Member Article

Back to the future of customer intimacy: knowing your client

In the 90s, with the appearance of the Internet, businesses could only think of one word: scalable. Software editors had the perfect business model: you designed the product once and for all, and then sell it, as one-size-fits-all, with no variable costs attached to production. Still today, many companies lean towards uniformed products, as they permit the most rapid increases in production capacities. However, knowing whom you’re selling to, despite their comparable needs, is still a habit most businesses should acquire.

Scalable businesses are those where customer knowledge is minimal, such as software or franchises. Once the model has been designed (usually requiring a lot of work), it is simply duplicated over and over again, as long as the orders keep coming. Typically, the type of business which investment funds love to get hold of. These businesses thrive on the fact that some human needs are pretty much universal. Since no single customer ever needs exactly the same thing as the next one, these businesses leave a little leeway in the implementation or configuration of their product. For instance, some customization is possible in the main text-management software programs, but usually not much, based on the fact that most customers will be content with what they are sold, even if it doesn’t fit their need exactly.

In the case of franchises, since customization requires tampering with the basic business blueprint, headquarters tend to frown upon it. They go out of their way to ignore their customer needs. The richer the headquarters, the less leeway it will give its franchisee in its operations. In the case of McDonald’s, the headquarters in Oak Brook will control down to the smallest detail. Once in the franchise, only one type of layout, with a very limited number of products, to which the customer will adapt, or refrain from purchasing. Amon Jones, an ex-McDonald’s franchisee testified on the experience : “At the beginning, it was very difficult. But McDonald’s have some good processes in place for support of new franchisees, and they helped me immensely […] To be honest with you, I have very limited control in the way the store was developed, and run. Color schemes, furniture and interior fittings are all ‘suggested’ by corporate. Operations-wise however is completely over to me. It is up to me and the Restaurant Manager to ensure that the processes are followed, otherwise we’d bare the brunt of the ‘corporate storm’. The end client is met with the same inflexibility. As Henry Ford said, the customer can buy in any color he likes, as long as it’s black.In the case of franchises, since customization requires tampering with the basic business blueprint, headquarters tend to frown upon it. They go out of their way to ignore their customer needs. The richer the headquarters, the less leeway it will give its franchisee in its operations. In the case of McDonald’s, the headquarters in Oak Brook will control down to the smallest detail. Once in the franchise, only one type of layout, with a very limited number of products, to which the customer will adapt, or refrain from purchasing. Amon Jones, an ex-McDonald’s franchisee testified on the experience : “At the beginning, it was very difficult. But McDonald’s have some good processes in place for support of new franchisees, and they helped me immensely […] To be honest with you, I have very limited control in the way the store was developed, and run. Color schemes, furniture and interior fittings are all ‘suggested’ by corporate. Operations-wise however is completely over to me. It is up to me and the Restaurant Manager to ensure that the processes are followed, otherwise we’d bare the brunt of the ‘corporate storm’. The end client is met with the same inflexibility. As Henry Ford said, the customer can buy in any color he likes, as long as it’s black.

Then, there are the companies who don’t need to know their individual client, but do need to know his or her profile. In these businesses, marketing departments hold a central position, as they break the entire market down into categories, based on a handful of criteria: where the client lives and works, what kind of job he has, what kind of image he wants to acquire, if he has children, etc, and last but not least, how much money he has. The most prominent example of this category is the car-manufacturing sector. Each brand has a few models, sometimes ranging up to 30, and each model will respond to the main set of criteria, for each customer category. German automakers often target the “rich and high-profile businessman” who feels the need to impress his entourage, both inside and outside his company. They also have a line of muscle cars for what they would call the “petrolheads”, people who feel passionately about automobiles and would be glad to spend extra in exchange for an engineering feat. Each one of those categories, which are studied and kept up-to-date all year long by the marketing departments, contain a number of individual clients who are almost completely unknown from the headquarters (their details are simply kept in the customer database).

This social-business science is in rapid expansion, as Richard Ting explained in the Business Harvard review: “the definition of customer lifetime value (CLV) was based only on a consumer’s purchases. In the future, with the proliferation of social media, a customer’s CLV will have to factor in the influence the customer wields over their social networks and ultimately how much that influence drives others into a transaction with a specific brand. This social factor will be weighted by reach (number of connections in the social graph), frequency (amount of sharing), impact on others (overall or for the category), and individual engagement with the brand. With this updated calculation of CLV, a brand must have a 360-degree view of the customer.”

However, because acute customer knowledge isn’t central in the types of businesses stated above, doesn’t mean it isn’t needed period. There is still an enormous proportion of businesses where customer knowledge is not only useful: it is central - and lacking it may well cause the eventual collapse of your company… Even more so if your company is engaged in B-to-B relations. If your customers tally up to fewer than 100, you are probably in this category. Here, it must be kept in mind that you have about as many clients as your client has potential suppliers! This changes the power balance radically and knowing your customer to the finest details will make him choose you over competition.

Thomas Savare, who heads the Oberthur Fiduciaire secure printing company, injected this culture into his company, as this knowledge forms half the value of his company (with the technological secrets and know-how being the other half). In his 2012 interview, he stated: “In Oberthur Fiduciaire, a large part of our business revolves around banknote printing, for example. On these notes, there is always artistic design: drawings and engravings of monarchs, authors, architectural landmarks, musicians, and so on. And these images are very important because they embody the history and identity of the nation which will use the bills.” A standardized product, in his case, would make absolutely no sense, as his job is to understand his client’s positions and aspirations, and translate them into a product, much like an architect or engineer would do. As a result, clients are kept closer than in most businesses: banknotes are co-designed with the client, who is assured that “each and every customer benefits from the knowledge of our qualified workforce through every step of the process whether they are dealing with our sales team, designers or operators”.

Businesses should not be lured to scalability or fooled as to where the money is: there are fortunes to be made in businesses where the client wishes are central; in fact, more than anywhere else. And in a day and age where social media platforms give unprecedented levels of details about potential customers, the global markets may well shift back to the times when craftsmen and workers knew the first names of their client’s children.

This was posted in Bdaily's Members' News section by Jessica Mitchell .