To understand your customer 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.
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.
Recommended Books on How to Understand Your Customer:
- Slow Down, Sell Faster!: Understand Your Customer’s Buying Process and Maximize Your Sales
- Crafting the Customer Experience For People Not Like You: How to Delight and Engage the Customers Your Competitors Don’t Understand
- Think Like Your Customer: A Winning Strategy to Maximize Sales by Understanding and Influencing How and Why Your Customers Buy
- Questions That Sell: The Powerful Process for Discovering What Your Customer Really Wants
- Empathetic Marketing: How to Satisfy the 6 Core Emotional Needs of Your Customers
- The Ultimate Online Customer Service Guide: How to Connect with your Customers to Sell More!
- How to Make Money from Your Inventions
- Top 10 Ecommerce Mistakes
- How Great Managers Capture Profit Pools
- Train Customer Service Representatives to Cross Sell
- Conversion Rate: Improve Product Presentation