Are you targeting the right customer?
- theangryactuary
- Oct 24, 2023
- 3 min read
When I worked for a large (re)insurance brokerage firm, we would always run around as if the sky were falling when it came to RFP season. Most clients would have a requirement to consider changing brokers at least once every three years. When preparing a Request for Proposal, it meant suddenly having to think about whether or not we had provided the best possible advice to our client over the last few years. If we suddenly had a better idea for the coverage structure and what the client should buy, it would also bring in to question why we had not dreamed up such a solution earlier. This could bring up relatively awkward questions during the sales pitch.
During these mad rushes to defend existing business and hoping to pick up a few more accounts, it never seemed as if anyone stopped to question the overall effect on the bottom line. I always questioned whether an RFP was worth participating in if the client had always tied up resources with more technical requests than other higher fee paying clients. Some clients are just bad at paying on time (or at all) and you really wonder if adding them to the top line would ever lead to a healthier bottom line. Add to that the possibility that staff will be overworked serving these less ideal clients and you end up with either burn out or ideal clients feeling less than special.
Costco:
Going way out into left field, remember the story of Costco. When Sol Price setup his company, he wasn't focused on winning over every potential customer. He didn't want to serve just anyone who would walk through the door. He started with memberships for business owners and licensed professionals (to name a few) because he was aiming for a stable target demographic. The annual fee kept these customers sticky and bought into the concept, making sure that they would be return customers.
More importantly, he kept out the less profitable customers. Seeking out the ideal customer is key and creates a much healthier bottom line. Focus on the loyal clients who are not always price shopping but understand the value of long term relationships and understand that service comes at a cost.
Apple:
Apple also knows what customer to focus on. Yes, apple will sell to anyone who walks in the door but the key is the prices they charge and the products they don’t make. Are some of the asking prices laughable? Absolutely, especially some of the upgrade options for more storage if you don't opt for the base model. But Apple is in effect selecting the right customer and looking after the bottom line.
They clearly have the resources and engineering know how to create much lower priced products, but they won't. They won't because they know that their customers are looking to the industry standard when they look to purchase an Apple product. They could chase after the sub $300 or even lower mobile phone market, but they don't. They prefer to participate in the used market to fill this need with their own Apple Certified Refurbished program.
And look at the results (albeit a bit dated):
"In Q2 2021, it captured 75% of the overall handset market operating profit and 40% of the revenue despite contributing a relatively moderate 13% to global handset shipments." - see further reading
In Summary:
So is your business targeting the right customer? Are you focused on profit and not just top line growth? If not, it's time to have a rethink about what is actually best for the business. If you onboard the wrong customer, the flow on effects can be sub-optimal at best. Ultimately, profit should be the focus. Being number one in top line sounds nice but I'd rather be number one on the bottom line.
The obligatory further reading list:
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