The customer centric approach to business has been proven by extensive research over the last couple of decades (by the likes of Harvard, Forrester and others). What underpins this level of success with customer centricity is that the organisation have a solid customer strategy. That everyone in your organisation understands.
The Three Key Reasons for a Customer Strategy
There are three key reasons why your organisation needs a customer strategy.
- Revenue from products does not constitute the profitability of your business. When we deliver value for our customers they become ongoing streams of revenue and advocates of what you do. Perceiving customers in this way will drive success in any form of business (including not-for-profits).
- Not all customers are equal. By the way they get the value you deliver. Nor in the value they reciprocate to you (in the form of their financial lifetime value or their advocacy).
- In the absence of a customer strategy (that addresses the first two points), your teams and people will take action that seems best to them to meet their financial targets, quotas or KPIs. With this scenario you will have effectively fragmented your ‘strategy’ allowing individuals to interpret the goal. Rather than determining and cascading the optimal approach.
Cascading your strategy will mean that everyone will know the why and the how of strategy, which will lead to the realisation of your strategy.
Delivering value for customers drives revenue streams.
We often look to the number and value of products sales as being income, which it is. We regularly talk about products like they have a life of their own, ‘this product sells itself…‘ and so on. However we often forget about the customer who made the decision to buy the product.
What we know now is that decision for the customer is fairly complex, it’s not rational but far more emotive as decision-making connects with memory. Therefore, the number of sales is dependent on the decisions made by these, potentially irrational customers.
Particularly considering that most customers are influenced in their decision-making by others, influencers, family, friends and colleagues. How many of your customers in your portfolio are advocating your brand..?
If your customer makes repeat purchases, or they subscribe to your product or service, then their decision-making is based on their experiences with you. Their overall perception of the value that you have delivered. This value is a trade off between their perception of benefits over sacrifices This perception may not be reality, but it is reality for the customer.
Value for the business comes from customers. Customers who make decisions to buy, to repurchase and stay with you, who make decisions to tell people they know what you do.
Customer Centric Tenet 1: Not all customers are equal.
A few years ago I worked in a financial services group and was given the task of implementing an enterprise wide CRM (customer relationship management system). One of the things we realised early on was the need for an overarching approach that everyone could connect to. Particularly in terms of getting what we were trying to achieve. This eventually became the customer strategy.
Our first place of examination though was in our existing customer portfolio. What we found here was that there was a specific type of customer that represented less than 20% of the overall portfolio, yet were contributing a significant portion of value back to the business. We had discovered Pareto’s 80/20 principle was alive and well within our customer base. That is, 80% of value was coming from about 20% of customers.
From working with more than 50 organisations since, this principle is consistent across all sectors and industries, with some businesses easily getting to 90/10.
So what does this have to do with needing a customer strategy?
Well, you do not want your people (with the best intentions) forming relationships with customers that will eventually form part of the 80% of the customer portfolio that does not add much value.
Nor do you want them establishing those relationships in a way that does not ensure that the customer will get the value you deliver and therefore reciprocate.
What you do want, is for your people to know which customers represent the best value for you (and them) and how to establish a relationship that ensures a mutual exchange of value. This is done best by understanding the ideal (or awesome) customer for you. The ones that will be profitable promoters of what you do. And this grows that portion of your customer portfolio.
This is what your customer strategy can do for you. The determinant for long term success, just ask Amazon or Apple.
Cascade your strategy rather than fragmenting it.
All too often in leadership and management we take our lead from the industrial age. In those days (just last century) it seemed like a good idea to split up the organisation into departments with sub-teams and manage outputs. This translates today to holding one person accountable for the outcome, which was mainly a financial target. These financial targets, as you probably know, were revenue targets, staying within budgets (spend -for marketers and service teams) and potentially the number of units sold for sales teams. (Read more on the mistakes we make with using KPIs).
As we know the world has completely changed in the last 10-15 years. We have transitioned into an experience economy. Customers are different, employees are different. But in most cases we have not upgraded our practice.
Figuring out the overall organisation wide return to shareholders, or earning per share, or even gross profit. And then determining the revenue and cost base required to achieve those numbers, and then dividing it up across the organisation, does not recognise where value comes from. Nor the collective value of the sum of the parts.
Most people are still running their organisations by siloed financial targets.
As a manager, if I am provided with my financial goals (budgets, targets or quotas), then I will make the decisions about what actions to take, because I am accountable for those numbers. The stated strategy might be one thing, but my survival depends on getting those numbers. As each manager takes the same approach, any idea of achieving strategy (vision, mission and/or purpose) is lost. The goal then is to hit the numbers. And across the organisation (large or small) ‘strategy’ is fragmented.
The difference today is that we need our teams to collaborate to achieve a single goal.
Sure, teams might contribute to that goal in different ways, but we need them all working towards the same outcome. We need teams to be learning how to improve. We need teams to be providing the optimal value and experience for customers, so that those customers stay, spend more and advocate to their friends, family and colleagues about the value we deliver.
Therefore, we turn to use the customer strategy as a way to allow the strategy to cascade through the organisation, rather than fragment.
So what is a customer strategy?
Your Customer Strategy is a re-articulation of your Business Strategy, but in the context of the customer.
Recognising that the realisation of the goals in your business strategy will come from changes within your customer portfolio. Such as: a decrease in the portion of lower value customers; increases in the portion of higher value; changes to the relationship types (to improve value exchange), and growing the number of advocates. The Customer Strategy makes these business goals clear and aligns all resources towards making progress towards the goals.
The Customer Strategy provides guidance for approaches and tactics that make sense for the product-design, sales, service and marketing people so they can collaborate to achieve the single outcome. A higher value customer portfolio.
The Customer Strategy should:
- Identify your various customers groups – recognising their unique characteristics and how they define value different to other groups.
- For each group identify what absolute value represents to them.
- Understand from each customer group the value they represent to you (the business).
- Seek to understand the optimal, mutual two-way exchange of value.
- Select strategies for each customer group (which ones do you want to grow, maintain, or reengineer the relationship, or perhaps retire..?).
- Value propositions are then developed for each customer group (the why and the what).
- From these strategies then we develop the optimal tactics for the business to achieve the goal of improving the value of the customer portfolio.
(Read here about how the Amazon customer strategy was a benefit for Whole Foods.)
Armed with a Customer Strategy, an organisation can gain greater alignment of resources and purpose. The resources of your people, processes and budgets are aligned to deliver value for chosen customer groups. That will in turn increase the value of your customer portfolio.
When all your teams collaborate together on a common purpose for customers. You achieve more agility and learning about how to improve performance.
Learn more about the Profit by Design book here.
Are you fragmenting or cascading the development of you customer portfolio?
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