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Customer Manufacturing Update |  |
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Dear Mitchell,
Here is your June Customer Manufacturing
Update. Since the press seems determined to
scare consumers into thinking we are going into a
long recession, it is likely that business will be
tougher tomorrow than it is today. And for many it is
tough today anyway.
If you have friends or colleagues who would
appreciate receiving this e-zine, feel free to forward
a copy to them using the "Forward e-mail" link at the
bottom of the e-zine.
Growing revenue is something most companies want all the time. And in a downturn, it is something most companies desperately focus on. When business is good, sales increase "naturally," even if the pace is slower than it could be. In downturns, companies scramble to find ways to increase sales. Except for those few companies with a truly dominant market share, most companies can increase sales any time they really want to. This month's white paper, A Secret To Increased Sales looks at why that statement is not audacious.
Last month in our white paper Customers After The Merger we talked about
the need to include consideration of your customers'
interests in your merger plans. Subsequently we've
found somes additional insight dealing with what
happens when customers are left out of the planning
equation. To achieve growth and profits after the merger, "... the post-merger firms must throw themselves into preventing or offsetting the customer attrition (often the result of diminished trust) that usually follows a merger. Managers must devote sufficient resources to retaining current customers and gaining new ones." These are the summary findings of an A.T. Kearney study (by (Juergen Rothenbuecher and Joerg Schrottke) of 270 post-merger companies as published in the May, 2008 issue of Harvard Business Review. Rather than concentrating on cost cutting programs and measures (the often-stated shareholder entreaties to hang on to their stock), the study highlighted the need to strengthen sales and marketing programs as the most effective way to improve long-term revenue and profits, and the resulting return on shareholder investment. And what happens when sales planning, i.e., customer retention, is overlooked in the pre-merger financial shuffleboard? The study revealed that sales growth had fallen off dramatically after the merger; a six percentage point decline on average. This decline resulted in a 9.4 percent reduction in earnings growth rate, with a resulting decrease in value creation. The merger firms' market capitalization fell off by 2.5 percent, thus producing the exact opposite effect of what had been ballyhooed as the beneficial investor ROI that would be achieved. This of course kept the spinmeisters employed in trying to explain away this contrary result. The study did not downplay the need to develop synergies between the merged partners, but did emphasize that the first focus must be on improving sales and marketing programs and making crucial process improvements. All too often the publicized redundancy and cost eliminating activities distract management ". . . away from markets and customers - where the real value lies." In short, the message here - and one we have always advocated - is to first plan to bolster your customers' partnership to the merger before you begin the cost reduction hacking and hewing.
Losing an opportunity or a customer, or a few now and then, may be just an anomaly; it happens after all, and "you can't win them all," certainly not in today's highly competitive market. But that does not mean you should accept lost business as inevitable. While all companies lose business, our experience is that too many companies lose more business than they should accept. This is both losing new opportunties, but even more importantly losing existing customers or business from existing customers. Are you accepting lost business without really knowing (rather than assuming) what caused the loss? Or worse, that you even have lost the business? Further, our experience indicates that many companies are losing business they do not even recognize as lost. As one of our client's puts it: "There's a hole in the bucket" and you don't even recognize that there is a leak. Certainly if you did, you would likely work to stop the leak. At least we hope you would. What are you doing to understand customer defections, either in whole or for part of their business? Do you know, or just assume, what is causing the loss? Are you looking for patterns and root causes and then working to correct them? If so, good for you. If not, why not? Likewise with new opportunities. What's your "win rate?" Is it getting better ... or worse? What is causing the wins, and the loses? How do you know? What are you doing about it? Sticking your head in the sand, or just assuming you know what is going on, won't help you plug the leak or improve your close rate. And hoping things get better is not a strategy. In any market, a profitable way to grow is to hold on to your existing customers, increase your share of customer and increase your close rate. Take action today to improve in this vital area.
The AP reported on May 20th that once again the U.S. Airline industry had received "dismal" grades from their customers. But then who is surprised? We doubt even the airlines are surprised. Once again Southwest came out on top (and they make money), while U.S. Scareways (excuse me US Airways) came in last. Their supposed target merger partner, United Airlines, came in next to last, so that merger is unlikely to improve anything. Likewise with Delta and Northwest which were the next two on the bottom of the list. Southwest's score improved to 79 from 76 and the next airlines on the list were American and Continental at 62. Quite a gap from #1 to #2. The director of the research center at the University of Michigan that conducts this study, Claes Fornell, suggested that consumers were not necessarily blameless in this cycle as they continue to buy the lowest airfare possible. He believes this has created a cycle of cost cutting and a business model that "leaves no one happy." So which came first, the price focus or the universally dismal service? We're sure the airline execs would suggest that the price focus came first, it justifies their actions. Even if that is true, why is it that Southwest can make a profit and provide a better than average "product?" Because they have "cost advantages" goes the traditional thinking. What cost advantages can they have that have not been available to the other airlines? Southwest is not a start-up airline. We submit their cost advantages come from knowing where to cut costs that don't add value for the traveler. The other airlines appear to have no clue what is of value to the customer. Several years ago our Principal, Mitch Goozé, wrote an article about TED (The United Airlines low-cost competitor) predicting it would fail because United had no idea what aspects of Southwest to emulate. It failed for the reasons he predicted. So what can the airlines do? We suggest they read Moments of Truth. This decades old book about how Jan Carlzon turned around SAS by focusing on what was valuable to the customer is dead-on and industry related, so it won't be a stretch to apply what he talks about. There is no question in our minds that if an airline understood what was valuable to its target market, it could provide it profitably. Southwest figured out how to do it for their niche. They can't be the only smart people in the airline business ... or maybe they are.
We appreciate any feedback you can provide to help us make sure these Updates give you value each month. Feel free to respond to this e-mail with any comments or suggestions for future topics or ways we can make these Customer Manufacturing Updates more valuable to you.
Thank you for your interest, and if we can provide
any
additional assistance in sales, marketing, strategy, or
innovation to help you increase your sales,
let us know.
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