Identifying Customers — the RIGHT ONES!
Imagine a start-up or an idea that you want to build on— one that you have been putting off for a while OR your startup that you’ve been working on. What would the ideal customer for the business look like?
Before answering this, you need to know not everyone wants to buy what you are selling. Thinking about starting a start-up might be easy but if you do not have a clear target audience in mind, your marketing campaigns will cost you a fortune. For example, it would not be wise for a Women’s apparel company to market to Men or vice-versa. Furthermore, if you are to know that not everyone will buy your product, then it is also a given that not everyone is a target audience.
Yet, when trying to identify customers it is critical to try to comprehend from their point of view first. For this, a business should try to understand what their customers’ demands are and try to deliver the same to the best possible extent.
Following this, it is also crucial to identify what kind of problem the business is trying to solve and what kind of person is most likely to search for the solutions the business is trying to provide. The bottom line is this: the strategic choice of primary customer defines the business. Identifying the primary customer depends upon assessing each target market or subgroup along three dimensions — perspective, capability, and profit potential.
· Perspective
Perspective would mean the culture, mission, and folklore of a business. Clearly, the choice of who the primary customers are must be reflected in the company’s perspective, otherwise it will not be able to leverage its capabilities, in the form of its products and services, to the customers.
· Capability
Capabilities are the embedded resources of a firm. They differ from company to company and those capabilities that are built over time are harder to copy. Additionally, they also position a business to serve its customers better than others or provide them with, what might be called, a competitive advantage.
· Profit Potential
Profit potential is the customers’ ability to deliver profits for the business. Not all potential customers are equally profitable and, thus, techniques such as Michael Porter’s five forces analysis can provide valuable insight into profitability of various customer types; this helps to weed out poorer choices of potential primary customers.
Nevertheless, the primary customer differs based on the nature of industry or business model a start-up chooses to operate in or with. For instance, a beer company like Carlsberg may see wholesalers and distributors as their primary customers rather than the end users (i.e. people that drink beer) for their product. In turn, these distributors who retail to the end user see them as their primary customers. Thus, in both cases effort will be made accordingly to best engage with their own primary customers; the same strategies will not appeal to these different stakeholders. It should also be noted that not all customers, however, should be engaged with the same level of effort. According to Setup — a leading consultant that matches brands with compatible marketing agencies —
20% of a business’s customers are responsible for 80% of their total revenue.
As the relationship between the company’s customer and revenue generated by them adheres to Pareto’s Law, it should be apparent that the focus of building good relationships should be dedicated more towards this 20%.
Businesses often operate by the adage “the customer is always right” once they have managed to access their target markets since happy customers tend to reward companies that meet or exceed their expectations through repeat business or their loyalty. Hence, businesses must focus on establishing good customer relationships and to do this first it must be able to define who its potential customers are by understanding the qualities they have. They must then build a business model that is customer centric; one such framework was developed by Harvard Business School’s Professor of Economics Robert Simons. It is a four-step framework:
1. identifying your primary customer
2. understanding what they value
3. allocating resources accordingly, and
4. forming an interactive control process that monitors the assumptions motivating your choices[ii].
This framework can help companies better understand who the primary customers are and as a result not waste their limited resources in targeting customers that will not purchase their goods or services.
References
[i] Setup., 2020. Finding your target market with market segmentation infographic. Available from: https://setup.us/infographics2/market-segmentation-infographic.
[ii] SIMONS, R. 2014, Mar 1,. Choosing the Right Customer. Harvard Business Review. ISSN 0017–8012.
