Great Businesses Are Built on Great Customers

Most business leaders want to run an enterprise that is truly “great.” Some are satisfied with running a “good” business, and in many circumstances there is nothing wrong with that.

CEOMost business leaders want to run an enterprise that is truly “great.” Some are satisfied with running a “good” business, and in many circumstances there is nothing wrong with that.

Over the long haul however, there’s a problem with just being “good.” As Jim Collins will tell you, businesses over time break one way or the other. Eventually, the few become great, and the rest will ultimately — go away.

Consider the fact that of the largest and most venerable businesses in the Fortune 500 in 1955, about 90 percent don’t even exist anymore. For most executives, this is a sobering reality worth consideration and reflection.

“… of the largest and most venerable businesses in the Fortune 500 … about 90 percent don’t even exist anymore …”

Here are just a few iconic brands that today seem like dinosaurs — or perhaps more appropriately, the fossil records of dinosaurs:

  • American Motors
  • Brown Shoe
  • Studebaker
  • Collins Radio
  • Detroit Steel
  • Zenith Electronics
  • National Sugar Refining

All are Fortune 500 businesses — the biggest most powerful brands — and none of which exist today.

There are a number of reasons companies become great. They do one thing — very well. They are relentlessly focused on the customer. Or, as Warren Buffet says, “on delighting the customer.” They face the harshest unvarnished current realities and take action to change them. They have great people who can deliver on a great vision. Many of these points are well-developed in Jim Collins’ seminal work “Good to Great.

On “delighting customers,” there is another perspective — as evidence suggests that is great companies don’t only delight their customers, but also have great customers.

This has traditionally been couched as “knowing the customer,” or being driven to “service the customer.” Yet our experience shows there is another crucial dimension — knowing the customer also means knowing who the customer is and is not.

In our work with dozens of brands spanning two decades, we’ve consistently found that almost all brands are carried by a surprisingly small number of customers; usually between 10 percent and 25 percent that generate the vast majority of revenue and profit — quite literally up to 75 percent.

‘Great Customers’ Have Fringe Benefits

So while “great customers,” it seems, can carry good companies, great companies have identified a product or service that deeply satisfies and, therefore, attracts a materially larger proportion of “great customers.”

That satisfaction can be best measured effectively through simple approaches like Net Promoter Score, where a brand simply asks “how likely are you to recommend us to a friend or colleague?”

Research has illustrated that evangelistic customers are a deep well of profit for a brand, as they attract those like them through referral. Yet many growing brands struggle to acquire customers cost-effectively and at-scale. Customer value/quality, which we might consider a proxy for a great “customer fit,” is second-string to gross revenue. How can a brand decide to focus on customer auality when gross revenue is the No. 1 requirement?

The answer, as it stands, is fairly simple.

The right customers for any brand are the ones who exhibit behaviors that truly value the brand, its unique value proposition, products and services. These are customers who bring not only the much-needed gross revenue, but the profits generally reserved for truly great companies. That affinity is ultimately expressed through trial, repeat purchase, higher order size and referrals from other customers who are bound to spend similarly.

While it’s evident that these behaviors are correlated highly with great products, customer service, pricing and distribution — the unique value proposition is defined in the eye of that customer — which can be objectively defined, targeted, acquired and grown.

Strategic Implications of Adding Higher-Value Customers

The implications of achieving high-value customer growth are much more than adding good customers alone. Growing the depth and breadth of high-value customers is a requirement in making a company a fundamentally superior business to its competitors and peers.

Consider the following chart where an organization’s “right customer” (AKA, Most Valuable Buyers) is acquired scientifically, rather than acquiring customers en masse with minimal consideration — or without consideration of the quality of the customer in the first place.

That is to say that the customers organizations are adding are disproportionately more valuable than the “average” customer in their customer base at the start of the period.

Graphic for Mike Ferranti's post

In this real-field, proven example, a “Most Valuable Buyer (MVB)”-targeted campaign produced customers with 420 percent, or 4.2x, the revenue than that of the average buyer in their customer base. While this surely is impressive, there is a strategic implication beyond the high return on high-quality customer acquisition.

As the volume of high-value customers increases, the percentage of “MVBs” in the customer base continues to grow. The rate at which their sales and profit volume grows is faster than the rate of customer growth alone.

