This is Part 2 of “The Roadmap to Customer Centricity” series that I undertook a few weeks ago. As indicated in my previous article, the objective of the series is to offer tips on how organizations can become customer centric or how they can borrow some of the principles embedded in a customer centric model.
Once leadership has had a customer centricity awakening as specified in Part 1, the next step would be to dissect the definition of “the customer” and express the role that customer plays. There’s no question that the management of customers as valuable assets through an effective customer management strategy, results in improved business performance. Nevertheless, there has to be an acknowledgement that customers are different and require different treatment.
Because most organizations are product centric, it’s no surprise that most businesses are built on the premise of acquiring as many customers as possible to improve the bottom line. This is the motivation, regardless of what type or kind of customers are acquired.
Customer centricity; however, contends differently. A friend of mine asked me how many friends I have and, of those friends, with how many do I spend most of my time and effort. I indicated a small number of my friends took my time, energy and resources. Almost 80 percent of my friends are good friends, but I do not spend as much time (i.e. scarce resources) on them as the other 20 percent. I take more time with the 20 percent and invest in them as much as I can.
The same principle is true with customer centricity. Unlike product centricity – customer centricity is built on the basis that to be successful, organizations must focus on the “right” customer (i.e. the 20 percent). The “right” customer implies the “most profitable” customer. Peter Fader defines customer centricity as “… a strategy that aligns a company’s development and delivery of its products and services with the current and future needs of a “select” set of customers in order to maximize their long-term financial value to the firm.” The “right” or “select” customers are the significant ones. They are the most profitable, and with whom organizations need to spend more time thinking about, planning around, producing and working for. They matter the most and set the tone of the organization’s entire strategy.
I remember explaining the above principle at one of my speaking engagements and some of my audience members were puzzled by this opinion. They shook their heads in disbelief and hands went up quickly to contest this notion. It was understandable that they would react with disbelief because there is a paradox in the concept. Many organizations find the idea of focusing on a “select” few very unsettling and unrealistic. The question you would ask is, what about the other customers (i.e. the 80 percent)?
The idea is not to ignore the rest of the customers or stop doing business with them. Because customer centric transformation is expensive and requires significant investment and resources, it will become too exorbitant not to serve the other 80 percent of customers. Realistically speaking, as you spend more money on understanding and knowing your most profitable customers – you will need the other customers to be profitable as you make the transition. At least in the short term, many other customers are likely to generate more profit than the right customers.
To be specific; organizations will need those other customers to continue buying the products and services bringing in the cash flow. They are your low-hanging fruits and easy money, so to speak. Though they are not the core customers, it doesn’t imply that they should not be provided excellent service. They should, but with the understanding that you cannot invest your best effort in them. The idea is for an organization to allocate resources in the most efficient way possible. Though organizations need the rest of the customers, they must also realize more value is created through the “right” or “select” customers. It then follows that customer centricity argues that customers are not equal and should not be treated equally.
How to achieve customer centricity through the “right” customers
The idea that some customers matter more than others is unusual and most organizations battle with the concept. For those organizations that would consider treating different customers differently, it also means altering every aspect of the business, including research and development, reworking metrics and the general running of the business. It also means taking a radical approach in understanding and getting to know the customer. But that is what customer centricity is all about – it is about radicalizing how business is done to maximum profits in a sustainable way. Below are some of the principles with which a company could start:
- Understand that value is extracted from customers not products: First, there has to be an understanding and appreciation that true value is extracted from customers; not from products and services. Extracting customer value requires a dynamic marketing strategy that uses financial and non-financial assessment procedures and customer data to optimize the acquisition, retention and cross-selling opportunities to an organization’s customers. This maximizes the value to the company throughout the customer’s life cycle
- Determine what they want: Peter Fader conveys this point very clearly. He says customer centric organizations “…don’t make and sell products they think their customers will want; they make and sell products they know their customers will want.” This would only occur after extensive market research has been conducted to uncover deep customer needs and wants. So often customer surveys take the form of ticking the box. Research should both be qualitative and quantitative. It requires organizations to immerse themselves into the customer’s world. Furthermore, research should uncover the respondents feelings and the factors that influence their decision making
- Make the most of segmentation: The insights derived from understanding customer behavior will assist organizations to segment different customers. This will result in treating customers differently and creating specific and differentiated customer experiences according to different customer behavior.
- Gaining customer Insights: This can be achieved through an effective Customer Relationship Management (CRM) system. There are mixed feelings about CRM, but if organizations used CRM systems for what they were intended to do (which is to gather data and better understand the unique characteristics and expected value), success would be achieved. This information would enable organizations to allocate resources appropriately. Data management will permit organizations to identify the focal customers and those who are not. It will also enable them to accurately estimate customer life time value (CLV) for each customer and by extension calculate overall customer equity.
- Effective customer acquisition, retention and penetration: This phase is highly influenced by how well an organization is managing its customer data. If CRM is being used appropriately and providing great customer insights, then customer acquisition, retention and penetration will fall into place. Acquisition of the right customers from the onset will improve customer retention and development if done right.
Remember, customer centricity is based on allocating more resources to the managing of the “right” customer for business performance. Without understanding customer insights and failing to separate the “select” customer from the rest of the customers, customer centricity will not be attainable. It is also important to note that customer insights and customer data will not make an organization customer-centric. All other business areas and functions are required to work in collaboration and in sync to achieve customer centricity.
Join me in Part 3 of the series as we continue to explore how your organization can be customer centric.