Win and keep your customers in changing markets
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The document discusses the challenges businesses face in attracting and retaining customers in a fluctuating market, identifying three main causes: an internal focus on products rather than customer needs, ineffective demographic segmentation, and generic market positioning. Solutions proposed include focusing on customer behavior patterns, making strategic trade-offs for competitive advantage, and clearly defining value propositions tailored to customer needs. The document emphasizes the importance of understanding real customer drivers and positioning businesses effectively to achieve success despite changing market conditions.
Win and keep your customers in changing markets
- 1. WINNING AND KEEPING CUSTOMERS IN A CHANGING MARKET Its difficult to win and keep your customers in changing and uncertain conditions. We consider the problem and outline three specific approaches to address it. Leaders have indirect roles How to attract and retain customers Dr Norman Chorn | [email protected] | www.centstrat.com | www.normanchorn.com Its tough out there! Are your markets in a constant state of flux? Do your customers change their minds frequently and prove difficult to satisfy? Maybe you feel that you donʼt really understand their needs. Or when you do, you canʼt seem to respond quickly enough to meet these needs. Perhaps youʼre experiencing high levels of customer churn? You work hard to win them, and then they leave? There are some of the concerns my clients express as they do battle out there - they seem to take one step forward and two steps back. Why does this seem so prevalent these days? Are customers just getting more fickle because they have wider choice? Are attitudes to loyalty changing? Is it simply because markets have opened up and rivalry has intensified with global competition? All of these factors contribute to the more difficult business conditions. And certainly, customers have become better informed and are cautious in these post GFC TIMES. But I believe there is a deeper reason for why business is more difficult these days. And these reasons have existed for a while - its just that the post-GFC “new normal” conditions accentuates their impact. 1
- 2. Whatʼs causing these problems? I believe there are three underlying causes to these problems that businesses face today. They have been evident for a while, but the difficult trading conditions have amplified their impact on organisations: 1. Internal definition of the business Organisations continue to define themselves in terms of what they do or the products/ services they provide - eg: “we manufacture and sell building products”. This type of definition is generally the easiest to come by, but it creates an internal focus within the organisation and staff. Moreover, organisations then follow this up with goals and objectives that emphasise issues such as profitability or market share. Most staff donʼt get out of bed in the morning to improve shareholder returns or gross margin. Instead of clearly signaling that the business is focused clearly on solving customer problems or adding value to customers, these businesses are focused internally on their own issues and objectives. This does not engender market or customer focus. 2. Ineffective customer segmentation Many organisations use simple demographics to segment their customer base and market - criteria such as geography, sector, age or income levels. An example might be a business that decides to focus on the Melbourne market, or the manufacturing sector, or males between the ages of 25 - 45. While these segments tell us a little about the type of customer we are likely to encounter, they reveal little about the real customer needs or preferences. Importantly, they are not effective in describing what the customer might describe as “good service”. Our research, and many other similar research programs, reveal that customers have different definitions of “good service” - and that these will be applied to decide whether to buy from a particular vendor or to remain loyal to that vendor. Unfortunately, standard demographic segmentation does not reveal these important differences, and leads to businesses delivering a similar approach to members of a segment. So, while the service or product is targeted to a particular segment, the needs within the segment are different. This means a fairly random approach to meeting customer expectations in a given segment - undermining the whole purpose of segmentation in the first place. 3. Generic positioning in the market Thirdly, I find that many businesses position themselves somewhat generically within their target market - and fail to signal clearly what the market may expect from them, eg: “ we are a 2nd tier accounting firm serving medium sized businesses in Brisbane”, or “we are a small engineering firm that makes pumps”. This positioning does not speak directly to customer needs or value-adding. Perhaps more importantly, this generic positioning does not support excellence or competitive advantage as it generally attempts to be all things to all people. As we will argue, competitive advantage emerges from making choices and trade-offs that produce a particular focus to position the organisation in a specific way. And, making trade-offs is a lot more than simply setting priorities and objectives within the organisation. 2
- 3. What are the solutions? Clearly, there are no silver bullets that will solve these problems immediately. But my research offers some guidelines for addressing the issues: 1. Address the behaviours of your customers Focusing on the behaviour patterns of your customers in the purchase or usage situation reveals much about their preferences and actual needs. Indeed, my research1 demonstrates that this can tell you more about actual needs than the information the customer may give you. This is because behaviours often reveal the trade-offs and real preferences held by customers - factors that they may not be fully conscious of (or not willing to admit publicly). Furthermore, these behaviour patterns also reveal the definitions of “good service” held by the customer. The diagram below outlines this more clearly: !"#$%& 5$6&"$2*&,& Dominant $'()%*+#$%&,& )7"()%"/& patterns of -'.)%"/& 0 8$%2(2*)%"/& behaviour 0 1)23$%2(4)%)22& Definition of good service 9%%$4+#$%&,& @A3+*B/&,& :);(<(=(*/& 3+'*%)'(%.& 0 >-'3'(2)&+%?& 0 C%?)'2*+%?(%.& %$4)=*/& Customers whose strategy and style emphasise action and urgency will define good service in terms of your speed of response, while those that focus on empathy and partnering with their customers will expect you to display good levels of understanding and intimacy in the way you deal with them. And so on. Weʼre not suggesting that the other factors are excluded in the way a customer might define good service - its just that there is likely to be a strong emphasis on on or two of these four definitions. And these combinations are generally not diagonal, as our discussion below will reveal. If we use patterns of behaviour to segment our customer base, we are likely to get a different outcome - one that addresses the key needs of customers, rather than simply their demographic characteristics. I used this approach with a major transport and distribution company a while ago and produced the following results: 1 Chorn, N, Strategic Alignment, Woodslane, Sydney, 2010 3
