Will our real customer please stand up?

April 28, 2014 admin

It is possibly the most fundamental maxim in business: Serve the customer.

It also seems about the easiest calculation an executive team has to make. But is that really the case? Is your core customer the investor? Or is it the beneficiaries? Are they one and the same? Are you sure about that? Maybe it’s really your portfolio managers. Or would you reason that it is all of the above?

Harvard Business School professor Robert Simons has conducted research that shows many companies too often describe almost everyone as a “customer” — and most companies use the word “customer” internally as well as externally. Departments often consider other departments “customers.”

The problem: Resources are limited. Attention is limited. And the more groups a company deems its customers, the more it expends limited resources on constituents that are not the true core customer.

That is what prompted Simons to write a Harvard Business Review article about how to choose the right customer, a decision he says is the first step in a winning business strategy. Choosing the right customer might not be as easy as you might think.

Take the case of cosmetics giant Mary Kay. One could easily conclude that its core customer is the millions of women around the world who purchase its products. Mary Kay executives would beg to differ. They have determined their core customer is the legion of independent “beauty consultants” who are their sales and distribution channel.

During a recent podcast interview, Simons observed: “Mary Kay has built their entire organization to meet and exceed the needs of those beauty consultants, with the idea that if they can ensure the beauty consultants prosper, are well trained, are highly motivated, they in turn will reach out and do a good job attracting and selling the products to the consumers.”

The result of that strategy is that Mary Kay has gone from 175,000 beauty consultants in the mid-1980s to about 2.5 million today doing business in 39 countries.

“They’ve prospered by having real clarity as to who their primary customer is, putting all the resources on that customer,” he says.

Another interesting case study is Amazon, which might well have the highest customer loyalty of any company in America. Though Amazon’s annual report talks about various constituents, it is made absolutely clear that the company is maintaining a laser focus on the end consumer. That means putting the consumer’s needs ahead of the third parties that conduct business via Amazon’s supercharged website, and even ahead of the company’s own profit requirements.

Could your organization fathom doing the same?

Simons argues that your most important customers are not those that generate the most revenue, they are those that can unlock the most value in your business. For some businesses, the primary customer will be the end user or consumer of the product or service. For others, an intermediary (such as a reseller or a broker) will be the critical customer.

Once your primary customer is identified, then comes the relentless devotion of resources. What does an ardent commitment to a core customer look like?

Federal Express brings its customers together for two-day gatherings twice a year. During those sessions, FedEx executives drill their clients about exactly what FedEx is doing that its customers consider of highest value. They also question what competitors are doing better.

Google spends a tremendous amount of time in the lab working with individual users of its products, trying to understand how different colors or arrangement of elements affect eye movement and usability.

Proctor & Gamble sends people on shopping trips and sits around the dinner table with consumers trying to understand what aspects of P&G products they value and how they can ensure those expectations continue to be fulfilled.

Who is your customer — really — and what extraordinary efforts do you invest to make yourself indispensable?

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MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

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