After extensive research, Budget Rent-a-Car found that 5 percent of its New York customers cause half of the company”™s accidents that result in damage suits. This 5 percent was made up primarily of people who are not traveling by plane. It would be foolish for Budget to continue to service this segment. These are C customers!
This basic service principle is founded on the wisdom that no business can be all things to all people. Bloomingdale”™s knows that even among its well-heeled customers, some are more valuable than others. They reward “preferred shoppers” with Godiva chocolates, handwritten thank-you notes and private shopping nights.
They know they don”™t want all the business and that every customer is not equally valuable. For you and your organization to take advantage of this model, you need to divide your customers into three groups.
A-customers are your best customers. While they may have greater needs, they contribute the most to your profits.
B-customers either have fewer needs or less ability to pay. They make mid-range additions to your profits.
C-customers can make a big impact on your bottom line and that impact may be a huge negative!
If you treat B and C customers the same your best ones, you may actually lose money on them. Bear in mind however, if you can keep costs low enough while serving them, they can be profitable. Don”™t necessarily get rid of your B and C customers before considering how you may be able to reduce the costs of serving them through such tactics as membership fees or self-service.
Although Macy”™s doesn”™t charge membership fees it does assign its salespeople to give shoppers different levels of service according to the profit margins of the items they buy. In jewelry and luggage, doting salespeople provide all the help these customers need. However, in other departments, such as hosiery, customers help themselves.
You can also divide your service along these lines:
Ӣ Better service for some customers.
Ӣ Lower cost services for others.
In the book, “Crafting the Customer Experience,” author Kelly McDonald reminds us that, “If you craft an exceptional customer-service experience for different types of people, your business will grow. It”™s guaranteed to work, because people spend money on what they value. A key part of their values is how you make them feel, how you respond to their needs and wants, and how you treat them.”
The leader in the mutual fund industry, Fidelity, is trying to cover every base from discount broker Charles Schwab to Wall Street”™s Merrill Lynch. On the other hand, Vanguard is focusing on hitting just one target better than anyone else and that is selling mutual funds directly to investors at low fees. Which company do you think is able to stretch the fewest resources to get the best returns?
To satisfy their value proposition, you will need a committed team. Define roles and accountability up front. Involve your staff in creating plans. They know the different types of people, which customer”™s use the most service time while generating low profit and will have ideas about how to fix that.
Your team also knows which sales strategies are working, and what needs are not being filled. To reach your maximum profit potential, give the market what it wants. Segment the market to target the right customer groups with the right service at the right cost. Do this, and profits will take care of themselves.
Questions for discussion:
Who are our A, B and C customers?
Can we make each customer group profitable?
Joe Murtagh, The DreamSpeaker, is an international motivational speaker, meeting facilitator and business trainer. For questions or comments, contact Joe@TheDreamSpeaker.com, www.TheDreamSpeaker.com or call (800) 239-0058.
