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Understanding Customers

Understanding Customers
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Companies must create and use formal methods to gather customer feedback and improve communication.  Best Practice companies have a source of information about what customers think of them that does not come from their sales people.  Sales people make stuff up; sorry, they do.  Sales people often provide customer information and that is fine.  You need to listen to your sales force.  There is no question about that, but Best Practice companies have a way of getting input directly from customers.

 

  • What do you think of us?
  • How are we doing?
  • What are the practices that our competitors provide to you that you really value? 

 

There is a way of gathering that information that does not come from the sales force.  Some firms use consultants who do studies on customer satisfaction.  This is a single event and it goes away.  Best Practice companies build a process and gather data.  Maybe it is only quarterly, but you then have something to measure every quarter. What is getting better?  Is something getting worse?  You must build an ongoing process that gathers data.  The way you turn that into a process is to institutionalize the process so that it is done every quarter or every 6 months.  The second thing that you need to do is to have somebody, other then a sales person, write down a summary of what key messages were heard.  A suggested format is to create 5 key questions that you ask every one of the selected customers to rate you on a scale of 1- 10. This will provide guideposts to be able to pull that together.  If you ask 100 customers you will get a statistically better answer. Some firms call this --- "The Voice of the Customer".

 

Segmentation

 

The other big thing we need to know about to understand customers is segmentation. Segmentation is the act of dividing, separating or partitioning to define specific needs of customers. Segmentation provides the intelligence that defines the various reasons why customers buy from us. It can help us determine the types of customers we should be targeting and the service output demands we must be able to provide to gain market share. Segmenting customers is essential to growth and profitability.

 

Many distributors build their business around geography instead of building it around customers.  Distribution has outgrown that concept.  You must segment your customers, but do not segment by small, medium and large and allocate suck up behavior based on size.  That has been the typical methodology.  Segmenting by customers means you differentiate based on their service output demands.  What are their expectations? What business are they in?

 

There might be several segments within each classification. If you have dealers as customers, you may have several segments of dealers.  You might have a dealer segment that you enjoy the vast majority of their purchase and you are their primary supplier.

You might have a segment of dealers where you are tertiary and they are buying from every Tom, Dick and Harry with the business being won by whomever has the best price.  You may also segment professionals such as architects, engineers, contractors and institutions.  You might have another segment that is based on governmental purchases, federal, city or state.  The point is that you group your customers and it has nothing to do with geography.  Within each segment the customers are very similar with very similar service output demands and the segments themselves have as many differences as possible. That may sound a little fuzzy, but if you had a solid customer segmentation process, you may end up with between 5 to 10 customer segments.  Why are they segmented?  Because those customers consume products and services differently, they have different needs in the market place, different demands.

 

Once you complete the segmentation process then you can refine your product and sales strategy.  "If you want to boil all this marketing intelligence down and not take the class, think STP.  Remember the oil additive Andy Granitelli pitched for years.  The STP of marketing is Segmenting, Targeting and Positioning."

 

 If you are going to really understand customers you have got to do all three.  It is not just the products that are in the box.  It includes your own value propositions. You need to take properly positioned products and align them to targeted customer segments.

 

As an example, you might decide on the dealer segment where they buy a lot from your company, you are willing to invest money and provide a high level of service to those people.  For the clients that buy from everybody based strictly on price, you might decide that is a segment, but you decide not to target it because it is not productive and doesn't provide an adequate return.  There is a high cost to serve, but you cannot have those discussions without understanding your customers.  Volume alone is absolutely not a preferred criterion.  

 

If you are going to be effective at gaining market share you must create a flow of information.  How do I develop market insight?  How do I get to know this?  The answer is"ask the customers."  CEO's or Vice Presidents having a conversation with each other will generate rich qualitative data. That is the best way, but unfortunately senior executives have day jobs, other demanding responsibilities.  The things that give you the next highest validity in terms of market insight are personal conversations between other  professional peers, CFO to CFO, General Manager to General Manager or Purchasing to Purchasing.

 

An alternative to direct communication channels is putting together customer focus groups, but don't have your sales guys go out and do focus groups.  It is like rearranging the deck chairs on the Titanic.  It is just not going to work, because they are going to be selling and as soon as you put customers in front of a sales person they act differently simply because they are in front of a salesman.  But, if all of a sudden Jody is sitting down with a bunch of customers and she says, "I am the executive of XYZ company" and  it is clear from the beginning that she is not selling them something, but talking about industry issues, the tone of that conversation becomes more productive than any sales person could achieve.  I am not taking anything away from sales people, but once you are in that role, everybody sort of puts on their buyer's hat. You can also use a consultant to facilitate these focus groups.

 

Telephone surveys drop validity way down and are not recommended. A written survey gives you some insight, but nowhere near as much as the personal conversations or focus groups. 

 

Take benchmarking seriously; reach out to your customers to better understand your markets and their demands. It can provide tremendous value and provide a different insight into your business.  It helps you define specific best practice as it applies to success in your company.





Understanding Customers - To learn more about this author, visit Dr. Rick Johnson's Website.

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Dave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website

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Dr. Rick Johnson
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www.ceostrategist.com - Sign up to receive "The Howl" a free monthly newsletter that addresses real world industry issues. - Straight talk about today's issues. Rick Johnson, expert speaker, wholesale distribution's "Leadership Strategist", founder of CEO Strategist, LLC a firm that helps clients create and maintain competitive advantage. Need a speaker for your next event, E-mail rick@ceostrategist.com.

Dr. Rick Johnson has over 35 years of experience in distribution sales and operations. Rick�s career can be broken down by decades. The first ten years of his distribution career were spent with the largest steel-processing distributor in the world (Joseph T. Ryerson). The second ten years began with Rick starting his own processing distribution center from scratch. In the first year, sales reached $1 million dollars and had grown to $25 million in its tenth year when Rick sold the business to one of the major national chains. The third ten years of Rick�s career dealing with financially troubled Turn-A-Round companies. After completing ten years of TAR work, Rick decided a decade of acting like Darth Vader was enough and became a consultant to the Wholesale Distribution Industry in 1999. Rick received an MBA from Keller Graduate School in Chicago and a Bachelor's degree from Capital University, Columbus Ohio. He also served six years in the United States Air Force as a survival instructor. Rick completed his dissertation on Strategic Leadership and received his Ph.D. in 2005. Rick is frequently published in numerous magazines including a column in Supply House Times, with over 250 different articles published to date. He�s also a published author with eight books to his credit.



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