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www.the
genius
works.com © Peter Fisk 2008
 
The Customer Business
Extract from “Customer Genius”
 
by Peter FiskDoing business on customer’s terms is obvious and essential.Peter Drucker was one of the first to suggest that the sole purpose of a company is to create andretain customers. He reasoned that since the customer alone pays for the product or service, thecustomer the most important entity within the business. Indeed, in recent years, from the eightiesbandwagon of total quality management to the nineties obsession with customer relationshipmanagement, organisations have sought to align themselves to customers.However, some argue that a blind obsession with customers has a destructive impact on competitiveadvantage, the focus on competitors is last as every company seeks to meet the same needs of thesame customers. This itself, they argue, leads to falling satisfaction of customers as they are facedwith an infinite number of relevant but commoditised products and services. It also misses thestimulus for innovation, for meeting the unarticulated needs of customers, and finding better ways tosolve their problems.Companies have succeeded with both strategies – Courtyard by Marriott, for example, was abusiness traveller hotel concept designed entirely by conjoint analysis-based customer research,focusing on the priority needs of this target audience. Meanwhile companies like Chrysler havesucceeded through innovation – their groundbreaking minivan, for example, defining and shaping anentire market despite customer research saying that customers did not want it.The reality is that a successful business does both – these approaches are not in conflict. Having acustomer orientation is not about blindly obeying the customer, but about working with them to so thatyou both understand their needs and ambitions, whether they are articulated or not. Similarly aninnovation orientation is not about product obsession, customers are increasingly partners in theinnovation process, and all innovations ultimately need customers to embrace them.From Amazon to Zara, P&G to Target, they realise that they need to meet the existing and emergingneeds of their customers, but also drive innovation and differentiation. Indeed they realise that a
 
 
www.the
genius
works.com © Peter Fisk 2008
 
customer orientation is not just about bowing to the declared needs of customers, but being selectiveabout which customers to work with, and then collaborating to understand their real issues andaspirations. They also realise that competitive advantage stems from having the better insights, thebetter customers, and thereby driving better innovation and growth.Perhaps it comes down to words and meanings – early approaches to “customer focus” were largelycultural and superficial, achievable despite being driven by products and internal priorities.Customer focus, customer intimate, or customer driven?These initiatives tended to focus on attitudes and behaviours, and mainly those at the “customerinterface” - a term which itself implied that the rest of the business is not connected to customers.They were largely about nice words, soft focus, but when it came to the crunch, it was still businessfirst, customer second - how to gain and grow profits first, satisfy and retain customers second.So what’s different?A “customer business” starts with the customer. It works from the outside in, and then balances thisinside out. By starting from the outside in, the business is fundamentally inverted, its priorities aredifferent, and its performance better.No longer can businesses see the best opportunities, engage the best customers, compete mosteffectively, by standing inside and looking outwards. Products and processes, strategies and systems,rewards and relationships must start and revolve around the customer.Customer-centric is probably the best adjective, if you need one.
Customer Value, Business Value
Becoming a customer business is not just about passion, it makes commercial sense.Customer businesses deliver more profitable growth, are more sustainable over time, and deliverbetter returns to shareholders. It can also be a more efficient business, a more flexible organisation,and a more enjoyable place to work.At a strategic level, customers are the scarcest resource of a business.It is easy to secure physical resources from suppliers around the world, except in the case of oil whichwe all know is running out. It is relatively easy to secure capital, from conventional investors or morerecently from private and particularly from ethically-motivated sources. It is not so easy to secure thebest talent, as knowledge and ideas become more important. Yet the most difficult to secure, andmost valuable resource is the best customers. These are the golden nuggets of today’s business.At a commercial level, customers are the most valuable assets of a business.Consider the market capitalisation of a business – the collective value of all your shares, andreflecting the price somebody might pay to buy your business. This value reflects the future profitpotential of your business, and therefore the assets that make up that figure are those that are mostimportant in driving future profits. Today, 86% of the value of publicly quoted businesses is intangible(according to Brand Finance), and the most significant intangible assets are typically brands,relationships and ideas. Two and sometimes all three of these are driven by customers.At an operational level, the best customers cost less and spend more.Research, to be considered in more detail later, describes your best customers as those who areprepared to engage in long-term, profitable relationship. It shows how these best customers willtypically stay longer, cost less, buy more, pay more and tell others. Their acquisition costs will belower, falling to zero as they want to come back of their own accord. Their operational costs will alsobe low, as they do more themselves. Their perceived value is higher, and therefore they may pay
 
 
www.the
genius
works.com © Peter Fisk 2008
 
more or at least seek lesser discounts. A best of all they are great advocates – recommending you totheir friends, other people like them – building reputation and attracting others.Every business will quote different figures to demonstrate the importance of customers. The numbersand chosen ratios may differ by type of business and market. However these are some of the mosttypically quoted statistics, averages and generalisations, but helping to make the business case:
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20% of your customers give you 80% of your revenue
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10% of your customers give you 90% of your profit
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A very satisfied customer will tell 3 other people
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A dissatisfied customer will tell 12 other people
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A very dissatisfied customer will tell 20 other people
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98% of dissatisfied customers never complain, they just leave
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65% of lost customers are due to negative experiences
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75% of negative experiences are not related to the product
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The biggest reason people leave is because they don’t feel appreciated
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It costs 3 times more to acquire than to retain a customer
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It costs 12 times more to win back a dissatisfied customer
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Over 5 years a typical company retains 20% of its customers
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5% increase in retention would increase profits by 25 to 55%(Sources: TARP, Bain & Co, ECSW)Most companies are quick to beat their chests about delivering superior value to shareholders, drivingprofitable growth, reducing risks, improving dividends, and seeing their share prices rise. Of coursethey can do this in the short term by “slash and burn” approaches to cost reduction and aggressivelydriven sales. But it won’t last. The only sustainable route to long-term value creation, profitable growthand lucrative dividends, is in creating and delivering superior value to customers.
•
 
Creating superior value for customers 
– through deeper insights, more relevantpropositions, and personal solutions - is the foundation of a successful “customer business”.
•
 
Creating superior value for shareholders 
– through sustainable growth, enhanced margins,and reduced risks – is the results of a successful “customer business”.“Customer value” is therefore the starting point - not the financial value of the customer to us, but thevalue we create for them, which is obviously a perception that differs by customer, rather than anabsolute value. But it is the notional value, the philosophy, and approach that matter.
Building a customer-centric business
Defining a “customer business” can sound simple and obvious. It sounds like the right thing to do. Andthis is perhaps why so many organisations, and particularly their leaders, have failed to appreciate themore fundamental differences involved. They have applied the philosophy, but not the disciplines thatmove from a product to customer obsession, and to turn passion into profitWe understand now that it is about creating value for customers first, and business second. We areready to embrace pull rather than push approaches to our markets, and to adopt this more holisticallyin our “outside in” approach to business. We can also make a strong business case for it, based onthe significant impacts on profitability and value creation.
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