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Know your customer

Private Matters Issue 8, September 2010

Know your customer, Private Matters, Issue 8, September 2010Customer service has received heightened importance during the current economic downturn. The increased competitive focus has meant that businesses are working harder to keep their existing customers and win customers from their competitors. From a customer perspective, they have been able to access some great deals as price is sometimes lowered to keep them.

However, the short term need for a business to maintain cash flow and a customer base, may not always be consistent with the longer term customer service and retention strategies, as businesses seek to maximise the value they receive from their customers. Frequently in tough times, businesses can spend considerable time, effort and money servicing customers who are really not that profitable, in the hope that the income generated will be sufficient to pay the wages and keep the doors open.

When business does pick up again, it may be timely for a business to review who their customers are, and importantly, who their profitable customers are. However, in the process of doing this, businesses should be mindful that customer expectations and market dynamics may have changed as a result of innovative business strategies and tactics that have been implemented during the tough times in an effort to retain and win customers. It could pay to have a look at your industry in question as well as what your competition has done to see whether the bar has been permanently raised.

Some actions that businesses may want to take include:

  • Dividing customers (and potential customers) into segments and profiles so that their needs, behaviours and spending patterns can be understood
  • Analyse which segments are the most profitable for the business to serve and assess whether the 80/20 rule applies. This is a rule of thumb that says a business may get about 80% of their business from 20% of their customers. Question whether 80% of the effort is going into serving the most profitable 20% of customers
  • Target potential new customers from the most profitable segments to help maximise returns
  • Analyse the ‘lifetime value’ of customers through making assessments on how much you would expect key individual customers to spend with your business over the long term. Doing this can help create understanding about who the really important customers are
  • Survey their customers to understand what their service expectations are, and how these may have changed over time.

For further information please contact:
Mark Allsop, Director , Deloitte Private, Tel: +61 3 9671 6337.

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