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     The Customer Is The Business
 Value-Based Pricing of Your Products
 Pricing is Key to Your Profits
 Industrial, Consumer, or Business-to-Business Marketing - Which One Do You Need?
 Seven Steps to Greater Profitability Through Target Marketing

The Customer Is The Business1

Dave Cranmer, Phase 3 Consulting LLC

How big is your business?Let's assume, for argument's sake, that you have 50,000 customers - enough to fill Orioles Park at Camden Yards. What if only 75 of them matter? And, if it's only this 75, how do you find them, and once you've found them, how do you keep track of them? Then, how do you know what they want? This is an extreme case - only 0.15% of the population is what you're after. More typically, thePareto rule applies - 80% of your profit comes from 20% of your customers.

Your challenge as a business owner or manager is to distinguish the right 20% from the trivial 80%. If you can, great. If you can't, what do you need to do to find them, and what do you need to do to focus on them? Ultimately, this knowledge of your customers is your best strategic asset, and you want to use it that way to establish one-to-one relationships with them.

A hundred years ago, most businesses were based on one-to-one relationships. You knew every customer by name and lots of details to boot. You knew who they wereandwhat they bought, when, and why. Fifty years ago, companies were product-focused. You made your products, and your customers bought what you made. In today's world, that product focus doesn't work anymore.Product expertise can be duplicated.Products come and go. Though the miracle of reverse engineering, you can't prevent a competitor from knowing what you know about your products.Customer expertise, though, is competitively defendable, unique, and permanent(provided you keep paying attention and keeping track).

To develop that customer expertise, you can go through a four-step process

  • identifythe right customers,
  • differentiateyour products and services (by value, then needs),
  • interactwith your customers (and remember what they told you), and
  • customizeproduct and/or service to meet their needs.

Determining who your customers areis the first part. All you need is a list of them that you can sort by different categories like profitability. Depending on the size of your customer list and your products, you can do it by hand, in a spreadsheet, or with a customer relationship management (CRM) package. Use the method that's best suited to your situation, but recognize that you're going to want to track this information in the future, too, so having it in electronic form is probably preferable.

The second step is todifferentiate them, based on their value to you. First, determine the current, or actual value to you. Second, determine their future, or strategic potential value to you. This will let you put your customers into one of at least three categories

  • most valuable (MVC, or the ones with themost current value),
  • must grow (MGC, or the ones with themost future value), and
  • everybody else.

The MVCs you can get from your customer list, sorted by current profitability. It will likely follow the Pareto rule, so count on looking for the top 20-30%.

Determining the MGCs takes a bit more effort. You need to look through your customer list and see who's got the future potential. It may be one or more of your MVCs or it may not. It may be one of your smaller customers that's growing quickly. Wherever they are on your list, recognize it's a judgment call, but the more you know about them and their current and future needs, the more likely it is, you'll put them in the right category. That leads to the third step.

Interact with your customers.Start a conversation with them to see where they're going and where their business is going.Remember to capture the information. That's your strategic asset.If you capture information about your customers - who they are, what they bought, who sold it to them, why you lost orders - in a database, you can use it to determine what's selling and what's not; who's selling and who's not; what's profitable and what's not; what products you need to improve or remove; what new products you need to create; and a variety of other things. Use it to determine what the customer wants, how they want it, what they want with the product. They're teaching you about themselves, and that's important. The more effort the customer invests in teaching you about them, the greater their incentive in making the relationship work. The more effort you demonstrate in responding to and remembering what they teach you, the more likely the customer will remain loyal, rather than switch to another supplier, and have to teach them from the beginning.

Finally, customize your products and services to match what the customer is telling you.Reward customers for collaborating with you.Provide a mix of products, related products, and services - along with information, instructions, and helpful hints. Provide smaller order sizes delivered more frequently. Tailor your invoicing and bill timing to them. Provide them with reminders to re-order or other replenishment options like you doing the stocking for them.

Your real objective is to increase value of customer base.That means acquiring customers more selectively and proactively, retaining profitable customers for longer periods, cross-selling other products and services to customers to meet their needs, up-selling additional products and services, and eliminating unprofitable customers.As Martha Rogers of the Peppers and Rogers Group puts it, "The most valuable thing a company makes is a customer."

1Originally published in The Business Monthly (Howard County, Maryland) Volume 11, Number 3, page 18, February 2003


© 2002-2004 Phase 3 Consulting, LLC All rights reserved.
David C. Cranmer, President
18629 Queen Elizabeth Dr.
Brookeville, MD 20833

301.807.3562 (Telephone)
301.570.0342 (Facsimile)