A Radical Thought: Focus on Your Profitable Customers

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When was the last time you talked to your customers? No. I mean really talked to them, as opposed to researched them? Many executives no longer bother talking to customers. They outsource that to specialist research companies or brand consultancies, each with their own tools and processes for extracting the same information from the same customers, leading to the same strategies and, therefore, the same customer experiences.

The ad received a bronze award at that year’s British Television Advertising Awards, but customers replied with a less than enthusiastic, ‘Big deal!’

But not all customers are the same. Like pearls, people are often more different than they appear, and also like pearls, some are more valuable than others. The little differences that make each account holder unique should also inform the customer experience that you provide. Creating a relevant and valuable experience most certainly requires some research and data. But that’s where the process begins—not where it ends.

Countless organizations are drowning in research data. But few are truly differentiated because they are unwilling to make the difficult choices that clear positioning requires. To produce real focus, consider the following four recommendations.

  1. Segment by profitability, not demographics

    While many organizations undertake customer research and collect mountains of segmentation data, relatively few can identify their most profitable customers (rather than their largest), and those that can rarely turn this into insight. The essence of strategy is making a choice about what to do and, more importantly, what not to do. Yet organizations often try to be all things to all customer segments—only to end up looking the same as everyone else.



    For example, Harrah’s Entertainment, the largest casino operator in the States, focused on its profitable customers and identified that just 26 percent of its customers generated 82 percent of its revenues. These are typically mid-market people who tend to gamble for entertainment on a regular basis on their commute from work. Unlike competitors who woo the “high-rollers” with free rooms and helicopter transfers or spend a fortune on entertainment complexes for the family vacationer, Harrah’s focused on creating a more valuable experience for its most profitable customers for whom gaming is the attraction.

  2. Discover what your customers truly value

    Suppose you’ve decided which customers to focus on. Do you know the three or four most important attributes driving their intention to repurchase or refer you? Without the answer to this question, you may have data, but you don’t have insight. And insight is the pearl of wisdom that leads to a great customer experience—and true differentiation.



    In 2001, U.K.-based bank Barclays aired a television advertisement called “big idea.” It was a beautifully crafted ad featuring Anthony Hopkins as a big shot businessman with a big house, a big car and a big meeting to attend. The tagline was, “A big world needs a big bank.” The ad received a bronze award at that year’s British Television Advertising Awards, but customers replied with a less than enthusiastic, “Big deal!” The ad simply reinforced common customer pre-conceptions about big banks: that they don’t care about the average person and are interested only in making as much money as they can.



    First Direct, the online U.K. bank, has a much different story. People at First Direct spoke to their most loyal customers and asked them what they liked about the bank. Their research identified that being able to engage with a real person was an important driver of satisfaction. As a result, First Direct’s advertising agency created ads that featured customers speaking of their experience calling First Direct and getting through to a real person, any time of day or night. The ad’s engaging message and apparent empathy struck a chord with target customers.



    It’s no accident that First Direct claims to win a new customer every eight seconds. Or that 36 percent of its new customers join as a result of a personal referral. First Direct’s customers have become the bank’s biggest advocates, reducing its costs of sale and increasing its share of these customers’ spend.



    In the case of Harrah’s, the gaming experience was redesigned to increase customer satisfaction and differentiate the brand. So for example, its Total Gold loyalty program was transformed into “Total Rewards,” which segmented customers into Gold, Platinum and Diamond categories, depending on their loyalty to Harrah’s. Harrah’s executives discovered that delays at reception were a turn-off for customers, so Gold customers benefit from fast-track lines; Platinum customers have shorter lines still; and Diamond customers have no lines at all. Harrah’s share of these customers spend rose significantly.

  3. Move beyond customer satisfaction measures

    Are your customers willing to go out of their way to choose your products and services and refer them to others? Nothing else counts. Yet we see many executives adding up the percentage of customers who offer “somewhat satisfied,” “satisfied” and “very satisfied” poll responses, then congratulating themselves on their customer-satisfaction levels. In a number of customer experience projects that we have completed in a variety of markets, we found the harsh reality to be that 80 percent of customers are vulnerable to competitive offers, and fewer than 20 percent act as advocates. We define advocates as those customers who are willing to give you top-box scores. Unless you are measuring the advocacy of your most profitable customers, you are missing one of the most predictive measures of organic growth.

  4. Leading, rather than managing

    Advocacy comes from customers having a clear brand preference, and that, in turn, comes from the brand’s willingness to differentiate: to be something special to somebody special. Unfortunately, in their attempts to minimize risk, many institutions have swung the pendulum too far in the direction of trying to be attractive to all segments. The accountants have been running the show. They have lost sight of the wood by looking too hard at the trees. Reading research reports or studying profit and loss sheets is no substitute for talking to your best customers and finding out what they truly value. As we enter a period of more difficult trading, now is the time to focus on these pearls within your customer base.

This requires a different approach: leading rather than managing; passion rather than endless analysis; focus rather than fragmentation. Paradoxically, the evidence seems to show that the more effort we put into creating a great customer experience and the less we manage by the numbers, the better our profits will be.

See my book with Andy Milligan, See, Feel, Think, Do: The Power of Instinct in Business, for more on this topic.

