In IBM’s Global CEO Study 2010, a staggering 88% of surveyed Chief Executive Officers of the world’s largest firms stated that above all other priorities, they planned to focus on getting closer to customers to realize their strategic agenda over the next five years. “As a major player in our market, customer intimacy is most important to us, but that’s easier said than done,” commented one CEO of a European telecom company in this connection.
How about you? How intimately do you know your customers? In today’s article, let me share with you two techniques that help you get closer to your real customers.
1. Identify and classify archetypical customers. How intimately do you know your archetypical customers? Do you know what makes them tick and what’s going on in their minds? What are their lifestyles, typical behaviors, basic motivations, essential needs, main challenges, greatest dilemmas? What do they really appreciate of your value proposition? What are they missing? What are they expecting from you?
At Thinkergy, we developed a tool called Customer Portraits to help our clients get closer to the different customer types that they’re doing business with. Thereby, we work with our clients to create customer portraits of archetypical customers that are representative of a firm’s customer universe. Why? Our intention is to help our clients to better understand their customers’ lifestyles, needs, behaviors, and challenges. This allows us to gain novel insights into the needs and expectations of different customer types of our clients. Together with our clients, we can transfer those into ideas and solutions to create more meaningful value for, and communicate with, the core clientele of our client.
How can you create Customer Portraits? First, explore the attributes of your core customer groups. Base the description of each group on real customers, observation, or information from customers, rather than your assumptions. Therefore, answer questions such as: “What are our key customer groups? In each group, what does the typical customer look like? What is a typical day in their lives like? What are their concerns and needs? What gets them going? What attributes describe them best? How do they see the world?” Then, for each identified group, create a customer portrait, using images and text. You can write a description, draw a sketch, create a collage, take photos, decorate dolls or mannequins, videotape a play, or use any other method to illustrate your customers. Choose the most suitable approach to visualize your customers, and be creative. Finally, review your Customer Portraits. Be sure to take note of any new insights, and to record any ideas you might have.
For example, at Thinkergy, we recently prepared for an innovation project that I conducted on corporate level with a team in the Research and Innovation Center of a German luxury car producer. After investigating archetypical Asian customers of this brand, we settled on four representative customer types (e.g., one was dubbed Young, Rich Hedonists). We also identified two additional groups of current non-users with high affinity to the brand and good potential for conversion to customers, provided the luxury car brand designed cars that better cater to important functional needs of these prospects.
2. Identify and cover your most important customers. Another important aspect of customer coverage is to know who your most important customers are. In any long- and well-established business, the following application of the Pareto-Principle tends to hold true: 20% of your customers contribute 80% of your revenues. Although the precise numbers will vary, you are likely to encounter a predictable disproportion between those vital few customers who bring in the bulk of your revenues (and thus effectively “pay your salaries”) and the many other customers that vie for your time and attention without making sizeable revenue contributions. Also known as 80/20-Thinking, the Pareto-Principle goes back to the work of the Italian economist Vilfredo Pareto, who discovered over a hundred years ago that there is a predictable imbalance between input and output for most cause-and-effect relationships that can be observed in real life.
Let me illustrate with an example how you apply Pareto-Thinking for identifying your core clientele. In 2002, I was still a Corporate Relationship Manager in Deutsche Bank, which relocated me from the Philippines to Hong Kong. Upon arrival in the territory, I was given revenue responsibility for a local client portfolio of Hong Kong-based international firms that was previously handled by three colleagues (who were affected by a recent reorganization). Moreover, I also had to coordinate our Asian business initiatives and activities for various important US-based Multinational Corporations as Regional Relationship Manager. Given this workload and enlarged revenue responsibility, I had to find out how to focus my time and attention on those vital few clients that really allowed me to meet my revenue targets.
A Pareto Analysis of my local client portfolio revealed that 25% of clients accounted for 78% of the total revenues generated by this group. Insofar, I focused my attention on getting intimate with these vital few companies in order to better understand — and deliver solutions for — their financial needs. On the other hand, I cultivated a bright young trainee, who took care of the day-to-day affairs of all the other clients, thus allowing me to focus on the needs of the identified top tier local clients as well as on my regional responsibilities.
How about you? Who are your most important customers? To find out, run a Pareto Analysis that shows how your cumulative revenues rise customer by customer, starting with your biggest earning customer, then your second most lucrative customer, and so on. Then, draw a cut roughly when 70-85% of your total cumulative revenues are reached. Take a close look at who are those vital few customers that are your most important revenue contributors. Finally, regularly spend time with each one of them to really understand their wants and needs, so that you can create products, services and solutions that cater to their desires and expectations.
© Dr. Detlef Reis 2011. This article was published in parallel in the Bangkok Post under the title “Create meaningful ‘portraits’ to get to know your customers better” on 27 January 2011.