Customer Analysis: Where Do the Profits Come From?
For more than 25 years, thousands of printing customers doing business with hundreds of the industry’s best performing companies have participated in the Competitive Edge Profile (formerly the eKG) customer survey system. The survey consists of 22 items: 16 standard questions (answers to which comprise a comprehensive database used for benchmarking purposes) and six custom questions that are particular to the individual client company. A brief comment section is also included.
Each question is asked on three dimensions: satisfaction, importance and differentiation. In analyzing these data, some compelling patterns emerge. Among them is the fact that higher levels of customer loyalty correlate with higher profitability. Conversely, problem customers who rank lowest in satisfaction and loyalty drain precious company resources including profits, time and job satisfaction of employees.
Strategic Coach founder Dan Sullivan has said that upwards of 80 percent of your problems in business come from people who don’t give you any profits. Analyzing the customer response data from the Competitive Edge Profile bears this out.
Time and again, survey results cluster into three distinct groups. One-third (the “top third”) are wonderfully satisfied, loyal, and find the products and services of their provider clearly superior to their best alternative and an integral part of their organizational success. They find their provider’s pricing fair and reasonable for the value they are receiving (yes, the survey asks about pricing). They are the most profitable accounts and by a wide margin.
The “middle third” are mostly satisfied, borderline loyal, and rarely if ever complain or ask for accommodations outside of the provider’s normal business practices (i.e. special delivery requirements, billing, terms, etc.). They are mostly OK with pricing but are receptive to special offers. This group is modestly profitable and at the very least, helps the provider cover overhead costs in a predictable, necessary way.
The “bottom third” are clearly unhappy and are most likely to complain about service, quality and pricing. They tend to shop around for a better deal from an alternative source and will use this as a negotiating tactic. Paradoxically, time spent trying to address their concerns seems to result in still more complaints. This group is most likely to become a drain on staff time and attention and over time, takes a serious toll on job performance and satisfaction. They are largely unprofitable from a direct cost/pricing perspective. Add to this the “hidden costs” of staff time spent on addressing problems and concerns and the total loss is even greater.
A closer look at these data uncovers an interesting and troubling dynamic. At a high level, service providers earn profits from their best relationships, cover overhead with their “middle” transactional accounts, and spend their profits addressing and attempting to solve problems from their most problematic accounts.
In a Harvard Business Review article, former turnaround specialist and Columbia Business School professor John O. Whitney introduced a systematic way to analyze customers: the Strategic Renewal Process. This method is designed in way that helps determine the extent to which accounts are significant, strategic and profitable. This highly structured approach has many direct benefits, chief among them the discussion that ensues about accounts and their present and potential impact on the business.
Customer account review is not a new idea; however, it is rarely done in a robust, comprehensive way. As businesses emerge from the impact of COVID-19, retaining customers at any cost seems a likely and logical approach. Given the unique challenges of bringing business back, this may be the best time to incorporate the discipline of structured, purposeful account review and analysis. For more information, contact me at email@example.com.
Joseph P. Truncale, Ph.D., CAE, is the Founder and Principal of Alexander Joseph Associates, a privately held consultancy specializing in executive business advisory services with clients throughout the graphic communications industry.
Joe spent 30 years with NAPL, including 11 years as President and CEO. He is an adjunct professor at NYU teaching graduate courses in Executive Leadership; Financial Management and Analysis; Finance for Marketing Decisions; and Leadership: The C Suite Perspective. He may be reached at Joe@ajstrategy.com. Phone or text: (201) 394-8160.