Could your customers be placing you at risk?

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It's a tough environment out there and the challenge organisations face is to understand the potential within their current customer base without exposing their businesses to unnecessary risk. But, according to the Institute of Direct Marketing's Iain Lovatt, there is reason to be optimistic - providing you have a single view of the customer.

By Iain Lovatt, IDM Data Council

While much of the international media seems determined to continually report on the negative, I would urge businesses to stay optimistic. Previous recessions have revealed that organisations can indeed prosper in tough economic times but to accomplish this, companies need to remain determined and make commercially realistic decisions.

Importantly, this pragmatic approach must also be applied to marketing activity. It will be organisations that remain unwavering to the challenge ahead and not preoccupied with budget cuts and staff redundancies that will thrive.

"The challenge marketers face is to understand the potential within its current customer base without exposing the business to unnecessary risk."

What is evident is that marketing must be smarter on acquisition and not focus on this alone. Profiling and targeting more effectively will increase acquisition and return on investment, but more emphasis on client retention will deliver more significant opportunities to up-sell and cross-sell, sustain a company’s current market position and secure jobs.

Unfortunately, the current economic climate has brought to light the reality that customers could be placing businesses in danger. Consequently, the challenge marketers face is to understand the potential within its current customer base without exposing the business to unnecessary risk. The banks have brought to light the serious problem 'toxic' debt can bring to an organisation, and subsequently credit and risk management has become a very important issue. Businesses therefore need to quickly understand how to ensure they are not over exposing themselves.

The answer to this challenge lies with the development of a single customer view (SCV). This is a topic that has been debated for a long time, but many companies have simply played lip service to the approach. The reality is that businesses either embrace the SCV or they will simply lose market position to the competition.

Credit risk or customer opportunity?

The reason for this statement is simple - without a holistic view of every customer it will be impossible for a business to identify the customers they need to retain and grow compared with those who present a credit or a payment risk; a fundamental issue for businesses wishing to succeed in this current climate.

With a single customer view in place, you will be able to begin the process of assessing credit and risk, which presents even more of a challenge in the B2B world. This is because traditional credit scoring will only help B2B marketers understand how much credit to provide to an organisation.

"With a single customer view in place, you will be able to begin the process of assessing credit and risk, which presents even more of a challenge in the B2B world."

This is very useful information, but it does not address the looming threat of low level fraud, which can broadly be defined as a person’s ‘intent to pay’. And there lies the difference: credit scoring will identify ‘ability to pay’, but not ‘intent to pay’. With an economy tipping into depression from recession, B2B marketing professionals surely need to know which clients or customers they are communicating promotions to who might have a reasonable credit score at an organisation level, but who have a dubious track record as individuals around the subject of intent to pay.

This is, of course, almost exclusively pertinent when targeting the SME community. But this sector accounts for 70% of the UK’s economy and therefore could present a sizeable problem if allowed to mature unchecked. The solution to this problem is to overlay risk and credit variables onto your SCV. Without a true view of your customers, or clients, you have no real chance to flourish instead of sinking due to bad debt.

Businesses do need to be aware that while the principle of credit analysis may seem logical the reality is that credit and risk management is not easily achieved. If the scoring is not undertaken correctly, skewed results may push companies to chase high-risk customers that could have a detrimental impact to the business.

The financial sector has shown the world that risky customers can ruin businesses. It is imperative therefore that marketers invest budget in data analysis, as it will be the true saviour in tough economic times. However, my advice would be to invest wisely and speak to the experts. With business survival reliant on customer knowledge there is no room for error.

Iain Lovatt is chair of the Institute of Direct Marketing's IDM Data and Database Marketing Council, and chairman of Blue Sheep.

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