- 4. Transport and distribution company example !"#$%& !"#$%& !"#$%& 0$1&"$2*&,& 0$1&"$2*&,& 0$1&"$2*&,& $'()%*+#$%& $'()%*+#$%& $'()%*+#$%& )3"()%"/& )3"()%"/& )3"()%"/& ,&-'.)%"/& ,&-'.)%"/& ,&-'.)%"/& Key customer needs 4%%$5+#$%& ,&6)7(8(9(*/& :;<+*=/&,& <+'*%)'(%.& 4%%$5+#$%& ,&6)7(8(9(*/& :;<+*=/&,& <+'*%)'(%.& Key issue for Time critical and Reliable, low cost Specialised transport and reasonable cost solution through solutions distribution company close partnership through close collaboration Customers Same day newspapers General produce Advertising agencies Livestock Next day newspapers Recording industry Fashion shows Food manufacturers Exhibitions Fresh produce Government Dangerous goods Legal documents Furniture makers Concerts Each of the segments is characterised by a particular pattern of customer needs and the manner in which they define “good service”. This allowed the transport and distribution company to target a specific value proposition to each of the segments - even though the segments contained a variety of demographically defined customers. Issue Time critical Reliable service Specialty service service Value Emphasis on fast Emphasis on low cost Emphasis on proposition response and action- and systems-driven innovative and oriented approach reliability flexible approach “We will do it cheaply “Weʼll find a way to “Whatever it takes” and efficiently” make it work” Organisation Courier division General freight division Logistic and special design projects division 4
- 5. 2. Focus and make trade-offs to produce competitive advantage The patterns of behaviour also relate to the different pathways for competitive advantage in organisations. In essence, organisations can pursue four different pathways as they seek to build competitive advantage in their markets. !"##$% &'(%)'*+% ,--'./0'-% 45*+'6#7% /-$%123% 8-06/)9% Again, vertical and horizontal combinations are possible, but diagonals cause significant internal conflict and prevent the internal focus that creates excellence and competitive advantage. This becomes evident when considering the very different internal configuration of capabilities and resources necessary to support each of the pathways. Focus Internal configuration of resources and capabilities Speed Flat structure, decentralised decisions, empowered staff, broad job roles Low cost Tall structure, centralised decisions, emphasis on controls and measurement of process Innovation Fluid network structure, individual autonomy and accountability, emphasis on risk and creativity Customer intimacy Team oriented structure, partnering and collaboration, participative decision making The key insight from this analysis is that competitive advantage is produced by focus and the willingness to make trade-offs. For example, the “Speed” strategy is achieved by making some trade-offs in the way the organisation is designed. In this case, some of the team orientation and participative decision-making is traded off in favour of decentralised decisions and highly empowered staff. In our case study of the transport and distribution company, the Courier division achieves its Time Critical Service (“Whatever it takes”) focus by making these sorts of trade-offs. Similarly, the General Freight division achieves Low Cost and Systems Driven Reliability (“Weʼll do it cheaply and efficiently”) by trading off speed and innovation in favour of efficiency and partnerships with the customer. 5
- 6. 3. Define the business in terms of the value propositions targeted at customers The third guiding principle for winning and keeping customers is to design and position the organisation around the key value propositions. It is possible to position the whole organisation around a particular proposition to the market, as the example in the ICT sector illustrates: !"##$% &'(%)'*+% ,--'./0'-% 45*+'6#7% /-$%123% 8-06/)9% Or, if the organisation deals with several different customer groups, it may be desirable to have several units or divisions - each positioned in terms of the customer group they are serving In the transport and distribution case study, the organisation positioned itself in terms of the three key value propositions for the market. In other words, it focused on delivering a portfolio of value propositions to the market - each supported by a unit of the organisation that addressed a specific set of needs for customers. Importantly, the company recognised that “one size does not fit all” and allowed each division to develop a style and culture best suited to the customer group they were serving. This requires a somewhat different organisation design and form, one that we will discuss in the next article in the series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
- 7. So, how do you win and keep customers in changing and uncertain markets? It is clear that external conditions are changing rapidly and your customers face a stream of potential new suppliers and product / service offerings. However, despite this continuous change in the market, the basic drivers of customer satisfaction (and their underlying needs) remain relatively robust. If we can be sure that we understand the real customer drivers - what the customers really need - and then deliver the appropriate value propositions to them, we can achieve greater success in winning and keeping them as customers. Our research shows that we should be doing three things to achieve this success: ✓ identify the real drivers of customer needs by using behavioural segmentation instead of the traditional demographic approach ✓ develop clear value propositions that deliver against these real needs ✓ position the business clearly by making the required trade-offs to achieve competitive advantage - and then signal this position explicitly to the market. In essence, this means taking a very different look at your customers, how you position yourself in the market, and how you achieve competitive advantage. Not an overnight fix, but one that may be worthwhile as you seek success in these changing and uncertain times. Questions for leaders 1. How do you segment your customer base? Are you using simple demographic criteria because its easier to classify customers? 2. Do you have clear value propositions for each customer segment? Are these propositions based on the product or service being provided, or do they emphasise the problem you solve or value you add to the customer? 3. Are your pathways to competitive advantage clear for the different segments of your market? Do you position your business explicitly within these segments and signal this to both customers and staff? Norman conducts workshops and Join my webinar on “How to win and mentoring in how to succeed in a changing keep your customers in a changing and uncertain environment. Contact him on market” on 27 July at 12:30 - 1:30. [email protected] Register at www.centstrat.com https://www3.gotomeeting.com/ 7 www.normanchorn.com register/166403062