Choose Your Customers Wisely
These four powerful words were uttered by a student in my Executive MBA course. Break down the underlying messages in this phrase and you’ll have some powerful tools to help your organization compete effectively.
1. Choose your customers. There's no law that says you have to accept every customer. In other words, not everyone ought to be your customer. If you’re in the business-to-business space, corporate customers who pay your bill on time and have been with you the last ten years are not necessarily good customers. They might consume an inordinate amount of your time and resources before they’re finally grudgingly satisfied. They might constantly play you off other vendors to press you to lower your price. They might frequently threaten to leave unless they get better terms, regardless of the impact on your organization’s health. In short, even though they pay on time and have been with you for years, they might be lousy customers. FedEx, for example, did a Return-on-Investment analysis on their corporate customers and found a shocking allocation of the company’s resources to marginal customers. The moral: Don’t just automatically take on any customers who are willing to buy just to beef up your top line. Selectively choose your customers, because ultimately it’s bottom line metrics that will determine your organization’s health. In fact, as plastics manufacturer Nypro found, firing marginal or bloodsucking customers is the best way to grow your business with the kinds of customers who are willing to pay for innovative value.
If you’re in the business-to-consumer space, you might still have the luxury of choosing your customers, like banks and dentists do. If you do have that luxury, don’t apologize for it. Or, minimally, if you can’t pick and choose, then at least discriminate among customers. Pamper and reward your “good” ones. Make them feel special. Don’t apologize for it.
2. Choose your customers wisely. Choose customers that “fit” your values and your growth strategy. If you’re seeking transparent collaborative relationships with corporate customers, don’t accept those who are closed or untrustworthy. If your business plan calls for higher-end value-adding services, don’t choose or try to please customers who are attracted to commodity services at basement prices. If you’re in the business to consumer space, target your marketing primarily (or only) towards the kinds of customers that fit your growth plan, and make sure that you take special pains to make them feel welcome and desired. Anyone can walk into a Best Buy store. But consistent with the company’s new growth strategy, CEO Brad Anderson told store managers to reduce their attention on promotions, rebates and gimmicks that would attract lowest-price customers, and instead concentrate their attention on providing more service value to higher-end “angel” customers. Anderson figured out that his company would be more focused, less distracted, and healthier without also seeking low-price customers who would be better served by Wal-Mart, where their inclinations fit the latter retailer’s strategy.
You hire and fire employees as a good business practice. Why not customers? Moral of story: Choose your customers wisely.
1. Choose your customers. There's no law that says you have to accept every customer. In other words, not everyone ought to be your customer. If you’re in the business-to-business space, corporate customers who pay your bill on time and have been with you the last ten years are not necessarily good customers. They might consume an inordinate amount of your time and resources before they’re finally grudgingly satisfied. They might constantly play you off other vendors to press you to lower your price. They might frequently threaten to leave unless they get better terms, regardless of the impact on your organization’s health. In short, even though they pay on time and have been with you for years, they might be lousy customers. FedEx, for example, did a Return-on-Investment analysis on their corporate customers and found a shocking allocation of the company’s resources to marginal customers. The moral: Don’t just automatically take on any customers who are willing to buy just to beef up your top line. Selectively choose your customers, because ultimately it’s bottom line metrics that will determine your organization’s health. In fact, as plastics manufacturer Nypro found, firing marginal or bloodsucking customers is the best way to grow your business with the kinds of customers who are willing to pay for innovative value.
If you’re in the business-to-consumer space, you might still have the luxury of choosing your customers, like banks and dentists do. If you do have that luxury, don’t apologize for it. Or, minimally, if you can’t pick and choose, then at least discriminate among customers. Pamper and reward your “good” ones. Make them feel special. Don’t apologize for it.
2. Choose your customers wisely. Choose customers that “fit” your values and your growth strategy. If you’re seeking transparent collaborative relationships with corporate customers, don’t accept those who are closed or untrustworthy. If your business plan calls for higher-end value-adding services, don’t choose or try to please customers who are attracted to commodity services at basement prices. If you’re in the business to consumer space, target your marketing primarily (or only) towards the kinds of customers that fit your growth plan, and make sure that you take special pains to make them feel welcome and desired. Anyone can walk into a Best Buy store. But consistent with the company’s new growth strategy, CEO Brad Anderson told store managers to reduce their attention on promotions, rebates and gimmicks that would attract lowest-price customers, and instead concentrate their attention on providing more service value to higher-end “angel” customers. Anderson figured out that his company would be more focused, less distracted, and healthier without also seeking low-price customers who would be better served by Wal-Mart, where their inclinations fit the latter retailer’s strategy.
You hire and fire employees as a good business practice. Why not customers? Moral of story: Choose your customers wisely.
posted by Oren Harari at 5:15 PM
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