Chapter Thirty Two

The Right Customer

 

Customer-centric is an approach to doing business that focuses on providing a positive customer experience both at the point of sale and after the sale to drive profit and gain competitive advantage. The philosophies and operations of customer-centric businesses revolve around their most valuable customers and making sure they're happy.
Because not all customers turn out to be equally profitable, businesses seek to be customer-centric and gain strategic advantage by identifying the best customers and focus on building products and services tailored to the needs of those specific individuals. This is achieved by gathering customer data from multiple channels and analyzing it to better understand and categorize customers.
One way to figure out if a customer is high-quality, according to Dr. Peter Fader, is to calculate their customer lifetime value (CLV), which predicts the net profit a business will acquire from its entire future relationship with a customer. High-quality customers are those who stay loyal to the company and don't leave unless given a vpowerful incentive to do so. These customers have a high CLV and collectively have a low attrition rate. Customer-centric organizations strive to acquire, retain and develop this type of customer by enhancing their experience.
“You spend an awful lot of money, time and energy acquiring customers. You recover this investment over time, so you want your customers to stick around as long as possible. The longer they stay, the stronger your business. This is why the value of one divided by the churn rate is often quoted as the average customer lifetime; lower churn equals longer customer lifetimes equals larger customer lifetime value.” retrieved from: Chaotic Flow by Joel York
Even a very customer-centric organization will only utilize specific customer-centric activities for select customers. The majority of regular customers will not necessarily get the same treatment as companies continue to seek their business but on a limited scale. The paradox of customer-centricity implies that while the needs of the esteemed customers are taken care of, the needs of the regular customers are also met. Ironically, a product-centric approach is the strategy for how the regular customers will be handled. Unique products and services might be developed for the regular customers or they may even receive some of the products and services created for the premier customers. Companies seek the business of their regular customers but solely on their terms. In order to make money using a customer-centric approach, it is imperative that companies embrace customer heterogeneity. If customer-centricity is going to succeed, it will require accentuating the differences of customers to establish those who are the premier customers and those who are just average.  
In this manner, all sorts of implications arise regarding incentive structures that companies use to design their organization.  In addition, these implications influence corporate communication between customers and corporate shareholders. A Heterogeneous Market

a market in which distinctive and different customer needs can be identified and which can then be used as a basis for segmentation.

is key to establishing a successful customer-centric approach.
The local professional Hockey team enjoys strong fan support. Tickets are in high demand for all the games. Customers are offered a number of ticket options. From a single ticket located far from the action to front row seating. In addition, there are booths that include a number of amenities. Private parking, access to after event dining with the stars, and box seat food service. Customers that purchase season tickets are rewarded and this is typical for all Professional sports venues.
We haven't answered the question; Is customer centricity right for our company? Ju-Yeon Lee, Shrihari Sridhar and Robert W. Palmatier writing in the July — August Harvard Business Review points out some of the issues with implementing a customer-centric strategy. “A Customer‒centric strategy hasn't worked for some companies because: 1) It introduces greater complexity into communication and decision making and leads to duplication of certain functions across company divisions. 2) When few customers value greater customization or responsiveness, the headaches of restructuring around customer segments aren’t worth the trouble, and 3) In cases where customer–centricity is an appropriate structure, they found that it takes more than two years after a restructuring, on average, for companies’ performance to exceed prior levels. During that period, performance typically deteriorates significantly as the firm incurs coordinating costs due to internal conflicts and confusions.”
Consider, how do you reward the better customers. Nordstrom allows specific customers early access to the yearly sales, convenient parking privileges, access to lower prices, two-day shipping and the ability to meet the stars after the show. What you want to do is be fair. Before a customer is a “select customer” they are one of the new guys that you want to convert to a special customer.
Experimentation is an idea that compliments long-term thinking. “Experimenting not only enables companies to determine the right message to use at the right time, but it is a form of adaptive learning. When companies run an experiment, they generally consider the appropriate follow-up experiment.  This is a part of the long-term thinking process which requires continual testing and learning. Rigorous testing and experimentation is a new function in marketing. It requires a totally different mindset, and should not be held accountable for growth results per se. Its sole function should be to run experiments, provide insight and let business leaders make the decisions. Marketing is a shifting landscape of ever-growing channels, rapidly changing customer needs and ever new competitive threats. A fully holistic approach to marketing is perhaps even more important now than ever. We’re lucky to now have far more access to analytics and customer data, but this should be paired with a rigorous and systematic approach to testing and experimentation.” reference RebelHack
Here is an example of experimentation reported in the Wall Street Journal.
McMuffin lovers prompted experiment selling of burgers and eggs at the same time. McDonald’s Corp, begin testing sales of McMuffins, Hash Browns, and Hotcakes throughout the day, a sign of new Chief Executive Steve Easterbrook’s willingness to experiment with a range of measures to reinvigorate flagging sales. The tests, which start in April 2015 at some McDonald’s outlets in the San Diego area, will push sales of certain breakfast items past the start of lunch service, which is generally around 11 a.m. The move doesn’t guarantee that the company would expand the project nationwide, a spokeswoman for the Oak Brook, Ill.-based burger company said on Monday. “We look forward to learning from this test, and it’s premature to speculate on any outcomes,” said spokeswoman Terri Hickey.
The breakfast project highlights McDonald’s increasing efforts to rejuvenate its brand in the United States and bolster sales growth that wilted in the last two years. The experiment had positive results. The WSJ reported, “McDonald's is rolling out an all-day breakfast menu to its more than 14,300 US restaurants starting October 6, 2015.” Observers say the change helped attract new diners, lure back customers that hadn't been visiting as frequently, and increased traffic during the lunch hour. Research firm The NPD Group said in the early months of the promotion; traffic was especially boosted at lunch, helping increase average check size. Why did McDonald's start by experimenting? There was concern that the kitchen might not be able to handle lunch and breakfast menus on the same grill. Some kitchens would need to be modified, which required a solid business case to justify.
Experimentation is essential, and it is imperative to recognize that a customer-centric approach is not for everyone. The majority of non customer–centric firms do not necessarily treat their customers badly but simply do not follow the principles that we discussed here. That is perfectly acceptable as plenty of firms concentrate more on operational excellence and or performance superiority. Those methods are distinguished as excellent strategies to pursue. On the other hand, a customer-centric strategy requires companies to have a thorough understanding of a successful customer-centricity approach. This is in order to make a well-informed decision about whether it is the right approach for them.  

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