Consumer Health is the key to understanding Business Value

“The true purpose of a business is to create and keep customers.”?

- Peter Drucker

Given the current economic uncertainty, it can be difficult to justify requesting any additional budget for marketing (or almost anything). C-level executives are constantly asking themselves the question: how do I drive company growth? Depending on who you are talking to in a company, growth can mean different things. For a CFO it might be revenue and profitability, for HR it might be employees, for Head of Sales it might be units sold. For Marketers, it has typically been brand growth, channel metrics, ROAS and cost per acquisition

While these metrics are incredibly important, they don’t tell the entire story.?

These methods share a common theme: they don’t focus on the consumer.

While most think of the Marketing team as ‘owning’ the consumer experience, nowadays, the entire organization touches the customer along the way. This includes merchandising, operations, customer service, product, engineering and fulfillment to name a few. Because the consumer is becoming a larger focus, Marketing has begun to have a larger seat at the table. Companies have shifted towards a consumer-oriented approach.?

A consumer focus has already started to take shape across many companies. They recognize the need to produce products, messages, and engagements that cater to their audience - in other words, your consumers. Without the consumers, you won’t get the revenue needed to drive your financial performance. However, while companies will adopt the consumer mindset, they aren’t always measuring their business with consumer-oriented lens.

Many organizations forget that consumers are a key asset to a company's performance. Measuring the value of consumers has broader implications. Below, you’ll learn more about how that value measurement can help your company.

The Traditional Method of Business Health Measurement?

Google anything on evaluating the value of a company, and you will get results like this:?

• Asset valuation
• Historical earnings valuation
• Relative valuation
• Future maintainable earnings valuation
• Discount cash flow valuation

These are traditional accounting methods of evaluating a company. These metrics are logical and a great way to understand a company’s financial health.?

Financial measures are how most companies evaluate their success and determine their KPIs (key performance indicators). Metrics such as revenue, costs, profits, ROI, etc. are standard for any business evaluation. Their strength is that they are easier and faster for an organization to calculate and monitor regularly. They also allow a more direct way to measure the pulse of your company.

The Second Data Consideration: Brand Metrics

Many larger companies also focus on brand metrics. These brand metrics include awareness, brand consideration, brand associations, brand equity, and brand loyalty. They are critical to understanding the intangible value of a brand. These metrics represent perception, recognition, and trust that a consumer has with your brand.?

Brand health measures how well a company or brand delivers on certain attributes of a product or service that it promises its customers.

Think about some of the largest global brands: Nike, Starbucks, Apple, and PepsiCo. They are successful because they have an established brand presence, recognition and value that helps put their name front and center with consumers. They also dominate their categories. When you think of sports needs, you immediately think of Nike. Same with Starbucks, which is synonymous with coffee. The same goes for Pepsi when it comes to carbonated drinks and Apple for consumer technology needs.?

These brands have built their reputations over time with recognition and credibility in their respective categories. They create dominance by keeping their brands ‘top of mind’ for the consumers. Capturing consumer brand preference within a category is the ultimate achievement.

"Strong brand equity can provide competitive advantages to be more resilient to market fluctuations and competitive pressures. It also helps differentiate the company offerings from competitors and foster more customer loyalty.?"

Understanding brand metrics are critical for brand health, evaluating consumer perception, understanding brand equity, and assessing marketing effectiveness

Both financial and brand metrics should be part of every company’s metric toolkit.

Despite how powerful financial and brand tracking are, these two won’t give you a complete picture.?

The Weakness of Financial-Only Metrics

Different from brand metrics, financial metrics provide immediate sales, revenue, and financial data. While this might satisfy shareholders and quarterly earnings, they miss the mark on other things

• Longer-term insights. Many financial metrics emphasize short-term results, which can lead to a focus on short-term gains at the expense of long-term value creation.
• Lack of future visibility. Financial metrics fail to tell you more about where the company is going and its future viability. ?
• Quantitative over qualitative*. Financial metrics are quantitative metrics based on accounting data. There are other indicators such qualitative data to provide a more complete picture of a company

Many ecommerce and retail companies focus on driving traffic to their websites or stores for quick sales. While this may indicate strong immediate revenue, it may not drive sustainable growth if these consumers are not returning or buying in other categories.?

You may be driving immediate sales or new growth areas, but it may only give you a narrow or short-term perspective on the health of your company

The Weakness of Brand-Only Metrics

So, what about brand metrics and health? Yes, Some companies capture brand health insights. However, they are difficult to measure regularly and aren’t typically part of the CFOs portfolio of metrics. In general, these metrics can feel less tangible to non Marketers.

Many of the brand health metrics are powerful, but don’t translate into direct and immediate revenue.

