Sunday, 29 July 2007 22:25
Customers Are Our Benefactors, But Are They All Profitable?
Companies strive to increase the sales of their products and services and obtain higher income levels by focusing on marketing activities and operations in our highly-competitive world. However, there are indicators other than having a wide range of products, reaching large numbers of customers and increasing sales volumes via marketing activities to be deemed as a major company. In other words, the size and content of balance sheet is not so expressive for customers. Profitability and efficiency are also main crucial indicators of being a major company.
A company needs to find profitable customers in order to reach a high-profit level. First of all, the company should find out a demand for its product within the relevant market and market its product in order to meet this demand. Marketing is not an activity to be performed just because a cheap product is manufactured or found, even if it is not demanded within the market anymore. Otherwise, the displeased customers cause fruitlessness for the company.
The main factor to have profitable customers is to have a product which is highly demanded within the market and which can meet the anticipated functions. The next step is determination of the expectations from profitable customers. Profitable customers are described the customers who frequently make shopping, spend much money, are not afraid of trying new products, take risks, are ready to participate in product development activities, are loyal to company, and demand new products.
In a market where protecting current customer portfolio is 5-6 times more difficult than obtaining new customers; profitable customers spend 7-8 times more than other customers. In automotive sector, profitable customers spends 10-11 times more than other customers.
Philip Kotler and Garry Armstrong define marketing as long-term and profitable customer relations, and, purpose of marketing, as obtaining new customers by supplying superior-quality products, and, to protect and expand current customer portfolio by offering customer satisfaction.
Companies are usually not able to demand extra price for over-standard products and for this reason, their profit disappears. For this reason, those companies have to make sales at a loss. ABC (Activity Based Costing) study is widely used for such situations. Companies can easily determine the profitable products and customers by means of ABC, and as a result of this, they can make changes in their strategies and get rid of losses.
The first steps to be taken following ABC analysis are to allocate and spend more time on the right product, focus on profitable customers and find out why those customers are profitable, focus on how to protect and increase them. Target group and appropriate product shall be determined as a result of those studies.
The profitability can be sustained if current customers remain within target group. But, if current customers are not within target group and do not create profit; the company shall be under the pressure of unprofitability. In this case, the company can only remove unprofitable customers and customers out of target group from its portfolio and focus on more profitable customers and products.
As a conclusion; the companies should focus on their target groups with standard products required by market and meet the requirements of their customers by means of a complete and correct analysis and remove unprofitable customers from their portfolios in order to increase the numbers of their profitable customers.
References:
Soruman / Elephant story is lingering / http://www.soruman.com/fil-hikayesi-gecmiste-kaldi/
Capital / 01 January 2002,Ebru Fırat / My Customer is Much More Profitable / http://www.capital.com.tr/haber.aspx?HBR_KOD=1121
Capital / 01 July 2001,Ebru Fırat / Profitable Follow-Up / http://www.capital.com.tr/haber.aspx?HBR_KOD=2075
Indeks-Vs Magazine / You are as giant as your profitability / http://www.indeksiletisim.com/hizmet_goster.asp?ID=569&hizmet_id=2
