Don't Chase Unprofitable Customers

Robert Gordman

Companies spend billions of dollars each year chasing down, acquiring, and trying to serve customers who don’t make a contribution to the bottom line. So it’s critical that you only go after people who will provide increased sales and profits—your company’s Core and Must-Have Customers.

Core Customers are your company’s biggest fans. They love the products or services your company sells, and they’re willing to pay a fair price for them. Best of all, they can be counted on to make purchases again and again. Core Customers are loyal, easy (and inexpensive) to deal with and stick with your company even after a promotion ends. They’re the famous 20 percent of the customer base that provides the equally famous 80 percent (or more) of profits. Over the long haul, Core Customers are the only ones who truly earn their keep—and they’re the ones who will guarantee a company’s future success.

Must-Have Customers are potential customers who look a lot like your company’s Core customers. They’re already buying products or services that are very similar to what you sell and they’re paying similar prices. Must-Have Customers are the ones you to convert to Core Customers. The only problem is that your Must-Haves are someone else’s Core Customers. Your company simply can not survive long-term unless it’s constantly finding Must-Have Customers, taking them away from the competition, and turning them into Core Customers.

Shared values are critical to developing a relationship with your Core Customers who value the attributes of your company and its product or service. For example, if your key point of differentiation is that you offer personalized, service, that’s what your Core Customers value. If your company offers high-quality merchandise or fast delivery, or no-questions-asked return policy that’s what’s important to Core Customers. Without those shared values, the relationship with your customer is purely transactional. Customers might make a purchase every once in a while, but they can’t be counted on for repeat business.

You also need to know what your Core and Must-Haves rules are for doing business with you. And that means asking them what they think of your products or services. There’s a huge difference between bad research and great research. Bad research yields “nice-to-know” information but nothing relevant that can be acted on. Great research is insightful and provides the basis for effective action.

It’s critically important to confine research to Core and Must-Have Customers. Asking anyone else will taint the data and could send the company down the completely wrong—and potentially very dangerous—path. Be sure to ask “knock-out” questions, such as age, income or gender, as early in the process as possible. Getting all the way through a survey, only to find out that the person isn’t a Core or Must-Have, is a tremendous waste of time and resources.

Be sure to ask the right questions. In order to formulate the questions, it’s critical to have a good idea of the kind of answers the research is looking for. For example, if you want to know why Must-Have Customers aren’t buying from your company, you have to ask them. With that as the goal, the research questions can be structured in a way that will produce information that can actually be used.

Questions that could be asked include:

  • What is it about our product or service that prevents you from buying from us?
  • What other products or services could we offer that would make it easier for you to buy from us?

To build sustained, profitable growth you need to set as a goal the retention of loyal Core Customers, while attracting more Must-Have Customers. You don’t want to spend a lot of time and money trying to satisfy every customer such as the opportunists who buy from your company only when products or services are on sale. Instead, you need to develop loyal customers. What’s really crucial is understanding exactly what these profitable customers require and then using this knowledge to mold every strategic business decision. What the unprofitable, opportunistic customers want is simply not important.

One of the important actions you need to do is conduct a yearly audit of your progress. This audit is designed to track how well your efforts are to build sustained, profitable growth. Hopefully, the audit will show that you are attracting loyal Core and appealing to Must-Have Customers. If not, the audit will highlight the specific problem areas that need to be corrected.

Here are some of the questions you need to ask during the yearly audit

  • Do we know our Core and Must-Have Customers’ rules for doing business with us?
  • At what rate are Must-Have Customers turning into Core Customers?
  • Do we know why our Core Customers are loyal to our products or services?

The bottom line for your bottom line is this. When you know who your Core and Must-Have Customers are and what are their rules for doing business with your company, you can build sustained, profitable growth.

Robert Gordman is president of the Gordman Group and author of The Must-Have Customer: 7 Steps to Winning the Customer You Haven't Got.
Copyright 2008. All Rights Reserved.

Print page