Since the early 2000s, companies from nearly every industry have come to the realization that building enduring customer relationships is essential to their success. As a result, many older companies and a large percentage of newly created ones have made a concerted effort to shift from being product-centric to becoming customer-centric organizations.
Organizations that are aligned around their customers seek to understand the world through their eyes. And, companies that strive for, and achieve this level of engagement see greater results, bring more innovative products and services to market, and, I believe, are significantly more profitable over time.
But I am getting ahead of myself. Ascending the mountain of relationship excellence to achieve a state of customer-centric nirvana is a long journey. So, let’s start at the base of the mountain by exploring three simple truths about customers that, when truly understood, give any company its best chance to achieve customer-centric success.
Truth One: Customers are a scarce resource
There are more than 7.3 billion people and tens of millions of companies on the planet today. But despite this, only a small fraction of them will ever want to buy what any individual company sells – no matter amazing its products are.
As such, any company’s skill in finding, converting, and obtaining as much profitable revenue from its customers as possible while retaining them for the longest period of time determines exactly how big it can ever grow to be.
For example, there are only so many people who can be hungry for donuts at any moment within a given radius of a donut shop. On top of that, each of those people has loads of options. They can easily be distracted and walk into the coffee shop that is two doors down from the donut place. Or, they can or decide to go back home and scavenge through their pantry for something sweet instead. Or, worst of all for the donut shop, they can decide right then and there to give up donuts altogether. For what it’s worth, I personally don’t think anyone should ever give up donuts, but I digress…
The point is that customers are scarce. They are scarcer than the products and services you, me, and our competitors will ever sell. There is no aftermarket or outlet store for unused or over-produced customers. We can’t borrow them from a customer bank. We can’t manufacture them. Finding them often feels like searching blindfolded for a friend in a crowd of strangers, but we are all dead without them.
Truly customer-centric companies and their leadership teams understand this truth. Because customers are a scarce resource, they strive to be increasingly customer-centric, not just customer-focused.
Truth Two: Customers are our only source of revenue
Let me state the obvious: no product or service will ever pay you a single penny. Neither will your brand, your marketing programs, your stores and factories, or your employees. The only things out there that will ever pay for anything from your company are your customers – the ones you have right now and the ones you hope to have in the future.
Everything else – your brand, your people, and your products, are only important to the extent they help you to find and retain customers who will exchange their money for your goods.
Because of this simple truth, it should be obvious that the real goal of any company should be to ensure that it is positioned to create the greatest possible value from each of its customers. But that isn’t how most companies play the game of business. Companies that are not customer-centric tend to focus on creating the greatest possible value from each of its products. This is a big difference.
The end-goal for a company should be about more than maximizing value from each product it sells or the obtaining the greatest return on its invested capital. These are important aspects of running a successful company but they are a means to an end. The end should be driving maximum value out of each customer relationship.
Truth Three: Customers create value in multiple ways
Almost every company only gets good at measuring one way its customers create value: through the results of its quarterly profit and loss statement. But the reality is that a generic view says nothing about the strength of individual customers, the profitability of each relationship, or the likelihood they will stick around. It isn’t enough to simply focus on the economic value generated from customers. Companies owe it to themselves and their customers to dig a little deeper.
Successful customer-centric companies focus as much on managing and enhancing the customer equity they are creating each quarter as they do on the amount of revenue their customers generate and how much of it falls to the bottom line. Given this, understanding the company’s Return on Customer (ROC) is every bit as important as understanding its Return on Investment (ROI).
Return on Investment indicates how much value a company creates from the money it invests to make and sell products.
Return on Customer indicates how much value a company creates from the customer equity it generates from its relationships.
You can read some of what I’ve written about ROC in the past here but the Cliffs Notes version goes like this:
Return on Customer thoughtfully takes into account the two primary ways customers create value for a business:
1)By increasing the company’s current period cash flows (upgrades and upsells)
2)By increasing its future cash flows through higher expected lifetime value.
Measuring ROC helps you to quantify the potential impact of increasing customer happiness, reducing churn, or driving more referrals. Using ROC to identify and weed out poor-fit and unprofitable customers while working to turn your best customer relationships into value creation machines is a sure-fire way to ensure the continual growth and success of any business.
The final word
For companies that understand these three simple truths, it is only natural for them to want to get to the heart of the deep-seeded needs of their customers. And once they’ve discovered them, it follows that they would be motivated to meet those needs better than any competitor who hasn’t made the effort to develop that same level of understanding. Truly knowing your customer results in the natural creation of a defensible competitive advantage. Operating under a customer-centric strategy is the best way to unearth and use this information to provide a positive experience for customers across the entire customer journey.
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