Align the business with better customers
I would love to just say “no” to one of our customers who is unfairly demanding and not that great in terms of profit. They buy a lot of what we produce, but I can get past that with other better customers. My issue is that I want to help them out so a competitor doesn’t go there and sell them a similar solution and get more of a foothold with something we’re a leader at producing. What should I do?
Thoughts of the day: It’s tough when customers know they have choices and use that to negotiate terms that are favorable to them and potentially hurtful to you. Think about what you can do to improve your product or service to differentiate it from what your competitor sells while you negotiate for a premium from customers who value that difference. Working through options and consequences is like playing chess on a multilayered board.
Have customers who understand and appreciate your value.
You can’t let the customer dictate your business. You have to decide which customers are going to create long-term value for your business. Usually that comes from customers who meet the following criteria:
- Value what we do, sufficient to pay at or above our average margin.
- Willing to make investments with us to build future products or services.
- Make suggestions that help us grow.
- Don’t try to hold us over a barrel.
Go through your client list and figure out how many current clients and prospects meet that set of criteria. Is that enough to grow the business? If not, figure out a plan to get more value-oriented clients and prospects.
What sets you apart from the competitors?
Differentiating what you do or creating a niche that only you can serve is important for any small business. That comes from providing something unusual, including the following examples:
- Special handholding.
- Offering a set of customer service hours that no one else offers.
- Putting a group of services into a package.
- Listening to your best customers’ complaints about what they can’t get and figuring out how to meet those needs.
To answer the question of what to focus on, consider what solutions will lead to:
- The greatest profits from production and sales.
- The greatest difference vs. competitors.
- The longest-term solutions in terms of picking off great clients who value what your company does for them.
You can’t be all things to all customers, so don’t bother trying to go there.
Focus your efforts on products, services and combinations that your company can be good at and then find clients who want exactly that. Take a look at your competitors and what they’re doing.
Build a competitive profile for each significant competitor that includes:
- What they do and how you compare.
- Who they provide most of their services to.
- What recent innovations they’ve announced.
- Customers who have left them recently, and why.
- Customers who have left your company for these competitors and why.
Decide on which competitors could be the most threatening to your company going forward.
Pick one or two to focus on and decide if you can match what they’re doing and stay ahead of them over the next several years. Identify areas where those competitors are vulnerable.
Research the marketplace.
- Is demand for the products or services you offer growing or declining?
- Are new clients entering the market?
- What additional products or services are likely to be in demand in the next few years?
Use that competitive and marketplace profile to figure out whether or not you should try to compete to keep the business you have with your demanding customer. If it’s time to let go, focus on building a sales and marketing plan to bring in more new, high potential clients.
Looking for a good book?
Try “HBR’s 10 Must Reads: On Strategy“, by Michael Porter, W Chan Kim, Renee Mauborgne.