The Customer Business Dimension
BY CHUCK DENSINGER – COO & CO-FOUNDER
Does your organization have an established definition of “customer”—one that everyone knows and uses?
It seems like a simple question that should have an obvious answer, right? Our customers are all those people coming to our stores, visiting our website, following us on Facebook or Twitter. But what about people who have browsed the website or joined the loyalty program without ever having made a purchase? And what about those people who made a purchase one time five years ago, and we haven’t seen them again since?
I was recently in a conversation with an executive who felt their organization had become much more “customer-centric” in recent years. “We have multiple forms of segmentation that we apply to targeted marketing and personalization. We’ve even started using machine learning and predictive models to adjust our prices.” It sounded good in theory, but when I asked him the customer definition question, he realized after 10 minutes of back-and-forth discussion that they don’t have one.
Now, you might argue that I’m picking a very minor nit with companies who have come a long way from treating everyone the same a few years ago. But we have a perhaps radical idea at Elicit: customer centricity isn’t just “putting the customer at the center of all you do” or “delivering personalized experiences, targeted based on big data and machine learning.”
Being truly customer-centric means being able to run your business from the customer dimension, just as you do from the product or geography dimensions today. We aren’t advocating that anyone throw out their existing product and geo-based P&Ls, or organizational structures. We still need to operate those dimensions of our business. But we believe that companies who manage by this additional dimension—customer—will realize a step-change in revenue, profit, and customer loyalty from the insight and operational changes it will engender.
Why? Because businesses optimize what they’re measured on and what they build operations around. The power of this kind of focus is that it organizes your business around the most important decisions affecting your sales and profits: those made by your customers. You can’t ask a product or store why its sales were sub-par. But you can ask a customer why they didn’t buy.
Operating your business on the customer dimension means creating a portfolio of your customers that collectively represents 100% of your revenue. Then, you can build business measurement and management systems around that portfolio—things like revenue targets, P&Ls, operating strategies, and organizational structures.
The first part of this isn’t hard—the sum of your customers’ spend with you equals 100% of your revenue. We just have to group, or segment, customers in a way that is structured and meaningful to your business. Elicit’s approach is to create behavioral segments that capture your customers’ patterns of responses to your overall value proposition in the marketplace.
Things tend to get more difficult from here. Businesses have long-held and refined ways of managing product portfolios, regional operations, and channel touch points. Managing a customer portfolio requires the development of a whole new set of metrics, operating structures, and functional expertise.
Thankfully, the concepts are not difficult, and we are further helped by our historical disciplines, which remain in place. We don’t abandon product, geo, and channel management; we augment them with customer management. So the traditional foundational questions of the business—sell what goods, at what price, through what channels, in what locations, with what brand experience—are the same. We simply add a “to whom” at the front of those questions.
That is, we make our customer portfolio the starting point: who is buying what at what price through what channel? Further, if we want to raise revenue and profit, who is going to spend that incremental revenue, and how will we deliver in such a way as to realize that incremental profit?
These questions may sound elementary, but solidifying all of this in a defined customer portfolio, with a functional organization and business processes accountable for delivery of financial results—that is a new kind of challenge for most B2C companies.
Don’t bite it all off at once. Start with your definition of customer. Make sure your definition captures 100% of your revenue, and that the definition is in terms both your people and your customers understand. After all, becoming truly customer-centric starts with being clear on what a customer actually is for your business.