Brand-based metrics, give a wider lens but, at the same time, they can feel more esoteric compared to the quantitative measures of your business. It’s just a lot easier to come to the table with the hard proof of sales, revenue, and profitability numbers versus a brand metric collected through self reports surveys or interviews

For example, a visible brand might not be a profitable brand. Spotify, for example, has operated at a loss since its inception. Still, it’s the most visible streaming platform out there. So, from an earnings-only perspective, some might consider Spotify a failure. But from a brand perspective, Spotify is doing very well.?

Some of the flaws with brand metrics include the following:

• Data collection time. In order to get brand metrics right, you need to collect data over a a substantial period of time. Also brand metrics may not shift immediately.
• Based on qualitative data. Brand metrics rely on self reported data through surveys, which many not always reflect true consumer sentiment or behavior
• Correlation to revenue -Brand metrics measure consumer attitudes and purchase intentions but not actual business outcomes or bottom-line impact.?
• Lack of adoption across entire organization - Brand metrics do not directly reflect financial performance or market share and therefore, may not have widespread credibility or use outside of marketing

While finance and brand metrics reveal a lot about a company's success, without a consumer lens, there is a significant gap for many organizations. Consider it like building a treadmill but forgetting you need to power it.??

The Forgotten Channel - Consumer Health?

It’s insufficient to measure your financial and brand metrics alone. Both have limitations and while together they provide a more balanced view, it is not a comprehensive view of a company’s overall performance.?

What really keeps a company alive are the consumers that are buying your products and services.

Without these customers, you don’t have a business. Consumer data will help supplement what you already have. More on this as we get deeper into a holistic approach to understanding company health

How do you start? First, we need to understand the forgotten channel: the consumer. If you are unaware of the size or growth of your consumer base, start creating a roadmap to measure and collect this data.

What is Consumer Health?

Consumer health requires a customer-oriented focus. It is a shift to thinking about the consumer as a true asset for the organization.?

Historically, we could only measure consumer health by capturing attitudinal data, but now we can capture tangible consumer data? - including behavioral measures (names, activity, frequency, retention, spend, upsell, cross-sell, etc). It’s about driving ongoing purchases and retention of your products. Developing a customer health mindset will allow you to differentiate and address areas to drive a bigger and longer-term impact:

• Consumer equity is a key part of an organization's health and a future predictor of the health of a company
• Companies need to think of their consumers as an asset and, therefore, should manage them as an asset (i.e., care for them, protect it, keep it)
• Companies can have strong financial and brand indexes. Still, without a growing and loyal customer base, they may suffer behind the scenes in the short term), ultimately impacting long-term company performance.
• Short-term financial gain and earnings pressure result in companies neglecting their consumers.

An understanding of consumer health leads to better decisions across all levels and stakeholders of an organization. Regardless of your department, it enables all teams to better meet consumer needs holistically across all touchpoints. You are no longer addressing just a channel or one-at-a-time engagements. Consumers never say “wow that was an amazing email [fill in the blank with any channel]? experience”. Instead they might say “wow that was an amazing brand experience” - they typically remember the full experience and how it made them feel overall. Rarely do they break it down by channel or individual touchpoints.

So, what makes consumer metrics so helpful??

Consumer metrics address the deficiencies of financial and brand metrics while also addressing your most important asset.??

This is an incredibly helpful approach for consumers entering or already in your consumer funnel. This approach shifts from reactive to proactive because you are able to identify where the breakpoints are and identify if you are growing or reducing your consumer file.?

Considering your consumers, your relationships with them, and how long they stay with you, we now can obtain the data to measure an organization's sustainability for short and long term success.

The maturity curve below shows the evolution of metrics over time and how they continue to compliment each other when used together. Where is your organization on this scale?

Shifting Towards Customer-Oriented Metrics

Marketers have already started to pivot from anonymous tracking by channel to more consumer-focused capabilities. 3P deprecation, omni channel consumer experiences, and improved platforms have helped pave the way.

The more sophisticated marketers have already started complimenting the existing ROAS, sales, revenue, cost metrics with customer lifetime value (CTV), consumer file size, net new customers, and retention.?

You can shift marketing from a cost center to an investment center by leveraging what you are already sitting on: the consumer!?

Marketing teams have always had a maniacal approach to their consumers. Therefore, most companies already have the tools to start pursuing a consumer health mindset because marketing teams are usually capturing these metrics.

What are the Metrics for a Consumer Orientation??

