Defining Customer Type can Reduce Risk

June 11th, 2011 by

When I was working with a large cell phone company in Canada, one of the common complaints by the sales team was that marketing would spend money on new customer acquisition and not reward existing customers. I am now working with smaller companies and one of the most common mistakes made by these companies is they do not effectively market to existing customers.

When building a CRM strategy I use the Product Market Matrix, by Igor Ansoff, to ensure that companies prioritize existing customers when they are marketing new products in order to lower risks and drive greater returns on the CRM implementation.

The Product Market Matrix breakdown is as follows:

• MARKET PENETRATION – Relatively low risk strategy growth strategy directed towards selling existing products to existing customers primarily through well-known markets and products.
• MARKET DEVELOPMENT – Medium risk growth strategy to sell existing products to new customers.
• PRODUCT DEVELOPMENT – Medium risk growth strategy to introduce new products to existing customers.
• DIVERSIFICATION – Highest risk strategy that markets new products to new markets and requires acquiring experience in both sectors.

The term CRM stands for Customer Relationship Management and at a high level there are two types of customers; existing and prospective. Market Penetration and Product Development relate to existing customers while Market Development and Diversification relate to prospective customers. When companies are tasked to grow revenue they want to jump directly to new customers as the answer, and according to the Product Market Matrix model that is a higher risk strategy.

One of the key elements of deploying a CRM is defining account type; companies need to spend time to define the account type as being a customer or prospect? An example is I am dealing with a couple of companies that service new home builders and existing home owners; when these companies introduce new products to the home owner market segment they do a flyer drop over a large geographic area. In the geographic area many of the homes already have a product installed through a new home builder contract they serviced years earlier, yet this customer is being approached as a new customer.

If we use the Product Market Matrix model and define the home owners that live in the homes that have products installed by my customers through a home builder contract, we can then define the home owner as an existing customer. They are now in the Product Development quadrant and are lower risk to market new products too. This approach allows us to use a CRM to measure the effectiveness of a new product launch to existing customers versus prospective customers.

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