Thursday, August 27, 2009
Follow The Money - Part One
When asked, virtually all executives we interview complain that their margins are shrinking. This is a concern, since our market is a global, hyper competitive commodity and price driven, margin-battering place. How you made money last year may not make you money this year.
We’re fascinated when we hear business people say they are customer focused or customer driven, yet their profit models are focused on their needs rather than creating genuine wealth for their customers and sharing in that wealth. Even their business structure tends towards an “inner” view. Thirty years ago the customer didn’t really matter. I know this sounds weird, but it’s true. Customer demand was higher than capacity and the seller was in the driver’s seat. They set their business goals based on their targeted profit margins. Today our capacity to produce is greater than demand and, unless you have a distinctly innovative product or service, the customer has a confusing amount of choice. Rarely can we set our own prices due to increased, hungry competitors. Protecting margins involves much more than increasing prices and tinkering with administrative costs.
In reality, the customer is now at the centre of our business universe. It's about them finding you, not you marketing to them.
Dale Carnegie said: “Try honestly to see things from the other person’s point of view.”
It’s time to scrutinize whether we actually live this principle or just pay lip service to it.
Unfortunately, traditional market research is of little help since it uses what we call a “rearview mirror” approach. Usually customers are given a series of multiple choice questions. Even when augmented by interviews, the questions often do not get at clients’ genuine future issues.
Why is thinking from the customer’s point of view so hard? Mostly it’s because we’ve been trained to continually focus on improving our products or services. An all too common model is designing a product (service) that we think serves a need and aggressively taking it to market with traditional techniques. Invariably the market responds with apathy, or strong resistance. [Do you remember Crystal Pepsi?]
As an organization grows, the natural, organic flow is away from customers. A recent survey indicates that senior managers spend seventy percent of their time dealing with internal issues, and a high percentage of the remaining thirty percent involves dealing with non-customer issues.
Believe it or not, the best customers or prospects with whom to invest time are the ones most demanding, difficult, or dissatisfied. Over 20 years ago, a successful retailer taught me to actively pursue complaining customers. “Dave,” he said, “a complaining customer is doing you a favor. They are telling you they want to do business with you, but they’re frustrated or irritated at something. They represent at least fifty other customers who, for whatever reason, are reluctant to bring their complaints to your attention. The best ideas to dramatically improve my business came from complaining customers.” He taught us the direct, inexpensive customer focus process we still use for both ourselves and our clients.
Asking the right questions is critical. It is important to uncover our most demanding client’s needs, aspirations, and future business focus. Just asking them how they like our service is vague and weak. Asking them about their “needs” is not enough. Prospective customers usually don’t know their future needs. They operate in the same dynamic business climate as the rest of us.
Ineffective, order-taking salespeople, for example, contend that they do think from the customer’s viewpoint. They tell us, “All our customers care about is price. The customers don’t want what we sell; there is no demand for it.”
History gives us many examples of the flaw in this mindset. Years ago, vacuum cleaners were unknown and, when approached, retailers claimed there was no demand for them. However, once a few early-adopters began using the contraptions they purchased from a direct salesperson, demand increased. Now, almost every major retailer carries vacuums. This tells us is that “demand” is after-the-fact and often ineffective in capturing future opportunities.
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