Here are some important metrics when considering consumer orientation:

• Net New Customers - How many new customers are being added to your customer file (versus how many are lapsing)
• Customer Lifetime Value (CLV/LTV) - The total revenue you can expect from a customer account (the true long-term profitability of a consumer)
• Return on Customer Experience (RoCX) - The financial impact to drive the entire customer experience. It determines the return from all the consumer touchpoints holistically to enhance customer satisfaction, retention, and the overall experience
• Share of Wallet (SOW) - The percentage a customer spends towards a particular product or service of a company (compared to others). Also known as “share of basket.”
• Net Promoter Score (NPS) - How likely a customer will recommend your product (out of ten usually)
• Customer Satisfaction Score (CSAT) -? A measurement of a consumer's happiness/satisfaction with a product.

Companies Using This Approach Today?

Many direct to consumer, digital natives, and retail brands have always captured these consumer metrics through their marketing efforts. Many of these companies started as e-commerce or direct marketing companies: Amazon, LandsEnd, LLBean, Netflix, Warby Parker, and Wayfair.? Their roots are with the consumer data.

We also see more traditional consumer goods companies shifting and recognizing the value of consumer data and adding this as a critical part of their business: Kimberly Clark, PepsiCo, Nestle, Nike, P&G, and Starbucks. Many of these companies have already developed CRM capabilities to ensure they are driving consumer value in addition to their financial and brand value.

Here are examples of B2B and B2C companies across different industries that use a combination of quantitative and qualitative measures to capture their customer health:

1. SaaS (Software-as-a-Service) companies like HubSpot, Salesforce, and Zendesk use customer health scores to monitor the satisfaction levels of their subscribers and identify potential areas of customer churn.
2. Retail companies like Amazon, Nordstrom, Bonobos, and Starbucks use customer health metrics such as customer retention rates, CLV and feedback to improve customer experience and drive sales.
3. Telecommunications companies like Verizon and AT&T use customer health scores to measure customer satisfaction with their services as well as retention
4. Healthcare companies like Kaiser Permanente and Mayo Clinic use patient satisfaction scores as a measure of customer health to evaluate the quality of care provided to?

The Benefits of a Customer-Oriented Approach

According to Forrester , high-growth companies are 2.5x more likely to focus on solving customer problems than their competitors.

Customer-centric companies are 60% more profitable than companies that don't focus on customers. More than 89% of companies see customer experience as a principal factor that drives customer loyalty and retention.?

Additional reasons to shift to a holistic approach now:

• Capabilities such as CDPs now exist for the sole purpose of capturing consumer data
• Companies need to go beyond ‘talking about the consumer’ and actually measure their efforts in driving CLV, retention, share of wallet, NPS, and satisfaction
• Companies cannot survive without a long term approach to their business. This approach will drive long term consumer impact and not just short term sales impact
• New advancements in machine learning, generative AI, cloud computing and and data science make obtaining and calculating the Consumer Data and CLV much easier
• With budgets being reexamined in this economy, bulletproof your efforts to ensure the entire organization is aligned across the financial, brand and consumer metrics. This forces everyone to support the same efforts vs individual department goals or needs

Getting Started With Your Customer-Oriented Growth Engine?

Brands need growth. The way to do this is through a customer growth engine built on data.

From a marketing perspective, we’ve started to shift from a channel to a consumer orientation. We are in a rare time when the marketplace is poised to make these shifts.

To become consumer-oriented, some things to keep in mind:?

• Be customer focused -? Organize your business around the consumer.?
• Customer experience -? Rally around the consumer experience and make sure the entire company is optimizing it
• Look at the FULL funnel - You might lose consumers by just feeding the top of the funnel and having no long-term consumers to maintain your revenue. It’s very difficult to sustain earnings by just having an acquisition machine.?
• Track and measure? - Understand the full consumer experience/touchpoints.? What are they doing and why. Aggressively collect consumer data and determine points of failure or loss. This will help you identify where to prioritize.
• Scale your efforts beyond marketing - Infuse consumer-focused thinking across the organization. Drive the metrics, experiences, and view transparently to understand what’s working and what is not
• Find clever ways to start a relationship with your consumer if it doesn’t already exist. This might include driving a value exchange with the consumers where both the consumer and the brand benefit from a relationship (loyalty programs, experiences, partnerships, exclusive access, promotions, surprise and delights, etc)
• Use the Return on Customer Experience (ROI for customer experience) - RoCX (“rocks”) combines all the channels and puts them together with the consumer at the core. cross functional teams need to shift from a channel orientation to consumer orientation by looking at all the touch points in aggregate
• Start creating consumer goals - Just as you have financial goals/targets, create consumer benchmarks (# of consumers gained, LTV, CSAT, NPS, etc.)
• Start small? - use a crawl, walk, run approach by piloting, testing, and proving impact with the numbers to get buy-in across the leadership team.

The Three-Pronged Holistic Company Health Approach

Now that we have reviewed current market conditions, technology progress, customer openness, and the concept of consumer health, let’s put it all together.?

