 per cent of consumers now posting about positive experiences.[viii] Positive advocacy can lead to great growth for a brand, whereas negative publicity can precipitate rapid business loss. Fiery customers are keen to rate a company’s performance. They often value other customers’ opinions more than a company’s promotional materials. In fact, nine out of 10 consumers now read online reviews before visiting a business,[ix] and more than half of adults under the age of 50 check online reviews before purchasing a new item.[x] A staggering 88 per cent of consumers trust online reviews as much as personal recommendations. And, most importantly, 86 per cent of people will hesitate to purchase from a business that has negative online reviews.[xi]
Socially-minded quantum customers believe that brands should take a position on today’s pressing societal issues such as job growth, gender equality, gun control, racial justice, immigration, climate change, and bullying. According to a 2017 Havas Media survey, 75 per cent of customers want brands to contribute positively to society but believe only 40 per cent currently do so. There is demonstrable strategic value in developing a corporate social responsibility program. In another 2017 survey by Cone Communications, 87 per cent of respondents said they would purchase a product because a company supported an issue they care about, whereas 76 per cent would refuse to buy from a company if they learned it supported an issue contrary to their own beliefs.
The five characteristics of the quantum customer—exacting, fluid, future-oriented, fiery, and socially-minded—form a profoundly changed platform upon which companies’ growth strategies must be crafted. In the end, long-term business vitality will be driven by the company’s ability to attract and retain customers. These new customer tenets must underpin all future business-building strategies as the cornerstones of sustained customer value.
It is time for strategic marketers to take a seat at the board table. As Peter Drucker so rightly observed, “The single purpose of business is to create and keep a customer.” In these turbulent times, boards must cultivate a sharp and unwavering focus on the customer as the foundation for strong and sustained business vitality.
[i] Stephanie Overby, “Corporate Boards Begin to Seek Marketers for Digital Savvy,” CMO.com, June 22, 2017, accessed February 5, 2019, www.cmo.com/features/articles/2017/4/18/-corporate-boards-seeking-marketing-expertise.html#gs.sIvP5g4.
[iii] Giselle Abramovich, “Consumers Say They Will Pay More for a Better Experience,” CMO.com, April 26, 2018, accessed February 5, 2019, www.cmo.com/features/articles/2018/4/19/new-study-finds-consumers-would-pay-more-for-better-cx-pwc.html.
[iv] Forrester Research, Inc., The Business Impact of Investing in Experience (2018), accessed February 5, 2019, wwwimages2.adobe.com/content/dam/acom/en/experience-cloud/research/roi/pdfs/business-impact-of-cx-infographic.pdf.
[v] Forrester Research, Inc., 2017 Predictions: Dynamics That Will Shape the Future in The Age of the Customer (2016), accessed February 5, 2019, www.rottab.se/wp-content/uploads/Forrester-2017.pdf.
[vi] Greg Sterling, “Survey: 90 Percent of Retail Shoppers Use Smartphones in Stores,” Marketing Land, June 20, 2015, accessed February 5, 2019, https://marketingland.com/survey-90-percent-of-retail-shoppers-use-smartphones-in-stores-135759.
[vii] Chris Bucholtz, “The $62 Billion Customer Service Scared Away [Infographic],” NewVoiceMedia, May 24, 2016, accessed February 5, 2019, www.newvoicemedia.com/Blog/The-62-Billion-Customer-Service-Scared-Away-Infographic.
[viii] Graham Ede, “The Good, The Bad and The Ugly,” Fourth Source, June 5, 2017, accessed February 5, 2019, www.fourthsource.com/instagram/the-good-the-bad-and-the-ugly-21936.
[ix] Khalid Saleh, “The Importance of Online Customer Reviews,” Invesp, accessed February 5, 2019, www.invespcro.com/blog/the-importance-of-online-customer-reviews-infographic.
[x] Aaron Smith and Monica Anderson, “Online Reviews,” Pew Research Center, December 19, 2016, accessed February 5, 2019, www.pewinternet.org/2016/12/19/online-reviews/21.
[xi] Khalid Saleh, op. cit.