Not Just Profitability, Profit Volume

The key to growth and longevity is developing a competitive advantage that is not easily replicated in the marketplace. The secret is not to cut costs as many companies often do in the short-term; rather, it is to grow profit volume. In the example above, we can see the dramatic scaling of profits as the percentage of high-value customers, or “MVBs,” increases. As the brand continues to acquire higher value and higher-performing customers, the total profit volume grows, as well.

How do you grow profit volume? The formula is simple. Find the “right customers” who are high-value for your business and continue to get more of them at-scale. Those customers will be unique to you and distinct from your competitors. Over time, this formula becomes a sustainable, competitive advantage for your business. At that point, your business moves from an average, or “good company,” to the profit profile of a “great” company with “great customers.”

Like Jim Collins concluded many years ago, “Those that become great stay, and those who don’t — go away.”

Watch the Attitude, Data Geeks

One-dimensional techies will be replaced by machines in the near future. So what if they’re the smartest ones in the room? If decision-makers can’t use data, does the information really exist?

Data Geeks
Data geeks may be the smartest people in the room, but maybe not if decision-makers don’t know what to do with their information.

Data do not exist just for data geeks and nerds. All of these data activities are inevitably funded by people who want to harness business value out of data. Whether it is about increasing revenue or reducing cost, in the end, the data game is about creating tangible value in forms of dollars, pounds, Euros or Yuans.

It really has nothing to do with the coolness of the toolsets or latest technologies, but it is all about the business — plain and simple. In other words, the data and analytics field is not some playground reserved for math or technology geeks, who sometimes think that belonging to exclusive clubs with secret codes and languages is the goal in itself. At the risk of sounding like an unapologetic capitalist, data don’t flow if money stops flowing. If you doubt me, watch where the budgets get cut first when going gets rough.

Data and analytics folks may feel secure, as they may know something in which non-technical people may not be well-versed in the age of Big Data. Maybe their bosses leave techies alone in a corner, as technical details and math jargon give them headaches. Their jobs may indeed be secure, for as long as the financial value coming out of the unit is net positive. Others may tolerate some techie talk, condescending attitudes, or mathematical dramas, for as long as data and analytics help them monetarily. Otherwise? Buh-bye geeks!

I am writing this piece to provide a serious attitude adjustment to some data players. If data and analytics are not for geeks, but for the good of businesses (and all of the decision-makers who may not be technical), what does useful information look like?

Allow me to share some ideas for all the beneficiaries of data, not a selected few who speak the machine language.

  • Data Must Be in Forms That Are Easy to Understand without mathematical or technical expertise. It should be as simple and easy to understand as a weather report. That means all of the data and statistical modeling to fill in the gaps must be done before the information reaches the users.
  • Data Must Be Small, not mounds of unfiltered and unstructured information. Useful data must look like answers to questions, not something that comes with a 500-page data dictionary. Data players should never brag about the size of the data or speed of processing, as users really don’t care about such details.
  • Data Must Be Accurate. Inaccurate information is worse than not having any at all. Users also must remember that not everything that comes out of computers is automatically accurate. Conversely, data players must be responsible to fix all of the previous mistakes that were made to datasets before they even reached them. Not fair, but that’s the job.
  • Data Must Be Consistent. It can be argued that consistency is even more important than sheer accuracy. Often, being consistently off may be more desirable than having large fluctuations, as even a dead clock is completely accurate twice a day. This is especially true for information that is inferred via statistical work.
  • Data Must Be Applicable Most of the Time, not just for limited cases. Too many data are locked in silos serving myopic purposes. Data become more powerful when they are consolidated properly, reaching broader audiences.
  • Data Must Be Accessible to users through devices of their choices. Even good information that fits the above criteria becomes useless if it does not reach decision-makers when needed. Data players’ jobs are not done until data are delivered to the right people in the right format and a timely manner.

Who are these data players who should be responsible for all of this, and where do they belong? They may have titles such as Chief Data Officer (who would be in charge of data governance); Data Strategist or Analytics Strategist: Data Scientist; Statistical Analyst or Program Developer. They may belong to IT, marketing, or a separate data or analytics department. No matter. They must be translators of information for the benefit of users, speaking languages of both business and technology fluently. They should never be just guard dogs of information. Ultimately, they should represent the interests of business first, not waving some fictitious IT or data rules.

So-called specialists, who habitually spit out reasons why certain information must be locked away somewhere and why they should not be available to users in a more user-friendly form, must snap out of their technical, analytical or mathematical comfort zone, pronto.

