The Customer’s Always Right—NOT

The Customer’s Always Right—NOT

Beth Goldstein

The customer is always right. We’ve all heard this old adage since we were kids. But is it true? I have raised this question many times over the past years during seminars that I’ve given on sales and marketing, and the reaction usually is mixed. Business owners feel compelled to say “yes,” but you can see that they don’t really believe it. Sure, they’re customer-focused and interested in meeting customer needs but always is a pretty strong term to use—particularly since sometimes the customer simply isn’t right. Or let’s put it this way: They’re not right for your business.

What exactly does that mean? For example, if your business is focused on producing a high-quality, customized product, and some of your customers don’t value that as a benefit but are more interested in getting it produced quickly or steeply discounted, then you’re not going to be able to meet their needs. Therefore, when they’re unhappy and complain that they didn’t get exactly what they want, are they right? Did you fail to meet their needs or were their needs simply not aligned with your value proposition?

I have worked with a variety of manufacturers over the last few years that, at some point, tried to be all things to all customers. They tried to have the fastest turnaround, offer highly customized products and be less expensive than their competitors. Eventually, they came to the harsh realization that the more they tried to meet all three criteria, the more they damaged their reputation and their profit margin, no matter how lean and efficiently they operated their business. But they also discovered along the way that certain customer groups were willing to pay for a select few of the features they offered while sacrificing something that was less important.

For example, the customer groups that were willing to pay for a custom-designed product with a relatively short turnaround also might be willing to pay a premium. Or perhaps these customers would accept a longer turnaround time for the same product if the price were a bit lower (allowing the manufacturer to fit them into their production schedule better and lower their costs).

Let’s think about the customers you already work with as well as those that you are actively pursuing. How many of you are calculating their lifetime value (LTV) to your business? Perhaps a better question is, how many of you know precisely what it means to determine a customer’s lifetime value? Basically, LTV represents the amount of revenue (and profit) they drive into the business during the duration of your relationship with them minus the cost to attract and maintain them as a customer. You obviously are looking for the highest number possible. If that number is close or starts to approach zero, it is time to figure out either how you raise the revenue you generate from them, or decrease the cost to attract them or keep them. Can it be that simple? Yes. But most business owners don’t make these calculations and miss seeing, in undeniable black and white, that some of their customers need to be “fired” because they’re generating less revenue than they cost to bring into and maintain in the business. When customers’ LTV doesn’t work for you, typically you don’t fit well with their needs either.

What Happens When You Attract the Wrong Customers?

The following is a real example of what can go wrong when you target and obtain the “wrong” customers. I worked with a small manufacturer in Massachusetts a few years ago who was concerned that his prices were too high and was contemplating lowering his costs (and his profit margins). Before he made such a dramatic decision (one that is relatively difficult to change; it’s easy to lower prices and much harder to increase them), I suggested we conduct a customer survey. The goal of the survey was to identify what his customers valued from his company—basically why they purchased from him versus a different manufacturer. We asked his customers questions such as: “What was the ONE factor that was most influential in their decision to purchase the product my client produced?” We discovered that less than 15 percent said that price was the most critical factor. As a matter of fact, it turned out that 37 percent made a purchase based on product quality and 31 percent on the ability to have the product customized to meet their specific needs. We know that when prices are cut there’s a typical assumption that quality also has decreased. Therefore, if my client had cut his prices not only would he have lost profit margin but he also would have harmed his reputation for offering a high-quality product. Given that customization and quality were significantly more important than price, he proceeded to do the opposite of his original intention. He raised his prices. In the end, he didn’t lose a single customer and as he changed his message to focus more on quality and customization, his business began to

grow again.

It’s essential that you know what your ideal customers value, and that you target your marketing and sales efforts to attract only those who value, and will pay, for what you do best (i.e., service, delivery, customization). It also means taking a serious look at your database of customers and figuring out which ones may be costing you too much to maintain and determine the best way to encourage them to leave.

Getting Customer Acquisition Right

How do you avoid attracting the wrong customers or eliminate customers that don’t align with your company values and benefits? Here are fives steps to get you started:

1. Begin by determining the lifetime value of your customer groups. This does not require a crash course in calculus. Keep it simple. Determine the cost of attracting and retaining various categories of customers (this might be by industry, region or other criteria that is important to your business), and subtract that from the profit (revenue minus cost of goods sold) they generate for you during your relationship with them.

2. Make sure you understand why your customers buy from you. Is it your service, your expertise in an area or, perhaps, your turnaround time? Whatever that criterion is (best determined through an objective survey) make sure you use that knowledge to create customer profiles and messaging for target markets that will gain the greatest benefit from your business’ value proposition.

3. Target your marketing and sales outreach only toward those ideal customers and not towards the less-desirable ones. If some customers are price-sensitive, and they are the ones you want to avoid, then set the price out of their comfort zone so you don’t waste time with individuals who either won’t buy from you or will make the buying experience a miserable and unsatisfying one.

4. Review your database and create a list of customers whose value is approaching zero (or even negative).Develop a strategy to eliminate them (without burning bridges). That means not taking the “you’re fired” approach that Donald Trump has heralded on his TV show. Think about gentler ways to eliminate customers so it’s their decision. Perhaps you can increase your turnaround time so they decide to discontinue doing business with you on their own? This might allow you to decrease your turnaround time for more desirable customers, making the buying experience with you even better. Or you might increase price or minimize certain levels of customer service they receive. You might discover that if you increase your price and they stay with you, their value to you actually improves.

5. Develop a plan that proactively targets the customer groups that are most profitable for your business and stick with the plan. In hard times it’s tempting to try to attract as much business as you can, but in the long run this can do more damage than the short-term infusion of cash because now you’re “stuck” with less-desirable customers who are preventing you from truly focusing on the customers you want to keep and growing your business.

The customer may not always be “right,” but there are ways to ensure that both sides are making the best decisions and are the right fit for the business relationship.

Consultant, nationally recognized speaker, author of The Ultimate Small Business Marketing Toolkit, and educator at Boston University, Beth Goldstein helps manufacturers grow their firms through increased profit and improved customer satisfaction and loyalty. Beth can be reached [email protected].