WHY AREN'T CUSTOMERS LOYAL?Customer-Driven Business Models Reveal How Companies Can Satisfy Customers Needs Why are customers more demanding and less loyal than ever before? Many in the industry ask similar questions about customers these days. If only customers could appreciate all we do for them, goes the common refrain, they would be more loyal and pay us what we're we're Contraction of we are. we're we are really worth. Of course, loyalty and predictability are a two-way street, and feedback from customers reveals a sizable siz·a·ble also size·a·ble adj. Of considerable size; fairly large. siz  a·ble·ness n. number who don't don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. feel agri-food marketers have ever been very customer-focused. It doesn't does·n't Contraction of does not. take much prodding for these customers to open up in personal conversations regarding their perceptions about suppliers who are not oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. to meeting their needs or unwilling to provide the level of service they desire. In their view, the tough economic times in the industry have simply laid bare a long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. problem that was "below the surface" when profits were higher. It is important for marketers to examine the fundamental shifts that will make customer service even more important in the future and determine the specific actions that companies should take to enhance their customer focus. Why is customer focus increasing in importance? A previous article (beginning on page 20 of the November/December issue) discussed three traditional value disciplines that represent the ways companies add value for their customers. The disciplines are Technology Leadership, Customer Focus and Operational Efficiency. The article also introduced a fourth discipline, Business Design, which involves rapidly reconfiguring the other three disciplines based on customer needs. Future business success demands that companies excel in all four disciplines. Historically, however, two disciplines have received much greater attention in the agricultural industry (see figure). The strategic leverage of Technology Leadership has declined precisely because companies have been so successful delivering greater performance. (When we achieve 99.9 percent weed control Weed control is the botanical component of pest control, stopping weeds from reaching a mature stage of growth when they could be harmful to domesticated plants and livestock by physical and chemical methods. , how much open room is there for "better weed control"?) In addition, 10 years of restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and portfolio rationalization rationalization, in psychology: see defense mechanism. have resulted in high Operational Efficiency for most companies, particularly manufacturers. [ILLUSTRATION OMITTED] In essence, we have an industry of lean, mean companies that have great products but don't understand their customers. In most agri-food markets the key Business Design imperative imperative: see mood. imperative - imperative language is therefore to enhance Customer Focus. Companies must target individual customers and redefine Verb 1. redefine - give a new or different definition to; "She redefined his duties" define, delimit, delimitate, delineate, specify - determine the essential quality of 2. service in their terms to extract any pricing premium. This "price / service balancing act" is not unique to the agri-food industry. A Business Week article (Oct. 23, 2000) noted the recent declining service levels in industries as diverse as airlines, banks, stores, hotels and phone service providers. These industries have some trends in common with the agri-food industry -- declining pools of quality employees, wider spans of responsibility, and pricing pressures that have driven down profit margins by 5 percent to 10 percent during the past decade. Two other dynamics are converging con·verge v. con·verged, con·verg·ing, con·verg·es v.intr. 1. a. To tend toward or approach an intersecting point: lines that converge. b. to define how industry deals with this challenge (see figure). First, customers continue to demonstrate greater variability in service needs. For example, 15 years ago it was relatively uncommon for a grower to demand a stripped-down stripped-down adj. Having only essential or minimal features; lacking anything extra: a stripped-down stage setting; a stripped-down budget. Adj. 1. cash-and-carry offer -- most growers Growers are the people, animals, plants, and various living creatures that assist in the growing of plants and other living creatures. More specifically, the term "growers" refers to individual people who put forth effort to grow plants for food and medicinal use, including the required a similar service bundle To sell hardware and software as a combined product or to combine several software packages for sale as a single unit. Contrast with unbundle. See bundled software and bundling. . In contrast, today's agri-food marketer has to deal with a very diverse set of expectations. [ILLUSTRATION OMITTED] Second, technology (particularly the installation of enterprise systems) has dramatically enhanced marketers' toolbox See toolkit and toolbar. for analyzing customer profitability Customer profitability (CP) is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period. According to Philip Kotler,"a profitable customer is a person,household or a company that overtime,yields a revenue . This analysis (and the growing concentration of the industry) has resulted in the "70/30" rule (70 percent of profits from 30 percent of customers), then the "80/20" rule and, in some markets, the "90/10" rule. Technology allows marketers to determine precisely which customers are key to their profitability and focus limited customer service resources directly on those customers. New technology tools like Customer Relationship Management are being developed to help companies focus their service efforts. Some examples are coding (assigning as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. customers a profitability code), routing (managing service inquiries differently depending on profit codes), targeting (extra discounts and offers for choice customers) and sharing (advance data sharing The ability to share the same data resource with multiple applications or users. It implies that the data are stored in one or more servers in the network and that there is some software locking mechanism that prevents the same set of data from being changed by two people at the same time. to identify highest potential customers). Agri-food marketers will have to do what many marketers in other industries already are doing -- focus their service on those customers who are most important to business success. What must the industry do to target and understand customers? Much has been written during the past several years about being customer focused and market driven. (Two good books See how to find a good computer book. on this topic are Market Driven Strategy by George S. Day George S. Day is the Professor of Marketing at the Wharton School of Business. He is well known for his research on aligning organizations with their markets competitive strategies in global markets, strategy development, and managing innovation processes. , and The Customer Driven Company by Richard Ri·chard , Joseph Henri Maurice Known as "Rocket." 