Techies who are that one-dimensional will be replaced by a machine in the near future.

The future belongs to people who can connect dots among different worlds and paradigms, not to some geeks with limited imaginations and skill sets that could become obsolete soon.

So, if self-preservation is an instinct that techies possess, they should figure out who is paying the bills, including their salaries and benefits, and make it absolutely easy for these end-users in all ways listed here. If not for altruistic reasons, for their own benefit in this results-oriented business world.

If information is not used by decision-makers, does the information really exist?

‘Every Door Direct’ Not for Every Mailbox

For approximately the past year, the U.S. Postal Service has offered an innovative program called “Every Door Direct” that is designed to convince more small businesses to use direct mail for household geo-targeting. I love it. While social and mobile are all the rage—so, too, is “local”—and direct mail marketing, among other channels, is a powerhouse for local advertising. Mail pieces may be addressed to “Our Neighbors at Fill-in-the-Address”—as are some of the offers I receive from larger mailers—but “Every Door Direct” mail is relevant to me since, for the most part, they represent businesses close to home, in the neighborhood where I do 90 percent of my shopping.

For approximately the past year, the U.S. Postal Service has offered an innovative program called “Every Door Direct” that is designed to convince more small businesses to use direct mail for household geo-targeting.

I love it. While social and mobile are all the rage—so, too, is “local”—and direct mail marketing, among other channels, is a powerhouse for local advertising. Mail pieces may be addressed to “Our Neighbors at Fill-in-the-Address”—as are some of the offers I receive from larger mailers—but “Every Door Direct” mail is relevant to me since, for the most part, they represent businesses close to home, in the neighborhood where I do 90 percent of my shopping. Thus, I receive it, I read it, and I make an informed decision what to do with the information. (And my take-out menu drawer is filling up.)

Now, that’s my opinion.

Some people don’t want to receive direct mail at home. These individuals may turn to the Direct Marketing Association’s long-standing and free consumer service DMAchoice (formerly the Mail Preference Service) to indicate a preference not to receive direct mail offers from companies and organizations. Consumers, by using DMAchoice, can choose to turn off most all their direct mail at once (some of us call this the “nuclear” option), or by mail category (credit card offers, catalogs, magazine offers, for example), or by single companies and organizations by name. It really works well.

From the marketers’ perspective, DMAchoice saves money—mail is not sent to those persons who have chosen not to receive it. DMAchoice also provides mailers with a “resident/occupant” suppression option when using the all-categories opt-out portion of the file. By subscribing to DMAchoice (which is available to both DMA members and non-members) and its resident/occupant suppress option, mailers can prevent in advance resident/occupant mail from being sent to any consumer who has signed up for the off-all-lists option. To implement the resident/occupant mail suppression, DMAchoice relies on letter carriers, according to their route, to actually handle the non-delivery so each consumer’s choice can be honored. (Typically, the letter carrier has a printed list of suppressed addresses along the daily route which tells the carrier which addresses to skip delivery of the resident/occupant mail piece.)

National mailers who use resident/occupant mail (also known as Saturation Mail) have been using this suppression capability for years. Now the Postal Service is using Every Door Direct to make it easy for local businesses to “one-stop” shop and distribute direct mail pieces by local geography. Except there’s one important component now missing from this “one stop”—honoring previously expressed consumer choices to not receive mail.

A solution is on its way for local mailers who use this USPS program.

Discussions are underway that would enable DMAchoice to be accessed and used by local printers who support Every Door Direct across the country. Thus, these printers, who apply an address on each Every Door Direct mail piece on behalf of the local advertiser, could use DMAchoice to honor consumer choice to opt out at an address-specific level before the printing even takes place, or to provide the “do not deliver” request to the local post office. It may take some time to work through all the details of how this will be executed, but the commitment is there, wisely, to honor consumer choice.

Certainly, the Postal Service is very much aware of how important it is to honor “do not mail” preferences of consumers. It’s good for advertisers, too. (By the way, 2012 marks the 41st anniversary of DMA’s consumer suppression file.) I only wish Every Door Direct had been designed to have available name suppression such as DMAchoice applied up front. Just because it’s easy to toss a direct mail piece in the trash or recycling bin, doesn’t mean “every door” of Every Door Direct should be delivered. That will be remedied shortly.