Get ready—'tis the season for resolutions. But instead of a boring list of all-purpose to-dos, here's a single goal that can make a big impact: We will identify our most profitable customers (the top 20%) and create a strategy to increase business with them by 20% before year's end.
Let's call it "the 20/20 strategy." It can capture the attention of your entire organization to drive profitability in 2006. Read on to find out why it's so powerful, and how you can implement it successfully.
Focusing on the Top 20 Percent
The Pareto Principle, or the 80/20 rule, states that the relationship between effort and return is not balanced. It's been proven many times over, particularly when it comes to money—80 percent of a company's revenue comes from 20 percent of its customers.
For a company with $10 million in revenue, that means that approximately 20 percent of its customers generate $8 million. If the company can increase revenue in this group by 20 percent, that's a cool $1.6 million (a 16 percent revenue increase) from its very best customers who already are favorably inclined toward the company.
Doesn't it make sense for a company with a solid client base to concentrate the largest part of its marketing budget and activities on the most profitable 20 percent of its customers?
The answer is yes—and understanding this principle should have a significant impact on your company's marketing strategy. This doesn't mean that the 20/20 strategy will be the only goal of marketing. But it does mean that it will take the lion's share of the budget, the staff and the strategic thinking power of the department—as well as collaborative agreement from other departments.
It Takes a Team Effort
When a goal affects the bottom line of the company as this one does, it affects more than the originating department. Though marketing is the creator of profitable customer connections, the company is a system; and collaborative cross-functional efforts from these departments are needed to realize this goal:
- Accounting will assist with identifying the company's top customers.
- Product management will ensure the delivery of added product features and/or services that align with customer needs or resolve customer problems.
- Marketing will analyze customer profitability data, gather and evaluate customer feedback, develop the strategic program, guide teaming efforts and monitor results.
- Sales will refocus a large part of its efforts to existing customers, upgrade business and sales skills (probing, listening, etc.) to better connect with customers, understand their business needs and improve relationships.
- Customer service will need to examine its methods, skill sets and processes to make changes that result in quantifiable improvements in daily activities and customer relationships.
This single, compelling goal has the clarity and sense of purpose to build unity and drive collaborative action across the organization. Because of this, the CEO's spotlight should noticeably broaden to approve and support the necessary cross-functional changes.
From Resolution to Reality
Typical resolution lists are long on ideas but short on practicality. Apart from team-building input, here are basic steps needed to make this goal a reality.
Analyze customer profitability
Your top-level goal is to identify your most profitable customers—but remember that high-revenue customers are not always highly profitable. That's why accuracy and detail is important. If you've never done this before, you can start with a simple method such as percentage of sales. But we recommend getting accounting or the CFO involved quickly to implement accurate and comprehensive cost allocation methods to include marketing, sales, account administration and other costs. (And, looking at the big picture, your customer relationship management system will be more meaningful when it can accurately analyzes customer profitability—even rank them from most to least profitable.)
Get customer feedback
When it comes to your most profitable customers, the first goal is to keep them satisfied. To do that, your strategy should include customer satisfaction feedback and analysis followed by rapid action to identify and correct areas of dissatisfaction.
- Questionnaire development. To gather information from your best clients, you need thoughtful questions that probe more into their satisfaction levels, needs, and business direction—questions that consider all touch points with all processes they encounter across the company. While you could use a quantitative survey (online or by mail), a personal telephone interview can often gain more meaningful information. Try to avoid run-of-the-mill questions such as "Were you satisfied with our service?" This type of question is superficial and only elicits a yes/no response. Be more insightful and show your knowledge of the client.
- Client call list. Within your top accounts there may be multiple contacts who can provide vital satisfaction and needs insights. Consider making multiple calls. For example, Purchasing may have input on your accounting department; your product user may have comments about technical support or customer service; and your management contact may have long-term planning issues or product-testing needs. All of these people can provide satisfaction feedback, and if you must compete for new business they will all have input and influence about their relationship with you. Make sure that input is good.
- Client interviews. Ideally, an outside group would call these customers and query them about their satisfaction levels, needs and business direction. If that's not possible, get a customer support group (not the account manager) to do the calling. No matter who does the calling, it's vital to remember that this is an opportunity to deepen the relationship with the client through the type of questions asked, the way they are asked, and the approach and professionalism exhibited. This should not be done lightly—a professional, knowledgeable approach is vital to its success and for making the best impression.
- Client incentives. Are incentives necessary? In today's world of too many requests for information, it can be a positive motivation for giving feedback. It typically doesn't take much: Successful incentives for your best clients can be a $50-100 gift check; or, if they are prohibited from accepting gifts, the same amount can be donated to the charity of their choice in their name or the name of the company.
- Feedback analysis. The analysis should enable a deeper understanding of the needs and value drivers of your customers, and reconfirm or help realign your target markets. Some findings may be more significant that others. Generally speaking, a result is significant if it can increase understanding, shift perceptions or cause changes in the positioning, policies, activities or behavior of the company. Just make sure the data is thoughtfully analyzed, action items are assigned, and improvements occur.
Create a 20/20 Marketing Strategy
With the customer knowledge gleaned through feedback analysis, it's time to ask questions and seek cross-functional input to develop a strategy to implement effective communications and customer interactions.
- Ask questions. Do our products, plans and processes match the customer's buying process? How does this customer knowledge affect our corporate positioning and product value propositions? Can we group our customers into needs-based subsets? What about our messaging—is it focused on what customers want to know? These questions take customer feedback further and relate it to the organization's marketing strategy. They use customer knowledge as a decision-making gauge and an indicator of relevance.
- Get cross-functional input. As the marketing resolution is dependent on the activities of many departments, team sessions will help build buy-in, allow feedback updates and enable the sharing of insights and ideas that will further customer-centric strategy development.
- Create a multi-dimensional strategy. At this point, it really isn't about more literature and advertising—it's about more services, new channels, added features, more information, enhanced R&D partnering, faster response/delivery times, customized technology, greater corporate prestige (customer advisory boards), special pricing and other activities that draw you closer to your customers and help you understand and meet their needs. The product offerings, activities and interactions you plan should help your customers improve their businesses, increase revenue, lower costs or improve connections with their own customers.
- Resource planning. With such an important goal, there should be a corresponding increase in the marketing and sales resources focused on this customer group. The strategy should reassess budgets and realign people resources as needed to ensure that adequate coverage is devoted to the 20/20 strategy.
The beauty of the 20/20 strategy is that it's SMART—specific, measurable, actionable, relevant, and time-based. From the very first step, Marketing and every other department can measure the success of their actions and tie each activity to revenue generation, customer retention, and bottom-line profitability. To avoid playing catch up, make sure your strategy includes a measurement plan with key metrics noted, and that the baseline data is ready for new inputs and analysis.
Marketing success depends on a company's ability to aim limited resources at those customers and activities that will provide the greatest return. The 20/20 strategy is one goal that can focus Marketing's efforts squarely on the customer and driving bottom-line profitability. Make it your resolution for 2006.