Manage Your Customers, Not Numbers

For many people, old habits die hard. And because businesses are managed by some of these people, it’s inherently easy for companies to hang on to outdated, less-effective business practices and ways of thinking simply because “That’s the way we’ve always done it.” Let’s face it, it’s easier to continue to do and react as we have in the past. It’s comfortable. It works. Or does it?

When it comes to evaluating business success, most executives say that being customer-focused is critical and that customer satisfaction is what drives future success. But when all is said and done, these same executives often look no further than their companies’ market share; they go straight to the numbers every time because that’s what they’ve always done.

Financial numbers are important indicators, but we can’t manage numbers like market share and the bottom line. At the end of every quarter, the numbers are what they are, and focusing on numbers alone likely will distract executives from looking at how they got there. So where does that leave you when the CEO says, “Go out and increase share?” You’re left to work with what you can manage directly – relationships with your customers.

Share of wallet. When companies make managing relationships with individual customers a priority, they’re subscribing to a different philosophy of measuring success – share of wallet. In simplest terms, share of wallet means knowing how to get the most out of the customers you have. It means cultivating a mutually beneficial relationship where customers want to work with you and you control as much of their spending as you can.

The share-of-wallet approach holds great potential, but committing to it requires change in how companies think about and deal with customers. It means a better understanding of customers’ needs, buying behavior, experiences with the competition and trends in their industry. This may mean abandoning old-school practices that are no longer a part of the game in favor of targeted, individual customer strategies such as the following:

o Maintain and encourage a customer-by-customer perspective. Changing a process across the board may be the right thing to do, but consider how it affects individual customers, especially your key customers. A customer-by-customer perspective gives customers opportunities to provide feedback and provides your managers with information at an actionable level. And using a red-flag system can alert your managers to problems a customer is experiencing before it’s too late.

o Better segmentation leads to better relationships. You’re on the right track when you stop thinking of your customer base as a single entity. While individual customer information is best applied within the business-to-business setting or among major consumer accounts, segmenting your customers into well-defined, meaningful groups is effective in addressing specific differences among both BTB and business-to-consumer customers. It helps identify and target problem areas at a more actionable level.

In contrast, old segmentation schemes – typically based on product type, district or geography – have little to do with the customer and more to do with your organization and its hierarchies. To improve current relationships, consider a more strategic segmentation scheme based on customer needs and levels of loyalty. This also will direct sales and marketing efforts to market segments with the greatest payoff.

o Be selective about customers. You don’t want – or need – just any customer, even if this customer will increase market share. Signing up a customer just to have one isn’t worth it if it costs more than what you’ll see in return. Inevitably, there are customers you’ll never be able to satisfy simply because you can’t provide what they need. Can you afford to maintain such a customer, one you perhaps shouldn’t have in the first place? A solid customer segmentation strategy sheds light on whom your best customers are and gives you clues on those customers you can do without.

o Learn about the competition. Measuring customer perceptions is important, but it doesn’t tell you much if you don’t know how the competition compares. A rating of very good may not look as good when you learn that the competition earns ratings excellent. Share of wallet goes one step further, encouraging you to know where you stand relative to other vendors.

Are you a sole-source supplier or one of several? Is being the sole-source supplier a reasonable expectation in your industry? If it is a multi-source business, what proportion of a customer’s total wallet do you have versus others and how is it changing? In a tight economy, a decrease in revenue from a customer may not be a bad thing if you have become their only supplier.

o Strive for repeat business. Most business leaders realize it costs less to keep a customer than to win a new one. You know current customers, and they’ve experienced your products and services, replacing the high costs of marketing and sales to new prospects. Relationships built on intimate knowledge of customers’ needs, use and buying patterns offer a basis from which to predict future needs. Strive to proactively meet those needs with other offerings by knowing your customer and their business.

Having good relationships with individual customers may not show up in the next market share report, but choosing the share-of-wallet philosophy over the share-of-market mentality will bring greater profitability in the long run.

By acknowledging that you’re going to pursue as much of any one customer’s wallet as you can, you place the power into a known quantity – your relationship with an existing customer. How you choose to cultivate that relationship is up to you.

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