There is an opportunity to combine immediate and longer-term metrics to understand your company's health. Organizations need a unified dashboard that allows everyone to regularly see all three metric categories in a single location: financial+brand+consumer health metrics. These categories ensure current success but also the future potential of the company. You will be able to identify quickly what is working and what is not working

1. Financial - how is the company doing financially? Are we making a profit? Are we getting a return on our investments?
2. Brand - is the brand strong? Do consumers know our brand? What is their attitude toward the brand? Is the brand differentiated?
3. Consumer - are we feeding the top of the funnel? do we have active consumers? Is the base growing? Are consumers returning to buy our products/services? Do we have a strong share of wallet in our category? Are consumers happy with the brand and would they recommend it to others??

Widening Your Marketing Funnel Using the Holistic Health Approach

Another way to visualize Consumer Health is to think about the consumer funnel's shape, size, and velocity. Are we ‘widening’ this funnel through our current efforts? Are we narrowing the bottom of the funnel to increase retention? Are we getting consumers through the ‘funnel’ by reducing friction in their journey so they can buy easier and faster?

The purchase funnel and the number of consumers are critical to company growth and sustainability.?

If you widen the top - you will see initial growth and revenue, but if it’s a leaky bucket - you will lose all those consumers and have to retarget them. No one wants to duplicate their efforts and pouring more money into each and every sale.?

There is a lot of wasted energy if you lose the consumers as fast as you get them. You will be repeating a cycle to get those consumers to continue to return and buy. The less you lose people, the lower your costs to get new consumers and the higher the value of the existing consumers. An added bonus would be getting them to purchase and repurchase at a faster pace (velocity) without having to prompt them with media, promotions or other costly incentives.

Here are some quick wins to start your holistic measurement approach:

• Phase 1 - get all your metrics in order.?

While your company might measure a couple of metrics across the three categories, create a comprehensive set of metrics

• Phase 2 - start measuring them holistically across the organization.?

Ensure all other departments track and understand their impact on these metrics, look at them in the aggregate, and put weight into ALL of them versus some. This will force a short- and long-term view of the company's health.

• Phase 3 - track metrics and correlation to all the categories.?

Start looking at the metrics OVER time versus single snapshot. You will begin to observe trends and indicators that impact each other and allow potential predictors of your business. Again highlighting the ability to forecast longer term health of your organization. Another opportunity might be to create a holistic company health INDEX which could include all categories into a simplified score to monitor your business as the data becomes available. This might be an easier benchmark for the entire organization to rally around.

A unified dashboard with all metric types will gauge your business, ongoing activities and determine what is or isn’t working.?

Some activities might drive immediate sales (e.g., promotions) but not ongoing consumer growth (long-term growth or a more loyal consumer). Another example is a brand with incredible brand health but might not be affordable or drive purchase beyond a single time.?

This is where consumer health will help open the aperture to understanding where you need to focus?

You can start thinking of scenarios that counter each metric category individually. Some activities might drive immediate sales (e.g., promotions) but not ongoing consumer growth (long-term growth or a more loyal consumer). Another example is a brand with incredible brand health but might not be affordable or drive purchase beyond a single time.?

This is where consumer health will help open the aperture to understanding where you need to focus.

Key Takeaways / Wrap Up?

There is a trifecta of metric categories to monitor and understand your business for current and future success.

It starts by looking at the three categories (financial, brand, and consumer) from a holistic perspective. Taking all three into consideration helps you make thoughtful short and long-term decisions.?

While the effort to do this might feel challenging and can change many traditional ways of measuring impact, the time and effort to collect these consumer metrics are worth it for long-term success?

Adding consumer economics to the financial and brand evaluation of your company lets you understand how many consumers you have and who will be retained for the long haul. It’s also a northstar for the organization allowing all departments to rally around the same scorecard for success. Cross functional teams might have their specific KPIs but knowing how they feed into the aggregate goals will ensure everyone’s efforts are working holistically.

Also remember that the Marketing team will always be the consumer evangelist. Not only do they deserve a bigger seat at the grown up table but they are driving the revenue stream for an organization. Leverage this team to help grow, satisfy, and retain your consumers (i.e Consumer Health)

With all the advances in new technologies, consumers changing needs, and marketplace conditions, now is the time to enable a comprehensive company health index and make it part of your metric toolkit.

References:

Consumer funnel?

McKinsey LTV

Marketing Accountability

Forrester study on Consumer Experience

HBR: When Data Creates Competitive Advantage

How to Value a Company by Analyzing it's customers

Are you undervaluing your customers?

The only number that matters - Customer First Thinking

ChatGPT

Special thanks to Tallulah Doeringer for editing assistance