Customers: angels or demons?
It is very natural to treat all our clients in a similar way ... as if they were all the same ... This is an important mistake because among our clients we have "angels" and "demons". We have “angel” clients that allow us high margins, with relatively low commercial costs, with high consumption… and yet we have customers "Demons" who buy little, generate many problems for us, negotiate to the last peso ...
Typically, even if we have "demons" with whom money is lost, the "angels" compensate us and in the end our income statement is positive ... but what if we turned all the "demons" into "angels"? What would be the impact on the income statement?
Although obviously the answer to this question depends on each case in particular, the impact is very important, being able to achieve many points of improvement in the income statement just by rethinking company customer strategy. In a practical case of one of our clients, we found these data:
In which we clearly see how the greatest contribution to the company's profits (and to a large extent of the turnover) is given by 12 clients (approximately 3,5% of the total number of clients), while 301 clients with the lowest turnover they lose profitability (9,2%).
It seems logical that we dedicate the same resources to the 12 clients that represent almost 40% of the turnover as the 384 that represent 19% ?. If we think about the structure of a company - and we will see it more clearly if we have an activity-based cost system - there are many processes, and threads that are independent of the size of the order or customer so they will be very profitable for large orders / customers and very little otherwise. Examples of these threads are from a commercial visit, some internal logistics costs or the costs of administration of sales.
If we agree that almost all the elements of our organizations - from product development to price, through distribution or competitive positioning, depend to a greater or lesser extent on our clients and the level at which we manage to meet their expectations. … So why not make more efforts to know and segment our clients?
Clearly, it is often complicated manage clients as individuals and more in cases with more than 10.000 clients - especially in retail cases - and therefore the concept of segmentation appears. The segmentation It consists of the grouping of clients based on their needs or characteristics that condition their purchase. Segmentation can be very simple based on elements such as billing, geographical area or distribution channel, or it can be more or less complex based on customer behavior. It is common to make segmentations as simple as the one shown in the following table:
But this segmentation profile - although it is a good start - is ineffective in an environment as complex as the current one. For example, in a customer in the chemical sector, we defined a segmentation model based on customer needs similar to the following:
- Convenience seekers, that is, buyers who buy from different suppliers and whose main concern is service.
- Price mercenaries, that is, buyers whose main purchase motivation is price. They can be important customers and have a high frequency of purchase, although they have high loss rates due to the entry of a competitor for a better price. It is an especially interesting client for organizations with cost differentiation strategies.
- Brand buyers, that is, buyers where the brand is a main inducer of purchase.
- Quality indispensable, that is, buyers where quality is their basic parameter.
- Relationship seekers, that is, clients who seek to have few suppliers and with a high level of relationship and loyalty. This customer profile usually has a high acquisition cost but it also has a low loss rate.
Although the model of segmentation previously defined can serve as a model to start, the specific segments of each particular case must be identified. To validate a segmentation model, other parameters such as customer profitability, customer satisfaction, purchase frequency, average order size, etc. must always be taken into account. and it can be crossed with a customer scoring system such as RFM (Recency Frequency Monetary) and the like.
Continuing with the concept of profitability, an element as important as price sensitivity and therefore profitability is directly related to the segment (this case is from a particular case, so its extrapolation will not always be direct):
In addition, segmentation serves us for other elements such as personalized direct marketing, the allocation of resources, the management of customer relations, the value proposition for the customer, etc.
In conclusion, all of our customers We have many "angels" but also some "demons", so having an appropriate methodology to identify and manage them properly implemented will greatly help the company's profitability.
This article was published by Improven Consultores. http://www.improven.com/