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The Customer is King (not always!)

Sep 24, 2010 | By Iain Lovatt F IDM | Executive Chairman | BlueSheep

Customer service has become the pinnacle of business benchmarking. The ‘Customer is King’ is indelibly etched into the fabric of many carefully scripted mission statements. We all want our consumers to be happy – sure – but the universality of approach to this task has made a rod for our backs. Let me explain why. Many B2B UK companies consciously treat customers in the same way. To me this makes little sense as customers represent different values to your business – both real and inherent – so why should we do this? Instead, why don’t we adopt a more balanced approach to this reality because the potential benefits are huge?
We live in an ‘all you can eat for a fiver’ world where universal services have created a distorted view of value and cost. For example, the Royal Mail makes a standard charge for UK post whether your letter is sent to your next door neighbour or a destination a few hundred miles away. Admittedly it’s easier to administer, but it doesn’t represent the real value of the customer. It presupposes that all customers stand for the same value – but of course we know this is not true. This is probably the reason why, on average, 35% of servicing activity supports a minuscule 9% of business revenue. It’s clearly disproportionate and may have other negative effects on your business which we’ll consider later.
I’m rallying for a methodological change to customer engagement rather than a watering down of quality. It’s a matter of proportionality and being willing to make a positive difference. Of course, we need to be courteous, efficient and genuinely empathic to all our customers’ needs but we also need to understand where our bread is buttered! OK, for the sake of argument, can we assume that all customers are different, have different values to your business and your efforts in balancing the servicing of this mix will determine how well your company performs and the profit it will reap? From the 35/9 ratio mentioned earlier, it might lead you to question what the 9% of businesses are actually worth to your company because it’s costing you a fortune to support them. Is there a value in some of these relationships, due to the stage of engagement, share of business, etc., that justifies your investment or conversely, are some of these customers never going to deliver profitable business for you? It’s your call, but ideally you need to be able to make sound judgements based on accurate and reliable data.
Now there is a flip side to this argument. Some customers are indeed King. They are so ‘King’ that without them your business existence is severely jeopardised. You are reliant on the monetary value and the strategic relationship. It is greater than being important to you – it is life blood itself! Well at least in this scenario you can identify and apportion value to a customer – but what about the rest? It also throws up some other questions which require more customer insight to answer. For example, do I have too many eggs in one basket? Is the balance holding the business back from further growth? Identifying customer worth allows the fostering of relationships based on sound commercial principles so that if you lose your main customer you are not left high and dry or stifled in your aspirations. Even at a UK Plc level we have witnessed the government bailing out companies, such as Rolls Royce, because they are ultimately too important to fail. The point is that sometimes you have to intervene and make a value judgement to ensure that your business is in control and making the most of relationships.
Universality adds pressure to a business and its employees. Because all customers believe they should receive the same treatment, privileges, response mechanisms, etc., staff are under constant pressure to juggle resources to keep everyone happy. This is not always possible to achieve so something has to give. Internally, this might manifest itself through employee discontentment and low morale, staff retention issues and increased absenteeism. External perception may also suffer if front line staff are under pressure to undertake too much, leading to reactive behaviour and drop in customer confidence. Of course most businesses are somewhere between extreme positions and try their best to meet targets. So what alternatives are there to replace one size fits all thinking?
Money mapping is a strong contender. If we work from the basis that you are able to attribute a real value of a customer to your business based on a range of logical factors, you can indeed prioritise your business focus. Money Mapping will allow you to do just that. This approach to managing customers attributes a monetary evaluation to each relationship taking into account both cost to service, profitability and future business potential. With this information available to your business you are able to undertake prioritisation with existing customers and targeting new acquisitions. After all, you ideally want to attract new opportunities with businesses that mirror your current best customers. From this position you are able to take greater control of your business and the allocation of resource. Customers that are judged as unprofitable can then be approached to realign the relationship. In some cases, this might result in losing a customer or two but the truth is – they are losing you money because they are getting too good a deal or are too demanding. If they look to move to a competitor they will either not get such a good deal or will drain the life out of them! Alternatively, they may accept a new cost or service structure and will thank you for it in the long run!
The customer being ‘King’ can therefore have many connotations depending on the relationships you hold or indeed never get close to this title. But, before this exalted crown is given to anyone on your list, you need to be able to qualify your decisions based on raw data – only then can you paint a true picture.
With Money Mapping you will become the King maker!

4 responses to “The Customer is King (not always!)”

  1. Tim Drye says:

    Iain keeps on coming up with cogent arguments to think more carefully and long term about business.

    I agree completely that customers should be treated differently and appropriately, the pareto law works in virtually every area. As indicated by the 35%/9% split of customer service costs, sometimes it can be even more extreme.

    I would caution though the chances of finding a single value for a customer, and suggest that customers are given a range in which future revenue is expected to fall.

    I have come across some interesting stats about how overly optimistic we can be when using single values for extimation, and it takes a while to get used to estimating the range that we are sure an estimation will be in. Try it on some of your accounts, to estimate the revenue in the next 3 months. Get colleagues to commit to a range and assess. There are then ways to improve this method

    Helps with balanced planning of differences

  2. Iain Lovatt says:

    Thanks for this observation Tim and of course you are right, the value of a customer for future revenue streams is always difficult to specify with any certainty and a banding approach may well be a better option.

    We are trying to build our budget for 2011 at present and I can see already that some of the clients will spend more and some will spend less and the value needs to be considered and have both and optimistic and pessimistic value.

  3. You might be interested to know the outcome of some ‘money mapping’ we did several years ago in a b to b environment. We looked at revenue and the quality of the relationship, the latter being measured by their willingness to so-operate with us in terms of building and maintaining a profitable account. Apply usual 4 box Boston Matrix and we had a instant map of customers who not only lost us money but were likely never to change.

    Marketing was thrown behind the best revenue / most profitable and eliminated from the worst. The same logic was applied to service standards and manning levels etc across the whole business. Until then, we had delivered a one size fits all model generally in the hope it would work out. And when it didn’t, he who shouted loudest grabbed the resources to give them priority over the others.

    Funnily enough the ’shouters’ were mostly the least profitable. Meanwhile the profitable customers, who had been neglected, were quietly placing their business elsewhere.

    We could do this as a small to medium size business. Large corporates I have worked for since that time barely pay lip service to this because vested interests combined with corporate inertia make any radical realignment of a business close to impossible. Hence the default option remains vanilla.

    Marketeers in the insurance industry hide behind brand values and ‘treating customers fairly’ which tends to result in every customer ‘enjoying’ the same second rate service. Thankfully they do(!) as this makes room for the smaller more nimble providers like my current company, to operate in the areas where the corporate single offering wise fear to tread.

  4. Iain Lovatt says:

    So right Dennis. Would agree 100%. money mapping is the future, so much is wasted in the hope of future returns that never come.

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