1. Customer-focused (see Customer Management in Volume 5)

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Create and Keep a Customer

Organisations are only in business as long as the customer allows them to be, ie

"no customers, no sales, no profit, no jobs, no dividends, no wages"

Bill Synnot, 1996

"...I would say you can never go too far wrong by thinking like a customer who's new to the business..."

Richard Branson, 2008

It is important to create and deliver what your customers want, when and how they want it. Furthermore, you have to do more than listen to your customer; you have to lead them.

Need to reverse the pyramid, which normally has the CEO at the top, having the customer at the top

The aim is to make a customer a permanent or life-time client. Furthermore,

"...There is only one valid definition of business purpose: to create (and keep) a customer..."

Peter Drucker as quoted by Robert Heller, 2000

There are 4 basic ways of creating a customer

i) creating utility or purpose, ie focus on the needs of the customer

ii) pricing

iii) adaptation to the customer's social and economic reality

iv) delivering what represents true value to the customer rather than cost to the supplier

The last one is the most important

"...how the customer pays depends on what makes the most sense to him. It depends on what the product does for the customer. It depends on what fits his reality. It depends on what the customer sees as "value" ..."

Peter Drucker, 2001

Peter Drucker elaborates by observing that the foundations of a successful organisation must have customer-based values and customer-based decisions. It will be from these foundations that management policy and management strategy increasingly will have to start, ie the customer must be the starting point.

"Consumerism" demands that business starts out with the needs, the realities, the values of the customers. It demands that business defines its goal as the satisfaction of customer needs"it does not ask, What do we want to sell? It asks, What do our customers want to buy? It does not say, This is what our product or service does. It says, These are the satisfactions the customer looks for, values and needs"

Peter Drucker 2001

As the customer becomes better informed, demanding better value, more choice and faster product turnaround, organisations will need to become more customer-focused, ie learning about individual buyers and tailoring products and services to suit their needs. Furthermore, in general the market is becoming more and more fragmented and consumers more individualistic.

A customer-focused organisation is continually gathering unfiltered customer insights and is an organisation that strives to:

- connect with existing and potential customers and anticipate their present and future needs, ie service counts

- translate customer needs into a competitive advantage, using a faster cycle time and a generation of breakthrough products and service

- focus on building sustained relationships

- effectively manage a portfolio of brands

- continually grow shareholders value

Customer intimacy is linked with customer focus, ie need to know and have a good understanding of your customers and their needs (now and in the future). The Web is helping build stronger relationships with customers and allowing a greater capacity to satisfy their needs. With the development of inexpensive, powerful computing technology, organisations are able to interact with customers more cheaply and easily than ever before. Achieving this requires a change in mindset in handling customers: changing the relationship between organisations and customers from essentially mass-marketing to one focusing on the needs of individual customers has resulted in empowering customers online so that the balance of power in the relationship has changed to favour the customer. This means re-configuring the way organisations do business, ie product design, manufacturing processes, distribution processes, etc. Techniques are now available to make things happen in real time such as dynamic, immediate feedback. The Internet has increased the speed and intensity of how things happen.

Never under-estimate the impact of emotions on customers decision-making. Most decisions are based more on how people feel (emotions) rather than what they think (rational analysis).

Never under-estimate the impact of emotions on customers decision-making. Most decisions are based more on how people feel (emotions) rather than what they think (rational analysis).

Add value to customers

True customer focus means obtaining value for customers as well as value from customers, ie an integrated view of customers. This requires increasing the amount of spending customers do with the organisation. This can be done by

- addressing the longevity of spending over a customer's lifetime

- extending the depth of spending with a greater share of the customer's disposable income

- enhancing the breadth of spending with increased revenue from new sources of value

- diversifying spending by stretching into new areas

The winning organisations of the future will be those that come from the customers' perspectives and preferences and which are determined to develop internal processes attuned to and connected with those customer wants. Introspective viewpoints will be dead-ends. Great feature engineering alone will not make it. Traditional engineering/manufacturing/sales-dominated organisations must change into customer-focused enterprises.

Furthermore, in the new economy, customers themselves can create value by creating content and products, and providing customer service.

