Understanding your customers is an integral part of entrepreneurial success.
As Peter Drucker said in his book "The Daily Drucker: 366 Days of Insight
and Motivation for Getting the Right Things Done," knowing your
customers is critical to understanding your business purpose and mission. In
fact, how you answer the question, who is the customer, determines how you
define your business.
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Why is it important to know your customers?
First, customers are not created equal. They come and buy from you for
different reasons based on different motivations. Some buy because they find
your price to be the lowest, some because they find your services to be
outstanding, while some purchase from you because of your reputation in the
industry.
Second, by knowing and understanding your customers, you will be able to
better leverage your time, energy and resources to pursuing the right
customers. Your can adapt your selling strategies to each type of customer:
shorter and quicker selling strategies to price-conscious customers, while
dedicating more time and resources to your most important and high-potential
customers. Especially if you are a one-person business owner, you need to
reevaluate your customer relationships and make choices about how to
maximize and effectively use your limited time and resources.
Below is a list of questions that can help you look at your customer's
motivations and in the process learn new insights about your customers, their
needs and threats and opportunities that exist. These five questions will
help you get a snapshot of your business where your healthy relationships
exist, where there are opportunities, and where there are potential
problems.
1. Why does your customer buy?
Customers have different motivations when they buy. Some consider price as
the main deciding factor, often looking for the lowest available price.
Others try to find ways to reduce cost and at the same time enhance revenue
and improve quality.
But most of all, customers buy your products because of
the value that it can give them. They are not buying your product per se,
but what your product can give them. They are buying the satisfaction of a
want.
It is important that you know what customers consider most valuable about
your products or services. Ask and talk to your customers to find out. Once
you have a list, ask them again if you are indeed delivering what they want.
These two questions -- what does the customer value with regards to your
products and services; and how well do you provide that value -- will determine
the relationship that you will have with the customer.
2. How much of the customer's total business do
you have compared with your competitors?
Your relationship with your customer is also shaped by the amount of
business that you have with them. You may either be the sole supplier, or you may
be constantly fighting for a share of the customer's business. Or possibly
in between.
If you share your customer's business with your competitors, you may want
to select and pursue appropriate and inventive opportunities to increase
that share, and carefully document the profitability efforts. Think of
possible ways to make the customer want to do business with you alone, or at
least bring the major bulk of their business to your company. You can even
ask the customer directly, "How can I earn more of your business?" With this
knowledge in hand, you can develop a focused strategy for your key customers
that delivers on what each customer agrees is important to him or her.
3. How does your customer see you?
According to Larry Wilson, author of the book
Stop Selling,
Start Partnering : The New Thinking About Finding and Keeping Customers, a customer may view you in three ways: you are just another
vendor, a problem solver, or a partner.
The most ideal would be to be viewed by your customer as a partner. You
are trusted and relied upon to make the collaboration work for the both of
you. Your relationship transcends client-vendor relationship with the end
result being well-thought-out solutions that are competitive and effective.
These are the types of relationships that result in long-term profitability.
4. How difficult is it for the customer to shift
to your competitor?
Loyal customers are important to your bottom line. Studies show that
repeat customers often spend more money, generate larger transactions, refer
more customers, and buy a broader range of products than one-time shoppers.
Hence, it is vital to understand the ease or difficulty with which your
customer can shift business to a different supplier.
Some businesses tend to have inherently high switching costs for
customers, while others enable to switch to a competitor at a low cost.
Customers who have made significant investments in people, time,
manufacturing processes or technology to use your products have high
switching costs. For example, a customer who has shaped their online auction
business around a particular auction management tool may find it costly to
move to different auction software given the time to recreate their database
and get used to the features of the new software. Switching costs in this
case involve the direct costs of learning a new system, and lost
productivity.
On the other hand, a customer who has used one copywriter for a marketing
campaign may find it easy to simply switch to a different copywriter for the
next campaign. But as the use of the product grows and extends over time
(e.g. all campaigns created by the copywriter are a knock-out success), the
more costly the switching costs for the customer will be.
Some of the strategies to keep the customer locked into your business
include lengthening lock-in cycle through purchase agreements, contracts or
licensing; incorporating proprietary improvements; designing products and
promotions to get customers to invest in your product such as special offers
to loyal customers or trial usage for new customers; and leverage your
customer base by selling complementary products.
5. What does the customer expect after a sale?
The hardest part of the sale is after the sale is made. It is the make or
break period: the customer's expectations will either be realized or failed.
It is the time where you will know whether the level of activity, delivery,
customer service and commitment to promises made all supported the sales
effort.
It is important to carefully establish the level of expectation that
customers should have after the sale. Some customer may expect little or no
support, while some require processes or systems be put in place to
guarantee that their purchasing experience remains smooth (e.g. return of
the merchandise, provision of required technical support, etc.).
Knowing your customers can help you increase sales, loyalty and profits.
If your business is not doing as well as you expected, you may want to think
about customers and your business differently than you might have in the
past and be willing to change the behaviors that produce your current
results.
November 1, 2004
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