There is no doubt in this economic environment that cash is king and tough investment and cost-cutting decisions need to be made to ensure that your business remains viable, for the sake of all stakeholders.

However, decision-makers who are worried over the stability of their company's finances should remember one simple truth: The source of your business's cash flow is your customer base.

What all of this boils down to is the need to make smart, informed investment and cost-cutting decisions that have both a short-term and a long-term perspective.

If a company is not careful, it may perpetuate a business death spiral: Cost-cutting impacts customer satisfaction and demand, which in turn impact top-line revenue, creating the need for yet further cost-cutting.

That vicious cycle results in a difficult position for any business to re-emerge from. Yet it can be avoided—by maintaining a customer perspective during these trying times.

Steps to Take

Although each business's model and situation are different, there are common steps for addressing the challenge.

1. Revisit your segmentation

A business's customer base is its ultimate source of cash flow; however, not all customers are created equal. It is surprising how few companies have systematically analyzed the profitability of customer segments at anything deeper than a gross-margin basis.

Examining your segmentation with an eye toward which customers are truly driving your cash flow and are absolutely critical to retain, and which customers are less important but consuming critical fixed resources, will help to inform your investment and cost-cutting decisions.

2. Recognize and appreciate your customer's situation

Recognize that your customers are also taking a hard look at their expenditure profile, which may result in (1) eliminating consumption of a particular product or service; (2) reducing consumption; or (3) continuing to consume at the same level but with a lower-priced product or service.

That third option is a result of the individual consumer's switching cost being lowered by the current economic environment. Pay particular attention to that third group. The first and second customer groups are difficult to influence, but the third can be addressed by continuing to demonstrate the value that your company's offering delivers to them.

3. Map your customer touchpoints

Develop an understanding of the impact that each touchpoint has on your customer and the degree of perceived value your customer receives from each touchpoint. Which add value and are critical to satisfaction? Which are "nice to haves"?

A simple map of known touchpoints and their hypothesized importance will do if you haven't studied this systematically.

Being armed with this knowledge of the relative importance of activities will help focus your investment decisions and help avoid cutting activities that impact satisfaction and loyalty.

4. Maintain or increase your customer marketing investment

While investing heavily to acquire new customers may not make sense in this economic environment, investing to retain your customers makes absolute sense. This should not be customer marketing as usual. We would not advocate barraging your customer base with cross-sell and up-sell promotions.

Now is the time to increase customer equity through activities such as these:

  • Opening a dialogue with your customers:
    • Thank your customers for their business.
    • Recognize the economic situation and sympathize with the challenges your customers are facing.
  • Rewarding your customer base:
    • For a period of time, offer free services that have a limited impact on your cost structure but deliver additional value to your customers.
    • Offer special promotions that are low-investment items but are perceived as valuable by your customers.

5. Step up customer service

Now is not the time to under-deliver on your customers' expectations, especially in customer service. As we noted, switching costs have been reduced—and one poor customer-service experience could be enough to drive a customer to a competitor.

Without making a significant investment in customer service, a business can take various actions to improve the level of service delivered. The following are examples:

  • Creating a sense of urgency in your customer-service groups: Clearly set expectations that the business viability is dependent on the customers' experience and the customer service group has the ability to make a significant impact.
  • Developing programs to foster improved customer service:
    • Develop internal competitions for your customer-service team.
    • Establish awards and recognition initiatives for your customer-service team.

Final Thoughts

Current economic conditions require that businesses make difficult investment and cost-cutting decisions. Maintaining a customer perspective in these trying times will ensure that the right activities are invested in and your customers are satisfied and secure.

Those that retain their customers in the current economic environment will not only be more resilient in the short term but also best positioned to prosper in the long term, when the economy begins to rebound.

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J. Mark Carr is a partner at CMG Partners (, a strategic marketing consulting firm for companies in a variety of industries.

Karl is a senior manager at CMG Partners (, a strategic marketing consulting firm.