"...the balance of information economics is increasingly moving to the consumer...... instead of trying to stay ahead of the consumers, companies should work at learning from them...... consumers will be the source of innovation for the future..."

Stuart Henshall, 2001

Users are creating content and selling it to others, eg Amazon through book reviews. Furthermore, Microsoft sent out several hundred thousand copies of its Windows software to selected customers, who tried it out and wrote reports on how to improve the software for Microsoft. This resulted in a much better piece of software and saved Microsoft around $US1 billion in development costs. With customers creating more content, the distinction between employee and customer will blur!!!!!

"...Now Internet based businesses are a moving beyond customerised products; in future it will be all about customer control. The challenge lies in devising ways to generate revenue and capture value from the new business models enabled by those online advances. Empowered customers are now seeking more than free information and software. They want to create the content themselves..."

Australian Business Foundation, 2007

This is resulting in a "user-create" culture.

Examples of this included YouTube and MySpace. YouTube allows for self-broadcasting on-line in video; with over 45 million videos, Google paid $US 1.2 billion for it. A similar story prevails for MySpace, an on-line social networking community for which Rupert Murdoch paid $US 580 million.

Modern information technology has enabled organisations to serve their customers more personally and efficiently. At the same time it has raised customers' expectations so that they demand immediate service and instant gratification.

"...technology has compressed to nearly zero the time it takes to acquire and use information, learn, make decisions, initiate actions, deploy resources, and innovate...... we're operating in real-time when our credit card is verified in seconds, where we withdraw money at an ATM or when we use our computers to track a package..."

Regis McKenna, 1997

Organisations need to understand what it means to do business in this environment of vanishing time and space. As speed has become the differentiator, organisations need to manage the transition from economies of scale to economies of time. Furthermore,

- serving the never-satisfied customer is not a one-time event, it is a continuous process. It means eliminating time and space constraints on service to give customers the means to satisfy and serve themselves and obtain access to products and services anytime, any where.

- organisations must be prepared to respond instantaneously to the marketplace rather than trying to predict the future

- engaging customers now means creating a dialogue with them, not broadcasting at them

- capturing the attention of customers who are increasingly presented with a proliferation of data demands that information be clothed as interactive entertainment

Customer service is primarily about building relationships; secondly, about looking at value for money (rather than price), service, quality and convenience. As more and more customers become "cash rich, but time poor", they will favour organisations that save them time and energy by providing convenience in 4 main ways:

i) access convenience, ie accessible location, parking availability, long store hours, telephone and Internet access, etc

ii) search convenience, ie customers are able to speedily identify and select the products they want using techniques such as focused merchandising, intelligent store design and layout, knowledgeable sales persons, interactive systems, product displays, packaging and signage, etc

iii) possession convenience, ie the supply chain is critical with merchandise either in stock or available on a timely basis

iv) transaction convenience, ie self-scanning at checkout counters, automated product selection and drive-in access, etc

The first guideline in keeping ahead of any change is to start with the customers. You need to find ways to differentiate yourselves from the competition, so that you entice your customer. To stay ahead, you need to focus on 3 things:

- demographic, sociographic and psychographic trends of your customers

- emerging social and cultural directions

- advances in technology

Linked with this is the capability of recognizing emerging patterns and trends. Part of this involves being able to 'take a step back' and see the big picture. This is called cognitive pattern recognition and there are several types, ie

- convergence, ie several industries moving in the same direction, eg previously separate banking, insurance and financial industries are performing the same functions. Similarly, the convergence of the pharmaceutical and computing industries into the biotechnology industry. Is convergence going to happen in telecommunications and Microsoft; between hospitals, hotels and aged care industries; between universities and corporate giants, etc?

- oscillation, ie swinging from one extreme to another. An example of this includes organisational decentralisation which leads to greater divisional autonomy and innovation as against greater centralization, coordination and control.

- shift from the tangible to the intangible, ie the knowledge worker has the intangible knowledge and skills while the capital owners have the tangible factories. Products (tangible) are being supplemented or replaced by services (intangible)

Need to look at the patterns and to identify similarities and differences in what is happening. This involves looking at information from a variety of sources and challenging your assumptions. In fact, what might seem impossible today could be possible in the future!!!!!