Shaun Smith
Shaun Smith is the founder of Smith+Co the leading UK based Customer Experience consultancy. Shaun speaks and consults internationally on the subject of the brand purpose and customer experience. Shaun's latest book 'On Purpose- delivering a branded customer experience people love' was co-written with Andy Milligan.

3 COMMENTS

  1. Shaun, As I was reading your article, two things came to mind.

    1. Several years ago I forget if it was in Entrepreneur or Inc magazines, there was an article “Turn Off the Oomputer and Get Out and Sell.” One does not have to read the article as the headline says it all.

    2. Is the task to focus on profitable customers but rather to focus on why other customers are not profitable? If one lives by, and we have to, the 80/20 Rule (a variation of which is 80% of your profitable sales come from 20% of your sales and/or customers), increasing the profit from less profitable customers, since it is a ratio, the sales and profits from the more profitable will come about.

    There is, and reading your article tells me that you are aware of this, it is the practice of many people at all levels of business to hide behind something, in this case being the computer and the statistics it throws out, so they won’t have to get out and sell. If people put as much energy in getting out and selling as they do for avoiding selling, maybe your article would not be necessary.

    Thanks for the thought provoking article.

    Alan

    Alan J. Zell, Ambassador of Selling, Attitudes for Selling offer consulting, workshops, speaking on all business topics that affect sales. He can be reached at [email protected] For more information, please visit his website, http://www.sellingselling.com Mr. Zell is the recipient of the the Murray Award for Marketing Excellence, He is a member of PNW Sales & Marketing Group, Institute of Management Consultants, and Linkedin.com

  2. A Radical Thought: Focus on Your Profitable Customers
    Shaun Smith, smith+co
    I despise the theme when we segregate the small and big customers.
    I go to the supermarket not as big customer; I only want to buy bread and a tin of sardine for my dinner. Here is what I end up with. The items on promotions. The shaving machine is for 100 now it is 90. I buy this saving 10. The value pack of corn flakes 1000 grams is 18 only when I like a fool was buying the 500 grams for 12. I buy this. The butter nearing the expiry date is half of the price and dented tin of the milk powder is 75% off as no one wants the dented tins, at least the ladies want the neighbours to look like they are form very elite families and buy the solid tins that will last as much as the dented one.
    Shaun the thinking of small and big will never work in India and China, as all there are small.
    Here is what I mean.
    The Johnson and Johnson like machinery to make the sanitary pads I want to install in India, This is just an example, and bears no resembles to any person dead or alive like they say in the movies.
    All I need is a sale of 1% of the share of the market. That is what out of millions of ladies from the age of 9 to 50? Is it difficult? Yes, if you think in terms of going for the cars driven women. They do not need to come to you anyway, they will send the maids to the nearest kiosk or grocery shops to purchase at the time they need. J&J are smart. They look for the small kids; advertise the product in the bottles bear shaped or puppy shaped shampoos. Do you think the puppies use these or the ladies use these? No.; The kids love to look at the dog while mummy is shampooing the kid. No tears came out of that. May be?
    The idea is to draw the attention to other then the oil pouring on the face. The best way is distraction and bingo it works. And what do we have new product for the babies, no cry no more.
    Vicks do the same. There are tiny cans penny sized that are for you to carry in the office if you develope the headache in the office or if you cannot afford the big jars. Are we going to look at the office and headache? No. It is in the minds of the buyer. “Let me keep one small just in case”. A small sale to the thousand a day mounts up to a staggering in the years.
    Yes. Here I change the course.
    In the Texas and the hot weather, you need a power packed deodorants that last for 24 hours as the sweat and perspiration oozes of your boss and customers alike.
    While mild one would suffice in UK as the weather is coo and you may skip your bath for a week and still carry on using the deodorant for months.
    The Rap singers and the Net ball players added to the Golf want the Rolex that shows them as professions players. You try to ear one and go to the social club. Many will eye you with envy and you have no idea of the number six from the caddy’s pay.
    What I am saying is this. No one is small, and no one is big what he or she buys provided you sell.
    The above these days is called chemistry. My chemistry is going for the Schick quarto-shaving machine and not Gillette super Mac 3. Is the friend interested in how I shave? No. the purchase is to show the shopkeeper that I have the taste and he treats me as a hero.
    Same as the tip we give to the waiters etc. to get the better service. Small tips gives you lousy service big makes you the champion for that day. Rest is with your chemistry that you know how to use.
    What exactly is the profitable sell is sell sell sell sell. What is profitable customer? A satisfied customer. There is no profitable one and unprofitable one; it is you to make the profits.
    I thank you
    Firozali A. Mulla MBA PhD
    P.O.Box 6044
    Dar-Es-Salaam
    Tanzania
    East Africa

  3. Good article, a couple of thoughts–

    Liked the idea that the size of the client does not necessarily translate into highest value. Sometimes larger clients, while providing higher revenue streams, also can drain revenue streams by requiring higher levels of management resources.

    Also found it interesting that the 80 / 20 rule also applies to advocacy. I think subconsciously we realize this is the truth–80 percent of our customers would bolt given a realistic opportunity–but unfortunately in many cases it doesn’t affect our actions and decision-making. If this really is true, then all organizations need to approach client generation and management with the best possible outcome in mind–maintaining loyalty by being truly customer-oriented.

    -Steve

    InsideSales.com

    See the MIT research study that demonstrates the value of Web leads decreases 1000 percent in the first 24 hours.

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