Targeting Customers

Quick Summary: Take time to identify the characteristics of an ideal customer.

Abstract:

Products and services should be developed with a specific market and customer set in mind. Taking time to identify the ideal customer characteristics can significantly impact the offering itself and be equally important in determining who and how to approach prospects.  To help define the ideal customer profile, identify several factors, by their extremes, to better understand the variances between your ideal customer and prospect opportunities. 

At first glance, it may seem easy to characterize customers based upon the experiences that we have had.  Ideally, customers that make repeated purchases at regular, predictable intervals, at premium pricing levels, willing to provide excellent references, and require little or no post-sale support, would make life easy!. Unfortunately, in most instances, those customers are rare.  When a new prospect appears on the radar screen, it is often hoped that they will fall into the definition of an ideal customer. Sometimes our most optimistic hopes are realized, but in most cases, prospects either fall by the wayside or somehow fall short of our ideal.

Rather than hoping prospects fall into the definition of an ideal customer, a more pragmatic approach to characterizing prospects allows the proper level of expectations to be set.  Also, it will help in formulating plans to transition a prospect to a customer.  One exercise that can be used to characterize customers is to consider extreme characteristics, both “good” and “bad” in terms of how well they meet the desired ideal profile.  By defining the two extreme cases or “rails,” all prospects will fall somewhere between those extremes. Identifying between eight and twelve characteristics usually provides enough granularity to provide meaningful results and actionable plans.  The process is straightforward by considering extremes of the identified characteristics and then deciding where the ideal customer lies between the extremes.  Then, when a prospect appears on the radar screen, their characteristics can be compared to the predetermined ideal characteristics to gauge the fit.

By identifying multiple characteristics, the decision is less likely to be distorted by one issue.  For example, if the customer has budgeted and is ready to buy a similar offering, it is easy to “pull out all the stops” and pursue them.  However, there may be other factors that could easily greatly lower the odds of success.  Examining multiple factors provides a dose of reality to the situation.

Below is a table that lists some examples characteristics that could be considered.  Each company should create their own list.

 

 

Category

"Left Rail"

"Right Rail"

1

Buying Motives

Focused on "winning," wants more customers, increased market share, etc.

Focused on "not losing".

2

Current Supplier Loyalty

Willing to work with the most appropriate supplier.

Feels required to "protect" existing suppliers.

3

Implementation Costs

Small customer/system base, easy to implement offering.

Large-scale, complex, simultaneous implementations required.

4

Budget Process

Flexible movement of budgeted expenses as needed.

Rigid budget rules, with internal champions for every line item.

5

Sales Cycle

Highly flexible, flat organization with informal decision-making process.

Multiple levels of review with detailed financial analysis, and structured decision-making process.

6

KDM Involvement

Easy access to Key Decision Maker.

Multiple levels of review before internal presentation to Key Decision Maker(s).

7

KDM Authority

Single KDM and straightforward process.

Purchases made by a committee after recommendations from other committees.

8

Payment and Other Terms

Willing to listen and negotiate fair and reasonable terms for both parties.

Draconian, "take or leave it" terms established by finance & legal, not operational departments.

9

Contractual Terms

Simple and straightforward, negotiated terms.

Terms dictated by the Purchasing (on the back of the PO), independent of negotiations. Legal involved.

10

Supplier Qualifications

After reference checks and other minor due diligence, the customer qualifies you.

Must adhere to rigorous pre-qualification standards (VMS) before deemed as an acceptable supplier.

11

Trial Requirements

Customer accepts results from other's trials.

Customer insists on free, prolonged trials.

12

Standards Compliance

Customer evaluates offering's fit, function, and capabilities on an individual basis.

Customer insists on compliance with rigid standards and testing applicable to all suppliers.

13

Legal Compliance

Any required legal compliance issues are discussed well in advance of procurement.

Contracts may stipulate compliance with any and all "flow through" requirements, identified or not.

14

Implementation Support

Implementation issues identified upfront with reasonable flexibility.

Implementation handled through rigorous standard processes imposed after the sale.

15

Delivery Demands

Product availability determined by customer and supplier based on need and capabilities.

High volume, universal flash-cuts, or deployments throughout service area.

16

Volume Demands

Customer agrees to purchase exact quantities.

Customer insists on fixed pricing but "more or less" quantities.

17

Competitive Positioning

Fair and open competitive environment with each vendor's information held privately.

Competitors given the right to counter your openly shared offer. Reverse Auction.

18

Confidential Procurement

Customer keeps vendor pricing confidential.

Customer uses an open auction bidding process.

19

Bidding

Customer asks for quotations individually.

Customer solicits bids with a formal RFP process. Open pre-bid conference communications only.

20

Alternative Offerings

Customer willing to accept alternative proposals.

Customer insists on zero exceptions to RFPs.

21

Product Life Cycles

Customer interested in staying current, willing to change out products as they become available.

Customer, due to large-scale implementation issues, demands limited (zero) product changes.

22

Upgrades and Enhancements

Customer willing to install upgrades when available.

Customer insists of frozen product with long-term support for the exact version of the product supplied.

23

Risk Tolerance

Willing to work with a new and unproven supplier after scrutiny.

Works only with well-established, proven track record suppliers.

24

Pricing

Customer accepts negotiated pricing.

Customer demands most favored nations pricing, independent of time or volumes with claw back.

 

In defining the characteristic extremes, no value judgments should be made regarding how well they are applicable to the company’s offering.  After the characteristics are defined, the company can then decide how “close” they would like a prospect to be to a particular rail or extreme as listed in the table.  Next, as a prospect appears on the company’s radar, the prospect’s characteristics can also be identified as part of the qualification process. Obviously, large differences between the prospect’s characteristics and the company’s ideal prospect need to be carefully examined.  Once understood, specific engagement strategies can be developed, or it may be decided that the differences are too great to warrant pursuing the opportunity.

Finally, the exercise may reveal some fundamental flaws in the company’s ideal customer definition.  Those flaws may become obvious after several potential prospects fall well outside of the company’s ideal definition.  Without a definitive process as outlined above, it is easy to fall into the trap of disqualifying prospects with the rationalization that “they don’t understand” or “they are not ready” or some other blame-transferring “logic.”

Expect the definition of the ideal customer to change over time.  For example, a new company may define their ideal customer as one who resides in their local market.  At the other extreme, a company with a well-established national or international distribution organization, may define their ideal customer as one that has a presence and need in multiple areas that they already cover.

An Excel™ workbook has been created that places these characteristic pairs in a “Rail Diagram” tool discussed in article 8.020106, “Comparative Customer Analysis with Rail Diagrams.”  This tool is designed to add a level of objectivity to the Ideal Customer versus Prospect evaluation. 

Article Number : 5.030301   

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