Customers are not equally important

Why should Hudson Valley organizations determine who their most important customers are? Do you treat your important customers differently than your average ones? How much money could you save by actually eliminating your least profitable customers and sending them to the competition?

Perhaps you could identify and deepen the relationship with your best customers and increase your share of their total purchases. One hundred and fifty years ago, the local general store owner knew all his customers by name and understood their preferences. He might have even cataloged them on slips of paper.

Back then the owner gathered information through the tedious and time-consuming process of observation, trial and error. The butcher put a few extra slices of cold cuts on the scale for every new customer that placed an order. Only by watching and tracking the new customers”™ buying habits could they determine if they would become a good buyer.

Today, with customer relationship management technology, including Salesforce.com and Microsoft Dynamics CRM, you can track customer purchases as well as determine the timing, frequency, value and when to follow up with them. This tells businesses how valuable a specific customer could be and helps organizations make decisions tailored to a specific customer”™s needs.

Think about this. Lexus represents just 2 percent of Toyota”™s total corporate sales, but Lexus accounts for 33 percent of the company”™s profit. Consider also that the best 2 percent of customers of car rental companies rent 25 percent of the vehicles. Business travelers account for less than 10 percent of airline passengers, but produce more than 40 percent of airline revenue.

A basic understanding of CRM allows you to identify and satisfy your best customers. A bicycle shop has grown to more than $5 million in annual sales despite doing business in Walmart”™s shadows. How? Rather than just selling products, they focus on selling relationships. By offering free lifetime service, they have collected the names and addresses of all 276,000 of their previous customers.

So, how do they use that information? In one scenario, every customer who bought baby bike seats two years prior received a postcard promoting their line of children”™s bicycles. As a result, 50 percent return to the shop to buy their child”™s first bike. In another case, a supplier wanted to quickly sell off large-size cycling shorts at a 50 percent discount. The shop”™s computer found 150 customers who recently bought large-size clothing and offered those customers 30 percent off the regular price. They sold 60 pairs, gave customers a 30 percent savings and raised profit margins.

As shoppers check out of the grocery store having purchased baby food and formula, the register receipt produces a coupon for diapers. What do the current purchases of your customers tell you about what else they may want or need? The more the company knows about the customer”™s buying patterns and preference, the more likely it is that your offer will be on target.

Not all customers are equal, and 80 percent of profits come from 20 percent of customers. How much do you know about your customers? If you don”™t have detailed knowledge of your patrons and their needs, you are likely to lose them to someone who does.

Questions for discussion:

Ӣ How well do we know our best customers and what they want and need as well as when and how they want to buy it?

Ӣ What do we do in order to make our best customers feel special? Could we do more for them if we redirected the money we spend on our least profitable customers?

Joe Murtagh is The DreamSpeaker, an international keynote speaker, meeting facilitator and business trainer. For questions or comments, Joe@TheDreamSpeaker.com, www.TheDreamSpeaker.com or call (800) 239-0058.