Ten things you really need to know about your customers

Ten things you really need to know about your customers

Blackmore, Julian

Ten key things every business needs to know about its customers in order to build and/or maintain competitive advantage. Ignore this at your peril!

Everyone knows that knowledge is power, and perhaps nowhere does this hold more true than in business: Having the right information can give real competitive advantage: with it you can steal a march on competitors, anticipate changing customer needs, negotiate better deals with suppliers and navigate your business successfully through good times and bad; without it you are working in the dark. The trouble is, with so much information available it can be very difficult to pick-out the really useful data from the rest – and all too easy to become bogged-down with information overload.

Over the past fifteen years or so we’ve been privileged to work with literally hundreds of companies of all sizes on a broad range of business development projects. Drawing from this experience, we’ve compiled a series of checklists of key information we think every business really needs to know.

We make no claim that our lists are the only way to approach these questions, nor do we pretend they are exhaustive. What we can say, however, is that in our experience this information can make a critical difference to business performance in the real world.

So to kick off, here are ten things we think you really need to know about your customers:

1 Why do they buy from us?

At first, the answer to this may appear obvious; but is it really? What are they actually buying from us – our core product or service or some other aspect of how we do business with them that fits their particular needs? Do they come to us because our product or service is the best or because we’re the cheapest? For our comprehensive range and wonderful customer service or that we’re the only choice? Because of our excellence or because we’re nearest? What’s really important to them? If we’re to understand why we, and not our competitors, are winning this business, we need to know precisely what our customers are buying and why they buy it. Challenge your assumptions!

2 What are their other options?

Fine, so our customers buy from us now, but what are their alternatives? Are there other suppliers that could also meet our customers’ needs? If so, how easily could they change suppliers? What alternative offers would test their loyalty to the breaking point? Beyond our competitors, are there alternative ways of doing things which could make what we do completely unnecessary? Could our customers go direct to our suppliers? We need to understand not only our direct competition, but the broader alternatives as well.

3 What will they want in the future?

We already know something about what they want now (or they wouldn’t be buying from us at all), but we can’t count on their needs remaining static. We need to know and understand their future plans and how we can fit into what they’ll be doing tomorrow. Are there technical or other developments happening that will impact on customer requirements? Unless we constantly monitor our customers’ changing needs, maintain an understanding of their business and the issues they face to make sure our offering stays both relevant and attractive, we could go the way of the British motorcycle industry.

4 Which of them are of most interest to our competitors?

Probably not all of them, as different competitors will be pursuing their own strategies and objectives and for a variety of reasons what is good business for us might be completely non viable to them. In addition, as we’ll see later, some of our customers could be an absolute threat to our competitors! However, in general, the more valuable the customer is to us, the more they are likely to be of interest to one or more our competitors. The key point here is we need to make sure we know which of our customers are the most attractive to the competition and, if they’re of interest to us, make sure that we `lock them in’.

5 What do we have to do to retain existing business?

How loyal and averse to change are our customers? Are they, for example, likely to leave us for just a small price advantage with a competitor? Or are they so tied into a status quo mentality that keeping their existing business

is simply a matter of delivery for reasonable cost? Will a policy of continuous improvement be enough to hold them or do we need to innovate to be sure of their business? Awareness of potential triggers for changes of supplier is a key principle of effective customer management.

6 What do they really think of us?

All right, our MD plays golf with their MD and our salesmen tell us their buyer says we’re doing fine – but are we getting the full picture? Would they really tell us if we’re not doing as well as they’d like? Are we measuring our performance on their criteria or just on ours? The things that we think we’re good at might not be enough. This is all about perceptions, and only theirs matter. By obtaining regular objective feedback on the elements of our performance which are important to them, not only do we get priceless information, we also demonstrate our commitment to them as a customer, the importance we place on keeping their business and our suitability as a key supplier.

7 How much of their business are we getting and how much would they let us have?

If we discover we’re only getting a portion of a customer’s total spend on our product or service, is it worth trying for more? Some businesses pursue a deliberate policy of buying the same item from several suppliers. They do this both in order to avoid over-dependence on a single source (and the potential vulnerability that can bring) and to keep their suppliers competitive by playing one against another. So before trying for a bigger share of the total spend we need to check their buying policy and be sure we’ve not already reached their limits. 8 Are our ‘best’ customers actually vampires?

Asked to identify their best customer, most managers will often name the biggest; but is this realistic? The biggest customer may well have negotiated substantial discounts and will then take a long time to pay. Added to that, they are frequently the most demanding of service and back-up. They usually know they’re the biggest and will expect to be treated accordingly, tying-up cash, production and staff resource for very little return. Looked at this way, our ‘best’ customer may be of marginal value or may actually be costing us money. In extreme cases it has been known for some businesses to practise a form of guerrilla marketing, by foisting these vampires onto competitors. It is vital to keep a regular check on which customers are generating our profit and which are bleeding us dry.

9 How do we spot a good customer and where can we find more like this?

Different businesses will have different answers to this question, dependent on their market(s), placement and strategy: It could be customers generating the most profit; it could be those with the greatest potential for growth; it could be customers which will provide us with more market share; it could be a combination of these and/or several other factors.

So, what are the characteristics that make a ‘good’ customer for our business? What do our ‘good’ customers look like?

We need to consider this carefully and then use the resultant criteria to identify our top ten or twenty customers. From looking carefully at these, we should be able to spot similarities and produce a ‘good’ customer profile which can be used to find more of the same kind.

10 What would happen if the person who deals with us leaves?

When a buyer leaves a company, the new person is often keen to establish themselves in their new role by making their mark early on. One of the ways they do this is to review and replace some of the key suppliers; sometimes, too, they may want to bring in their own favoured supplier from a previous job. Could this happen to us? How much is our status with customers dependent on the good will of individual buyers? If we feel we might be vulnerable, what can we do about it? Thinking about these questions now could avoid nasty surprises in the future.

These are the ten things we think you really need to know about your customers. Answering these questions honestly and objectively will help you to:

* Ensure that you are the customer’s best option

Recognise that the customer’s perceptions are reality

Develop an understanding of the profitability of individual customers Ensure that your customers are not simply those that your competitors don’t want

An understanding of your customer base is an essential element in ensuring your business stays healthy. The ten things you really need to know about your customers are not easily acquired; the analysis will need more sound judgement than reference to factual data.

Nevertheless, keeping good profitable customers is worth thinking hard about.

The Authors

Julian Blackmore is a consultant with over 20 years experience working with Wilson, Lee & Partners, an East Anglian based firm providing business improvement services for clients ranging from micro-businesses to large nationals. When not working as a consultant, leading seminars or writing articles, Julian plays the Northumbrian Small Pipes.

Both he and Terry can be contacted by telephone on:

01603 881426 or 01953 882141 or by

Email: julian@wilson-lee.co.uk

Terry Kendrick has been a business consultant since 1984, initially in information sources and subsequently in marketing planning. He formed Information Now Limited in 1990 and has worked on marketing planning and CRM projects for more than 50 organisations in 17 different countries.

Terry has published business-tobusiness and academic papers on customer care and has written market reports for major publishers such as Key Note and Mintel.

He lectures in consultancy skills and organisational change on the MBA programme at the University of East Anglia. He has also presented sessions for Cranfield School of Management, the University of Strathclyde and the Mediterranean Institute of Management in Cyprus.

Copyright Institute of Management Services Oct 2002

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