1921-2000. Canadian hockey player. A right wing for the Montreal Canadiens (1942-1960), he led his team to eight Stanley Cup championships and was the first player to score 50 goals in a C. Whitely.) Despite much rhetoric about being "market driven" and "customer focused," most companies are simply too internally focused to be responsive to customers. The few companies that have been successful in achieving customer or market focus, however, attain superior financial performance by simply satisfying customer needs better than their competitors. To accomplish this, these companies seem to share four key characteristics: Clearly Defined Customers and Customer-centric Culture. These companies know exactly who they are targeting as customers and have a deep commitment to a core set of customer-focused beliefs and values that permeate permeate /per·me·ate/ (-at?) 1. to penetrate or pass through, as through a filter. 2. the constituents of a solution or suspension that pass through a filter. per·me·ate v. all of the organization's activities. Deep Understanding of Customer Needs. These organizations are guided by a deep and shared understanding of their customers' needs and intentions. They use superior listening skills to understand what customers want and what impresses them. They know what real benefits drive customers and which benefits are valued by enough of the target customer segment to be delivered cost effectively. Strong Competitive Orientation. These companies are good at creating meaningful differences between themselves and their competitors. They understand that competitive advantage is based on exploiting gaps in pricing, coverage, portfolio or service. Their understanding of competitors' capabilities and skills allows them to know how they perform compared to their competitors. As a result, they can focus on delivering benefits that customers value, are willing to pay for and cannot readily get elsewhere. Structured to Support Customer Orientation Customer orientation (CO) is the set of beliefs in sales that says that customer needs and satisfaction are the priority of an organization. It focuses on dynamic interactions between the organization and customers as well as competitors in the market and its internal stakeholders. . These companies build organizational structures  This article has no lead section.To comply with Wikipedia's lead section guidelines, one should be written. that are market based, systems that reinforce team focus, and incentive programs and communications patterns that support their customer focus. How market driven is my company? Agri-food companies must realistically assess whether they are customer and market focused or internally oriented. Most managers find this easiest to do by examining whether their behaviors are consistent with market-focused companies (see table on page 50). HOW MARKET DRIVEN IS YOUR COMPANY?
Internally Oriented Market Driven
Business Business
CUSTOMER-CENTRIC CULTURE
Organizational * begins and ends * begins and ends
Direction with management with customers
Customer Problem * an attitude that * company ownership
Solving Orientation says "it's their of every problem
problem" that affects the
customer
View of Marketing * marketing is cost * marketing is source
and Segmentation center to be of strategic
reviewed annually advantage reviewed
continuously
* segment by product * segment by customer
applications and
economic benefits
Sales Drivers * assume that price * know what factors
and product influence customer
performance/ buying decisions and
technology are the sell a package of
key to most sales values that
includes:
performance,
price, service,
applications
DEEP UNDERSTANDING OF CUSTOMER NEEDS
Decision Making * based on * based on customer
assumptions and data and facts
judgment calls
Market Intelligence * relies on * invest in market
anecdotes research and
systematic
collection of sales
data
* difficult to get * track environment
useful sales and modify strategy
Internal Business * pricing trends, * customer and
Conversations volumes, order segment needs,
backlogs competitive share,
integrated customer
solutions
STRONG COMPETITIVE ORIENTATION
Competitive * know competitive * know strategy,
Knowledge product features assumptions, cost
structure, business
objectives of major
competitors
View of Channels * conduits (or * extension of sales
(Manufacturers) barriers) to force and partners
customers in serving
customers
STRUCTURED TO SUPPORT CUSTOMER ORIENTATION
Structure and * functional * cross functional
Cooperation stovepipe cooperation driven
organizations by how we
driven by how support the customer
things affect them
Operational Mindset * good at crisis * good at doing it
management and right the first
recovery; dependent time; focus on
on heroics driving variability
out of the process
Communication * mass market * segment specific
Performance Metrics * volume, product * track product,
& Accountability margins customer, and
segment P&Ls
* no accountability * hold managers
due to accountable for
"uncontrollable" performance
markets and cost in their markets
allocations
How did you do? Is your company market focused or internally focused? What can I do to build greater customer focus? There are several specific steps you can take to enhance your company's customer focus: 1. Create a real customer mission -- getting, keeping and understanding customers. 2. Saturate sat·u·rate v. Abbr. sat. 1. To imbue or impregnate thoroughly. 2. To soak, fill, or load to capacity. 3. To cause a substance to unite with the greatest possible amount of another substance. your company with the voice of the customer. Make sure customer feedback makes its way into every aspect of your operations. Get really serious about formally asking your customers how you are doing. 3. Go to school on the winners. Study those companies in the industry that seem to do the best job of serving customers. Go to school on your competition, too. 4. Use technology to drive customer focus. Learn how to use technology tools to understand which customers are most important to your business and define cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. ways to serve non-core customers. 5. Smash the barriers to effective customer support. Root out and eliminate those internal systems that create barriers to effectively serving customers. 6. Measure, measure, measure. Customer satisfaction is measurable and can provide a basis for continuous improvement, if you take the time to measure performance and act on the findings. 7. Walk the talk. Management must be committed to understanding customers, meeting with customers, soliciting ideas from customers, and acting on feedback from customers if your customer focus efforts are to succeed. One final thought in case you are wondering whether it is worthwhile to make the investment in building the responsiveness and marketing strength required to be truly customer focused and market driven: "The race isn't is·n't Contraction of is not. isn't is not isn't be always to the swift, nor the battle to the strong, but that's the way to bet." -- Damon Runyon Noun 1. Damon Runyon - United States writer of humorous stylized stories about Broadway and the New York underground (1884-1946) Alfred Damon Runyon, Runyon In the next issue we will examine how alternative business strategies, particularly e-commerce e-commerce, commerce conducted over the Internet, most often via the World Wide Web. E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. , are likely to affect the options for agri-food marketers in the future. Dr. Jim Budzynski is president of BrightPath Strategies, an Indianapolis-based strategic consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a focusing on companies in food and agriculture. He can be e-mailed at jimbud@brightpathstrategies.com. |
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