Tuesday, March 23, 2010

The "Right" Customer

Lets assume that you have the perfect product. One that everyone needs. You've priced it right and everyone in the world can afford it. It works without errors and flaws and doesn't break and is extremely simple to use (while a smartphone is simple to use - its not necessarily cheap so finding that magic "widget" is probably a dream that will never come true!).

How much would you like to bet that you would still have customers complaining about it? Hard is it might be to believe the phrase -
"you can please most of the people some of the time and some of the people most of the time, but you can NEVER please all of the people all of the time!"
- is unfortunately way too accurate.

What you will see and notice however is that the 80/20 rule (remember that? I mentioned it earlier here) applies in this like it does in most things. If you haven't read my post, allow me to paraphrase - the 80/20 rule (also known as the Pareto Principle) states that 80% of "x" comes from 20% of "y". You could state it like 80% of your customer interactions come from 20% of your issues. Or perhaps another way - 80% of your sales come from 20% of your clients.

Now obviously the percentages might not always line up to exactly 80/20 but you will find that this is accurate and close more often than not.

So how does this apply to you and the miracle product? Well it might not , to be honest - not if you have one single price point across the board. However if you've priced it based on income, you might potentially be charging more for this product in some regions than in others. The 80/20 rule would tell you to concentrate on the 20 sectors that are actually generating the most revenue for you - if you do the math, you'll see that the other sectors don't amount to the same value and your efforts are best spent where they are most fruitful.

So if we take our example of the miracle product you might find that the following applies -

  • Region 1 (Affluent and Developed Economies) - product priced at $100/unit 
  • Region 2 (Developing and Growing Economies) - product priced at $50/unit 
  • Region 3 (Growing and Restructuring Economies) - product priced at $10/unit 
Region 1 will probably account for the highest percentage of your sales and also the lowest cost with regards to support as they have the infrastructure in place to utilize the product fully and also to understand what it can and cannot do.

Region 2 & 3 will together account for a significant portion of your revenue but will also have the largest volume of support issues as they do not have the understanding of the products limitations and while this is a "miracle" product unfortunately it cannot in itself do miracles!

The unfortunate fact of human nature is that generally the lower paying clients have a much higher level of demand to those at a higher price point.

From a real world perspective I previously had a job at a large Internet company that was experiencing severe growing pains (to put it mildly!) and as the Manager I was frequently on the short end of the stick. More often than not, during the course of an outage I would be speaking to businesses with 5-10 impacted users on a conference call and have to explain what we were doing to everyone in the company ... by contrast I would have an hourly update call with the Senior Network Analyst at a business that was on a similar service but that had thousands of customers impacted!

I'm sure you've all heard the story about the contractor charging $100/day for a job and not getting any business but that same contractor choosing to charge $200/day getting inundated with work. The perception in the market place is that the person charging more is also WORTH MORE. Be careful with this though as if you cannot "back up" your requested salary with a corresponding skill-set, you are not going to get far at all!

Now please do not take this post to imply in any way that the customer isn't right. That Region 3 customer buying your $10/unit product could eventually turn into your monster customer that IS your business. If you are able to "upsell" your customers from one product to another, based on value and worth it is easily done. 

It is always worth the effort to nurture your customers as the hardest part of growing any business is getting new customers in the door. However you do need to do some careful analysis and tracking to ensure that the revenue you are earning from your customers is not actually COSTING you more in the long run - and remember - if you do not have that miracle product, you can only imagine that your complaints are going to be higher!
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