How Well Do You Know Your Customers?

By Amy Radishofski, Features Editor, Manufacturing.netA deeper look into your customer base could show you areas where you can increase revenue and cut back on losses.

The majority of companies are scrambling for sales in 2009, but leads are drying up and consumers are shying away from purchases until the economy stabilizes. When consumers start spending again, what will they buy? Do you even know what your customers buy now?

If you don’t have any new leads or customers coming in, you’re forced to take a closer look at the customers you already have. You may think your marketing and pricing policies are working, but you should review and evaluate them. It’s a whole new business world out there, and doing the same old thing isn’t going to be enough.

Since companies have been through a recession like nothing they have seen before, they can’t continue on with business as usual, says Jamie Rapperport, Founder and Executive Vice President of Marketing and Business Development for Vendavo. Companies may have been forced to make changes during the recession, and now they must make changes during the recovery.

“Take a look at your current policies and behaviors and see if you need to change them,” Rapperport said. “Maybe it would be more profitable not to bundle some products and services. Maybe you should take a look at your discount guidelines. You may be discounting too much, or not realizing some value-added services you provide. A small adjustment can provide a big payoff.”

Consider applying upward pricing pressure. You could raise prices in some areas, reduce discounts, or reduce bundled services. Companies can also benefit from finding areas where they can recover some of the costs to serve.

Instead of extending a particular service across the entire customer base, try to limit its usage. Take a look at using express freight without cost to the consumer, for instance. Are there areas where you can absorb the cost, or are there areas where the consumer should pick up the tab?

Not sure which option is best for you? Rapperport says you should segment your customer base and use the results to determine which method(s) you should use.

When evaluating your customer base, think about customer behavior. What products are they buying? How profitable are they? Which are your top customers that you want to maintain a long-term relationship with? Which customers are good, but should increase their product portfolio?

“Using fine grain segmentation can tell you how valuable your customers are,” Rapperport said. “Separate customers by looking at areas like how broad of a portfolio they have, and the cost to serve them, which includes cost of freight, tech supports, etc.”

Rapperport suggests deciding on a strategy for each tier of customers. For example, you may have the following breakdown of customers:

  • A Customers -- These are the most profitable customers that you want to preserve and protect for the long run
  • B Customers -- Customers in this group are still profitable, but you don’t get as much revenue as you do for A customers.
  • C Customers -- These customers are a high volume, but a low profit group
  • D Customers -- Customers in this group are both low volume and low profit

“Track results using key performance indicators and dashboards. Identify the different types of customers you have in your particular business,” advises Rapperport. “If you have a lot of B customers, you should see if there is a way to bring up revenue or volume. And even though sales are hard to come by, those in the D group are adding little value to your operations, and you could consider cutting them and reallocating resources.”

However you segment and strategize, remember that any changes you make should be done as early as possible during the economic recovery. Doing so will put you in a better position once consumers start increasing spending again. You also must get management and sales on the same page.

“To implement any new sales strategies, companies need to directly address their sales force,” Rapperport notes. “You need to focus on training and changing their behavior. You may need to make them aware of a new discount policy, for example.”

You may have made it through the worst recession in decades, but you still must actively work to position your company for growth. The economy won’t turnaround overnight, and the same can be said about your operations.

“Getting through the recession is just half the battle,” Rapperport adds. “You need to be aggressive during the recovery and segment your customer base. Knowing where you’re gaining and losing money now can help you stay ahead of your competitors.”

Vendavo provides price management and optimization software for business-to-business companies worldwide. For more information, visit http://www.vendavo.com/company.html

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