- Features | October 30, 2015
Are You Crazy About Your Customers?
What Business Are You In?
In today’s competitive marketplace, to be truly successful, you need to understand the importance of determining exactly what type of business you are in. Many organizations tend to over-generalize in this area without truly understanding the nature of their business.
For example, instead of saying that you “do electrical work,” you could say that you help homeowners hook up the hot tub of their dreams, bring life to their new kitchen, or energize a large industrial plant that will provide goods to thousands of consumers.
There are seven important questions you must answer in order to identify and capitalize upon your unique position in the market and to develop the kind of customer loyalty that will allow your business to remain successful:
- What products and services do you provide?
- Who are your customers?
- What are their expectations?
- Who are your suppliers and partners?
- Who are your competitors?
- What are the key issues that drive your business?
- How do you measure your performance and effectiveness?
The Long-Term Value of a Customer
One of the most serious and costly mistakes companies make is to fail to recognize the long-term value of a customer.
Many organizations, when faced with a difficult customer situation may decide to “just let this one go,” allowing a customer to leave rather than make an exception to a rigid policy in order to accommodate a unique situation.
But this kind of shortsighted approach can have long-term implications on the sustained viability of the company. For example, a single bad experience with an airline, compounded by their unwillingness to correct the situation, could very easily convince a customer to avoid travel with that airline as much as possible in the future.
To illustrate this, we can look at my own travel experiences. Based on the following very conservative assumptions, you’ll see what an airline stands to lose if I take my business to a competitor:
My average ticket costs $500 I fly twice a month
I work ten months out of the year I will travel at this level for 20 years
This makes my lifetime value to the airline $500 x 2 x 10 x 20 = $200,000! And, as I said, this is a very conservative estimate. Over a twenty-year period, I will almost certainly spend at least twice that amount, and probably more.
The point is that when you are determining the value of a customer, you must look not only at the value of the current transaction, but also at the long-term cumulative value of that relationship.
The Impact of Poor Service
The impact of bad service can be more far reaching than that. For example, think back to the last time you experienced bad service. Did you tell a friend, a family member, a coworker, or possibly even a complete stranger about it? A variety of studies have been conducted that show that from 9 out of 30 people will relate to others their negative service experience. What’s interesting is that this number is far greater than when a person has had a positive service experience.
As a result, a company that decides not to resolve a service problem quickly will certainly experience a financial loss beyond the original customer. Word of mouth is a powerful source of advertising, but it is an even more powerful source of warning signs for potential customers.
People tend to make decisions based on gut feelings. Anything that makes a customer feel uncomfortable will quickly change a potential customer’s positive feelings to negative ones. This