Monday, November 27, 2017

If customers are so important, why don't we know more about them?

[Editor's Note: In an age where there is so much talk about the being close to the customer, why is service so bad, leaving customers feeling more estranged than ever from providers of products and services. CRM, customer-friendly, customer intimate, and customer-centric language abounds. Could it be that company resources are stretched, trying to please too many customers? Perhaps we would have better performance if we focused on our best customers. - dpm]
  •  KNOW WHO YOUR BEST CUSTOMERS ARE. All customers are not created equal. Research indicates that it is not unusual to find that over 50% of a typical company's customers are unprofitable when all cost factors are considered. In some companies, over 85% of the profit may come from as few as 10% of the customers. Start by ranking your customers by net profit generated. Include all costs of doing business - direct product and service cost, handling, order processing, administration, delivery. What are the patterns? Which customers present the greatest opportunity for profitable revenue expansion?
  • DON'T TREAT ALL CUSTOMERS THE SAME. You can't be all things to all people. Once you have determined your best customers, focus on deepening the relationship. Gaining additional share of a customer's business is usually much more profitable than finding a new customer. Offer meaningful services that demonstrate their status. Such services as a priority position in the manufacturing schedule, priority delivery, access to training, etc. need not add much cost to your operation, but can clearly bring your "best" customers closer to you.
  •  CHOOSE YOUR CUSTOMERS. Develop profiles of your best customers. Are there common characteristics?  Once the profiles are developed, go out and find more customers just like your best customers. Use market research and on-line tools to develop targets so that you focus your resources.
  • MAKE YOURSELF INDISPENSABLE TO YOUR CHOICE CUSTOMERS. Make it your business to learn your customer's business. Find the pain in your choice customer's business and look for ways to help him solve it. Do that a few times and you will be perceived as not only valuable, but indispensable.
  • MAKE "KNOWING YOUR CUSTOMER'S BUSINESS" PART OF YOUR CULTURE.Create special programs that identify your best customers to all of your employees. Make it every employee's job to find ways to better serve the choice customer. Make certain that compensation and reward systems recognize the importance of pleasing the key customer. 
  • ALLOW OTHER CUSTOMERS TO "OPT-IN". Companies that have adopted this "choice customer" strategy have been pleasantly surprised to find that many of their other customers select them and opt-in. Although these customers may pay slightly higher prices and have different service levels, they find the customer-centric culture appealing. Many companies have developed different tier priority service designations for these opt-in customers, but find additional ways to demonstrate superior relationships.
We help clients think differently. The Mead Consulting Group helps clients develop a process to identify net profitability by customer and product and then to develop strategies and tactics - and the cultural norms needed - to increase the client's share of the most profitable business. If you would like more information on how this might be applied in your organization and how we might help you and your company accelerate the process of adding value and moving your company to the next level of performance,  please contact me by email or (303) 660 -8135.

Monday, November 6, 2017

Avoid Becoming a Commodity

[Editor's Note:In a recent conversation, the leader of a company explained that his was a commoditized business - just like many others in his industry. I asked him why anyone would choose to buy from him  unless he offered the absolute lowest price. He looked a bit bewildered by my comment and then responded that fighting price competition was his company's biggest issue. It made me think of an article about differentiation. I hope you find it useful.                                    -dpm] 
All products become commodities. All industries become mature.
You wake up one morning and realize that your products have become commodities. Your competitors all have basically the same "stuff" to sell and your sales people are constantly pressured to lower prices. Margins are being squeezed. You can't believe the price that a competitor just quoted to lure one of your customers. You know all of the competitors - they are not in any better position than you. This just isn't fun anymore!
Welcome to life in a maturing industry where growth is slowing - or may even be declining, all of the competitors and customers are known, and customers change suppliers or products for a lower price. Maturity comes to all industries - materials, products, or services. Whether you provide concrete or steel, or develop and sell software, your industry matures and your product sooner or later becomes a commodity. In today's environment, the path to market maturity is much faster than ever before.
Good News. Your customers know the answer.
There is some good news. There is big money to be made in mature markets. Some companies in mature industries command premium prices, have low customer attrition, make excellent margins, and continue to grow. But, it requires some different thinking about your customers, products, and markets.
Don't look for the answer inside your company. Creating services and solutions around products is not the answer if you are not pointed in the right direction. Get to know your best customers better (that is, your most profitable customers on a net profit basis). Ask them about their business, their problems, their pain. Survey and interview customers. Go to their facilities. Meet with their top managers. Listen and Observe. What are they really buying? Where do they need help?
When is a product more than a product.
Years ago, one of our clients was selling sophisticated diagnostic scopes to physicians, but technological advances slowed and it was difficult to expand the market. Pricing became very competitive. It was difficult to convince physicians to make a big capital purchase. The company interviewed dozens and dozens of physicians and office managers and discovered an interesting issue. Since the scope had to be sterilized between patients and the sterilization procedure for scopes is lengthy, physicians and their staffs continually had a problem having a sterilized scope available. The company decided not to sell scopes to physicians, but to offer a fee-based service - providing clean, sterilized scopes to physicians. They wrapped a product with a service and solved the real problem for physicians. Margins soared. Pricing was no longer an issue...they were selling more than a scope.
Do things your customer doesn't do well or want to do.
A client in the industrial distribution business found that some of its customers were having difficulties hiring and retaining qualified welders, and there were safety concerns with their customers' painting and welding production environments. The client offered to begin to deliver "finished" components (cut to size, fabricated, welded, and painted) right to the final assembly line. Revenue and profits increased. What is even more significant is that the customer now has an indispensable relationship with the supplier.
Change the way your product is packaged, managed, delivered, or used.
Another manufacturing/distribution client found that their customers were poor planners. Routinely the customer would show up at their warehouse in the morning to pick-up product and materials for the day's job. By the time they arrived at the job site, it was after 10:00 am. The client offered two services to help: An early morning pick-up - any order that arrives by voice mail, fax, or email by 11:00 pm is staged and ready for pick-up by 6:00 am. They also offer a project management service. The distributor manages the delivery of materials according to a job project schedule which the distributor continuously monitors for the construction customer. This ensures that the right materials are delivered to the right site at the right time. The distributor cannot command a significant premium for these services, but doing business in this manner actually saves them money and builds customer loyalty.  
Can technology change things up?  
Another company produced capital equipment which provided a static diagnostic testing for their customers in the power industry, The problem - it required that the customer's equipment be turned off during the diagnostic test. The company came up with a means to add sensors to their customer's equipment and to provide a continuous monitoring service for a monthly fee. Margins and market size both increased dramatically. Customers were ecstatic about not losing productive time on their equipment   
Your Customers may hold the key to differentiating your commodity product or service
  • Determine what the CUSTOMER is buying? Survey and interview the customers - Listen to their pain and their needs in their business
  • Change the way your product is packaged, managed, delivered, or used
  • See how technology might change the economics or competitive environment
  • Perform some of the processes and/or functions now performed by your customers
  • Make the product more than a product
What are your thoughts about these key points? Share your reactions.
We help clients think differently. If you would like to discuss how we might help you and your company accelerate the process of adding value and moving your company to the next level of performance, please contact us.