As senior managers we all get caught up in the day-to-day issues and challenges of attempting to keep the train on the track.
Budget meetings, customer issues, new product discussions, management reports, and personnel problems often fill our days. Just achieving the minimal requirements of our daily jobs can keep our calendars quite full.
However driving real and consistent top line revenue growth is job #1 for “C Level” executives. They cannot afford to take their eyes off the ball….even for a minute or risk losing ground to competitors and missing key financial metrics.
In our work with companies around the world we have found seven deadly sins that often result in missed financial targets and can (and often do) derail very promising senior executive careers.
The seven deadly sins often overlooked are as follows…
Deadly Sin # 1 – Not Understanding True Customer Profitability
Many people erroneously assume that any customer is a good customer. Or they believe even unprofitable customers serve some purpose (ex: help absorb manufacturing overhead) or can be made profitable over time.
In most organizations Pareto’s rule is alive and well. Typically 80%-90% of current customers/accounts are not profitable. Said another way 80%-90% of an organization’s profit often comes from only 10%-20% of its customers.
When the true cost to acquire and service the customer is taken into account the net margin resulting from the relationship is often negative. Even when up-front cost-of-acquisition costs are amortized over longer term customer relationships the result is still often negative.
We suggest a 360° financial analysis of the current customer portfolio which might include the following objective analysis:
– Comparative 3-5 year revenue per customer analysis (ranked and trended over time)
– Overall “value” analysis (identifies which customers/accounts are driving real enterprise value)
– Customer tiering exercise (large, medium, small revenue and profit customers)
– Average ticket analysis (on a customer specific basis)
– Net customer profitability (before and after allocated overhead)
– Customer tenure analysis (length of time a customer remains active on the books)
– Product and overall gross revenue analysis by customer
The following is an example of a five tier analysis for a financial business – bank, mortgage company, credit card portfolio, etc. Colors are used to illustrate the customer tiers that contribute positive, neutral, or negative overall or financial value to the organization.
Deadly Sin # 2 – Neglecting to Profile the “Ideal Customer”
Once an objective analysis of relative customer/account profitability is done managers can begin to move toward pro-active growth planning. A key aspect of this activity is to develop both a quantitative (from a financial perspective) and qualitative profile of the “ideal customer”.
Many organizations have developed target audience profiles which largely consist of demographic or psychographic factors. While helpful from the marketing and/or media targeting perspective this limited customer/prospect profile does little to help organizations insure their strategic and financial success.
We recommend a more quantitative analysis be performed against all current (and potentially past) customer accounts. This analysis would look at more objective and quantifiable financial measures
To use a banking or financial services example this analysis would put all customers into perhaps five tiers based on:
– Length of time they have an account
– Average balance on deposit
– Average net profitability (spread income + fee income)
– Average cost to service the account (statements, calls to customer service department, etc.)
Typically one or more factors will emerge as indicative of true financial profitability at the account level. This will vary by industry and market so it is important to go into this type of customer tiering analysis with an open mind and look at multiple variables/factors.
Deadly Sin # 3 – Lacking True Marketplace Differentiation
Customers buy products/services that offer compelling features/benefits that appeal on both a functional and emotional level.
Dominant brands that persevere over the long term deliver functionally day in and day out but also find a way to hit an emotional chord with their users/customers. Examples are Apple, Coca-Cola, Abercrombie & Fitch, Zara Stores, and BMW.
Effective differentiation strategy has two important components:
(1) How your brand differentiates itself from competition?
(2) How your brand differentiates itself in the mind of your customer?
Competitive differentiation is largely built around tangible product features/benefits and the overall positioning of the brand visa vie other players in the same space.
Customer differentiation is more a function of how the brand communicates to/with its target audience. It is more a result of effectively creating “mindshare” with your target audience and when done right achieving some deeper level of emotional commitment.
Deadly Sin # 4 – Failure to Analyze Your Marketplace “Positioning”
Effective positioning is critical in today’s competitive marketplace where me-too entrants can arise with relative ease to distance customers from a once popular brand. An example of this is the speed at which Apple’s iPhone unseeded the once venerable Blackberry and sent the product and the overall RIM company into a veritable tail spin in the marketplace.
There are several key questions to be addressed when developing or evaluating a brand’s positioning:
– Who are we?
– What makes us different from competitors?
– How do we help our customers solve their problems?
– How do customers “win” with us?
– Why should a customer consider us?
– How do we make our customers feel good about us (viscerally)?
Deadly Sin # 5 – Limited Understanding of Competition
Because markets are dynamic and competitors come and go in most product/service categories it is imperative to analyze the relative strengths and weaknesses of your competition. This is not a “one and done” exercise but rather something that all companies/brands should address on a regular basis.
To do this analysis objectively the organization must first start with the key factors customers value the most relative to your product/service category. Then for each competitor an objective assessment can be made against each factor.
Deadly Sin # 6 – Fuzzy or Poorly Targeted Marketing Program
In today’s world of big data and digital media there is no excuse for not targeting every aspect of a marketing program.
Companies like Simmons, Claritas, and Scarborough capture consumer behavior and product/service usage and media consumption data throughout the year. This data and the insights from it can be acquired directly from these companies or through data mining or database marketing consultants that have licenses issued on a syndicated national or global basis.
The process of using household level data and matching it to specific customer behaviors allows companies to develop highly refined direct marketing and media planning/buying models that can be created to pin point specific consumers at the household level.
Unfocused and poorly targeted marketing plans should not be tolerated in today’s world.
Deadly Sin # 7 – Lacking a Strategic Sales Planning and Accountability Process
If you don’t know where you want to go no road or any road may get you there.
Successful companies understand that having a consistent sales planning and performance review process is the difference between winning and losing in the marketplace.
A strategic sales planning process requires front-line sales managers to address aspects of their territories, accounts, or even large individual sales opportunities. And by sales we mean outside sales, distributor/agent reps, and inside sales.
Often customer service charged with up-selling and cross selling also falls into this group.
Effective consultative sales planning requires objective market analysis, competitive intelligence, and realistic forecasting. If the resulting plan is going to be a living and breathing document useful in day-to-day sales execution it must be supported by objective territory/market analysis.
It must also be part of a consistent, ongoing sales “check in” or accountability process supported by senior management coaching/mentoring and written feedback.
This regularly scheduled sales performance review process requires that sales managers provide progress updates to a cross-functional team of senior managers that provide feedback and coaching directly to the sales reps.
Where to Turn for Help?
If your company has ignored any of the “Seven Deadly Sins” and you’d like to take action… contact us at firstname.lastname@example.org.
We work hand in hand with our clients to address mission critical strategic marketplace factors that can and often do derail growth.
Our consulting team will hit the ground running and augment your company’s existing internal talent and resources to help your organization drive real and measurable revenue growth in the months and years ahead.