Many successful organisations understand the advantages of the customer portfolio and manage it to give them a competitive advantage. It involves identifying customers' profitability and their potential. Managing an organisation is not merely looking after a collection of products and/or services, nor a group of territories, but also a portfolio of customers. There is a need to determine which individual customers or customer segments are profitable or unprofitable. Technology is now available to allow organisations to determine the profitability of individual customers and/or customer segments. For example, one bank calculates the profitability of every one of its 10 million customers monthly!!!!

Customer relationship marketing (CRM - see Volume 5) stresses customer identification, differentiation and interaction. There are 3 facts of corporate life that underpin CRM:

i) customer loyalty cannot be taken for granted - people simply move on if their needs are not met promptly and with minimum effort on their part

ii) acquiring a new customer costs a lot more than selling to an existing customer

iii) a relatively small percentage of customers deliver the bulk of most organisations' profit

More important than customer satisfaction is customer loyalty/retention/referral. Customer satisfaction does not ensure a customer returns and/or refers your business to another customer. Remember: it requires 5 times more effort to attract a new customer than to keep one.

Look outside as well as inside your industry

There is a need to study what goes on outside the business, ie non-customers. As Peter Drucker (2001) states, over 50% of technological breakthroughs that affect an industry come from outside that industry, eg commercial paper and computers (including ATMs and Internet), all have revolutionised the banking industry, yet none was developed by this industry. Similarly, molecular quality and genetic engineering were not developed by the pharmaceutical industry.

Thus knowing as much as possible about one's customers is important, but the first signs of fundamental change rarely appear within one's own organisation or among one's own customers. The people who are not buying almost always reveal those first signs.

Remember:

"...It is hard to be a market leader if you do no more than listen to your customers..."

Gary Hamel & CK Prahalad as quoted by Kriegel et al, 1996

Summary (customer focus)

It is worth noting that

"...some 30,000 new consumer products are launched every year. But more than 90 percent fail - and that's after marketing professionals have spent massive amounts of money trying to understand what the customers wanted..."

Clayton M Christensen et al, 2005

Often the organisations improve their products and services in ways that are irrelevant to their customers' needs. Customers just need to get things done; they use products and services to do jobs for them. In other words, the job and not the customer is the fundamental unit of analysis for marketing. New growth markets are created when innovative organisations design a product and position its product to perform a job which no other product caters adequately for. This product is tightly associated with the job that it is meant to do and becomes a "purpose brand", eg

"...The history of Federal Express illustrates how successful purpose brands are built.. the I-need-to-send-this-from-here-to-there-with-perfect-certainty-as-fast-as-possible job.......Focusing a product and its brand on a job creates differentiation..."

Clayton M Christensen et al, 2005

Remember: one of the cardinal rules of business

"...Never allow anyone to get between you and your customer or your suppliers. Those relationships take too long to develop and are too valuable to lose..."

Jack Welch as quoted by Jack Welch et al, 2001

In summary, customer focus and value means

"...i) customer value (product quality, service quality and price) is defined by the customer

ii) customer value is defined relative to rival offerings

iii) customer value will change over time

iv) customer value is created throughout the entire value chain

v) customer value is a co-operative effort involving everyone in the firm..."

Naumann as quoted by Craig S. Fleisher et al, 2003

When developing organisational strategies that are linked with customer focus, the following questions need to be answered

- what do customers value from your organisation?

- how do these strategies create value for customers?

- why do customers buy the products and services from your organisation rather than from a competitor?

- how does the knowledge that resides in the organisation add value for customers?

- how does the staff deliver value to the customers?

Having both staff and customers engaged gives stunning results

"...research of nearly 2000 business units has shown that if companies......had customer and staff both engaged, the advantage can be stunning. These companies outpaced their competitors by 26 percent in gross margin and 95 percent in sales growth..."

John Fleming and Jim Asplund's in their book (Human Sigma, 2007) as quoted by Fiona Smith (2007g)

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