Idea in Brief
The Problem
It isn’t always obvious who your most important customer is. In fact, for some companies, the most important customers actually supply little or no revenue. Many companies, therefore, try to hedge their bets and treat all their stakeholders as customers.
How It Works
When companies shy away from choosing a primary customer, they may survive for a while. But they risk being pushed aside sooner or later by competitors who clearly identify a primary customer and create a business model designed to satisfy that customer ahead of all others.
The Solution
Adopt a customer-driven strategy that involves four steps:
1. Identify the customer group that best fits your company’s culture and traditions, most closely matches your existing capabilities, and offers the greatest direct and indirect profit potential.
2. Understand what that primary customer values most by tracking purchases and preferences and studying behavior.
3. Adopt the business model that best allows you to satisfy your primary customer’s needs and preferences.
4. Finally, make sure you have good systems in place to identify and respond to shifts in those needs.
All companies claim that their strategies are customer driven. But the term “customer” is among the most elastic in management theory. A working definition might be that your customers are the people or entities that buy your products and services and supply your revenue. That includes any number of actors in a company’s value chain: consumers, wholesalers, retailers, purchasing departments, and so forth. Some companies go as far as to label internal units as customers: Manufacturing is a customer of R&D, for instance, and both are customers of HR.
