PROFIT FROM
YOUR RELATIONSHIPS
In
the mature and saturated markets most of us work in, you won’t grow
your profits by concentrating on your products or services. You need
to focus
on your customers.
Most companies have heard about CRM, cust-omer relationship management. After
all, the idea has been around for a while. But few understand that CRM is not
a marketing tool or an IT activity. It is a business strategy, the way you
run your business. It involves everyone whether they have regular customer
contact or they are in the backrooms.
Companies successfully implementing CRM have discovered that not all customers
are equal. Most make you money, many make you a lot of money but a few make
you no money or even cost you money. Thus they segment their customers not
according to demographics and psychographics but according to their purchasing
patterns and their profitability to the company. Recently, I spoke with one
business which sorted its customers into one of four groups: Mercenaries -
only interested in the transaction at hand, price driven, not loyal.
Hostages - deal with you only because they have to or because the cost of switching
is so high, harbour deep resentment.
Loyalist apostles - your biggest fans, loyal, want to be your partner, great
advocates, not price sensitive.
Terrorist defectors - were very dissatisfied customers, have gone elsewhere,
keen to tell others how useless you are.
To this interesting list, Price WaterhouseCoopers add two other categories:
Niche users - they like you and are regular customers but use only one or two
of your products, see you as only one of a number of suppliers, price is still
an issue. Major use customers - depend on one or two of your products or services
or use a wide range of them, see you as a key supplier, quite loyal, less price
sensitive.
Businesses serious about CRM understand that customer segmentation is simply
the means to an end. The objective, of course, is to differentiate how you
treat your customers so that you allocate your precious resources to produce
the best return.
Companies that do put their customers at the centre of
their world get the benefits. A study conducted in North
America in 1995, found that customer-centric
companies had a return on investment of 17% vs only 11% for ‘average’ companies.
Similarly, their profit on sales was 9% vs 5% for average companies and their
growth in market share was 6% vs 2%. Interestingly enough, the reduction in
costs for customer-centric companies was 10-15% vs only 2-3% for average companies.
It seems that re-designing work processes to make it easier for valued customers
to do business with you also saves money in the long run.
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