Author Archives: jadetrillium

NOT ALL CUSTOMERS ARE CREATED EQUAL.

Bar Graph PeopleDo you understand each customer’s value to you?

Any management group will readily admit that some customers are more valuable to the organization then others.  The question is, how do you identify and rank your customers value to your organization.  Is it just everybody’s best guess or do you have a defined process to identify how valuable each customer is to your organization?  Many companies simply base this critical information on the annual sales dollars for each customer assuming that a higher volume means higher profits.  The fallacy in this is that volume is not always a good measure of profitability due to factors such as volume discounts.  It also completely ignores factors such as incurred costs which are created by a customer requiring additional services or creating extra costs due to poor internal processes at the customer.  An example of this would be a customer that is constantly changing their orders thereby creating extra work (and cost) within your organization.  Another point that is ignored in this process is the “Blue Ribbon Customer”.  These are customers that may not be the most profitable customers on your list but are important for other reasons such as prestige, status or potential.

In order for your organization to better develop customer retention and development strategies it is imperative that you understand your customer base in terms of profitability, cost and importance.  This allows your organization to work with lagging customers to improve their position and protects the more profitable customers from capacity issues.  It also allows you to identify those areas that are most desirable for developing new business opportunities.

This understanding and consensus can be achieved by calculating a value for each customer based on three criteria – Profitability, Cost & Importance.  Once this value has been determined for each customer they can then be ranked by value.  The ranking can also be analysed for similarities and differences between various business segments for improvement indicators.  To a certain extent this is similar to a Customer Relationship Management (CRM) program but it more value focused than the standard CRM program.

Once you have a Value Ranking for each of your customers it might also be useful to do a survey on how each of your current customers would rank your value to them.  You may already be doing a customer satisfaction survey but do you compare the results between customers?  Which customer is ranked most satisfied through to least satisfied.  What attributes do the high rank customers like that the low rank customer is not seeing?

Finally, bring these two pieces of information together.  Hopefully those customers that are most valuable to you are also the same customers that rank you as highly valuable.  If your most valuable customer ranks you as relatively low value to them is there a potential for future problems?  Absolutely, and wouldn’t it be better to improve the situation now rather than wait for the inevitable blow up when the customer is already looking for your replacement?

WHAT IS THE VALUE TO YOU IN IMPLEMENTING THIS PROCESS?

  • Allows you to adjust your customer retention strategies by better identifying what business areas you want to focus on growing based on higher profitability.
  • Ranking of customers allows your organization to protect the more profitable customers from capacity issues created by lower ranking customers
  • Identifies low ranking customers so you have the option of working with them to improve the relationship weaknesses.   Alternatively you can adjust their cost structure to better reflect the relationship.
  • Better understanding of how your customer’s view your organization allowing you to better identify your value adds. This can help improve both quoting and marketing initiatives.
  • Identifies those services you consider as value add but customers do not will enable you to better focus on what customers considers value. (This may indicate a value add that you need to draw to customers attention.)

 

The key to achieving value from this process is to clearly define at the start how the information provided by this initiative will be used to change existing processes.

If you would like to discuss this initiative in greater detail I would be more than happy to meet with you and to explore this initiative in more detail.  Please feel free to contact Ed White at edwhite@jadetrilliumconsulting.com to discuss how a Customer Value Survey can help your organization.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts about customer value, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.

HOW VALUABLE ARE YOU TO YOUR CUSTOMER?

man with bald head stamped with barcode - identityCustomer value is a concept much beloved by the sales world but, I suspect, it is a concept that is very misunderstood by just about everyone.  To summarize, customer value is usually defined as determining, implementing and selling those features of a product or service that impart value to the customer.  The reason the sales group love this concept is it provides them a list of selling points when talking to the customer.  Something along the line of “You will love this product/service because it can do this, that and the other thing for you.”  The problem is, of course, that the emphasis is on determining what the value is, not what it should be.  This is further complicated by the fact that any organization can only guess at what will be of value to their customer because only the customer can define what is of value to them.  Finally, there is the additional issue that most customers have no idea what value they want.  One of my favorite quotes from Henry Ford is “If I had asked my customers what they wanted they would have said they wanted a faster horse”.  This leads to a serious problem.  If you cannot know what a customer considers value, and the customer does not know what value they want, then how can you be “a customer value company”?

There are a couple of different ways of effectively dealing with this.  The first and most common way is to develop and grow a corporate culture where, rather than worrying about what the customer wants, you determine what you would want if you were the customer and then design to that criteria.  The key to this is the term “corporate culture”.  Everyone has to buy in and lead change based on this concept.  There is no Customer Value Department or person to identify and build in value.  Everyone has that responsibility…and authority…and desire.  Apple is the poster child for companies that do this well.  Of course this still leaves the marketing problem of getting people to understand that this new product or value is a good thing.  After all who knew they needed an iPod or an iPhone or an iPad?  For that matter, who knew they needed a car not a better horse?

Another common way of creating products with value add is to let someone else find it first then to quickly improve it on your product or copy with a cheaper price.  While this is admittedly effective, it condemns you to always being a secondary company instead of a leader.  For some companies that is actually a positive point as being a leader can often be a risky position.  What happens if the new feature doesn’t catch on?  Obviously you lose most of what you invested in the development process.  For many companies that is an unacceptable risk and it is better to concentrate on sure winners rather than something new and untried.

A third, and very ineffective way of creating value add is to put someone in charge or maybe set up a “department of value”.  In the end this probably will not work well as you usually end up with a relatively smaller pool of ideas, most of which never get implemented due to red tape, and a culture where anyone outside the group in charge of value add is either afraid to offer changes or even actively discouraged from creating value add features.  Often, technology takes over and the customer experience is not really a consideration.  How many times have you been shunted into “voice mail hell”?  You just want a live person to talk to, not 30 choices that run you around in circles.  It is the same thing with companies that require an email to let them know you have a problem.  One live person for 30 seconds would resolve at least half the issues that end up taking several emails back and forth.  Or maybe the idea is to discourage people from contacting a company with issues.  Does that sound like a customer value company?

There are several other possible ways of creating customer value but instead let’s just stop and consider the question – How does your organization create and define the customer experience?  This is a strategic decision at the very highest levels of the organization but do the tactics in place reflect the strategy professed?  Technology may be cheaper than people but in the end the proper role of technology is to improve the experience and product for the customer, not to reduce costs at the expense of the customer.  Every organization tracks and rates their suppliers but do you track and rate yours customers measure of your value to them?  Only when you do this can you truly say you are a customer value oriented organization.

If you would like to discuss how to measure your value to your customer in greater detail I would be more than happy to meet with you and to explore this initiative in more detail.  Please feel free to contact me at edwhite@jadetrilliumconsulting.com to discuss how a Customer Value Survey can help your organization.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts about customer value, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.