A recent article called “Emotional Connection: A Predictive Metric for CFOs” published in CFO Magazine provides fascinating examples of the increasing role of the CFO beyond just accounting and finance.
The article highlights how “CFOs are playing key roles in leading their enterprises to focus on emotional connection as the key performance indicator to drive growth and prioritize customer-facing investments for bottom line contribution.”
The phrase “emotional connection” is not usually associated with CFOs. However, good CFOs are not just analyzing financial and sales numbers, but are also looking at the primary customer drivers of why customers buy from a company. If customer KPIs like pricing power, margin, and loyalty are important, then it’s important to analyze the underlying emotional motivations.
In the extended case study in the article, a retail company’s Board of Directors and CEO asked for the CFO to lead the strategic analysis in why sales growth and profit margins were soft.
Here is a powerful excerpt from the article about some of the insights generated:
“Unpacking current customer value was eye-opening. Average spend by customers was declining. The company was losing share-of-wallet. Customer tenure was ticking down, as the company was churning millions of customers. Among new customers, a growing number were completing only one purchase. All the while, acquisition costs were increasing, as the company found it harder to win new customers in the hyper-competitive marketplace. The CFO knew the ratio “lifetime value-to-acquisition and engagement costs” — then declining – would have to reverse course for profitable growth to ensue.
“To his surprise, the CFO learned that while customer value was declining, the firm’s customer satisfaction and brand consideration scores were actually near all-time highs. Net Promoter scores had increased significantly in recent years, too. Further, the firm was investing heavily in omni-channel experiences and product innovations without customer value gains. The CFO concluded: The firm would need to go beyond these traditional strategies to accelerate customer value, and in turn, profitable growth.”
Based on these insights and further customer analysis related to their emotional motivations, the retailer began to understand how to increase profitable growth, and, in particular, what was the profile of the most valuable customers.
“Early on, the CFO presented a business case to the CEO and board — by focusing existing operating and capital expenditures on emotional connection, the firm could accelerate profitable growth, return on capital, and ensuing shareholder value.”
This top-level strategy led to a change in the specific marketing strategies and tactics that were used leading to impressive results:
“The marketing team identified emotional target consumers on national databases, search engines, and digital properties. Emotional messaging was used to engage these customers, and the results were impressive. While conversion rates rose about 10%, customer value skyrocketed. Rolling customer spend at six and twelve months was 40% and 75% higher than norms, respectively. And twice as many emotional target customers converted into loyalists.”