Greg Kitzmiller06.01.04
Market-Based Measurement Of Success
Companies must understand and measure the market to maximize performance.
By Greg Kitzmiller
We regularly read about firms with revenue increases and profit increases, leading most to conclude that a firm is doing quite well. However, the true measure of success lies within the context of the marketplace. When sales are increasing many managers, stockholders and others assume that all is well. Similarly, when sales are steady or declining many will assume the firm is at fault. Understanding how a firm is doing with its customers and within the context of the marketplace are key measures of success, as well as problems.
Examining Market-Based
Performance
Businesses need both internal and external performance metrics. All firms can talk about their internal metrics, such as ROI, Return on Sales, Inventory Turn, R&D expense, etc. Few firms, however, have a pulse on external performance metrics, such as relative share, customer satisfaction levels, market coverage, product awareness and relative quality. Often firms will have a subjective feeling about some of these factors, but not quantified metrics.
Take customer satisfaction, for example. What happens when a company does not know anything about customer satisfaction? Unfortunately, many dissatisfied customers don’t complain, they just walk away. Further, while they don’t complain to a manufacturer, they often do complain to “others”. Studies show that only four of 100 customers complain to the company itself. To determine the damage the “others” do, let’s assume that a firm has 10% of two million possible customers. If 15% of those 200,000 were dissatisfied, the firm would have 30,000 unhappy customers. Statistics suggest that the firm will retain some of those unhappy customers, but over 90% will stop doing business with that firm. Quick math tells us that that translates to a loss of 1.4 share of customers. If all customers were equal in purchases, this would be a market share loss of 1.4%. However, the real problem lies in those dissatisfied customers telling “others”. Studies show that each dissatisfied customer is likely to tell 8-10 “others”. Our 30,000 unhappy customers could thus easily tell over a quarter of a million others. So what is a firm to do?
In order to increase customer satisfaction, a firm needs to be able to communicate at any time with any possibly dissatisfied customer. This means making customer relations people available 24 hours per day via telephone and the Internet. It may mean open promotion to customers that a help line is available. This may include customer surveys to check satisfaction. For ingredient suppliers and others in the business-to-business arena, this may consist of implementing customer service measures and order processing staff. For firms with retail brands, this may including making key announcements on packaging, along with conducting consumer research.
Value Enhancement
A way to heighten customer satisfaction may include highlighting the value of the total product. Sometimes neither firms nor customers consider all of the values created by a firm. The total cost of a purchase may actually include price, acquisition cost, usage cost, maintenance cost, ownership cost, disposal cost, and other specialized factors. For business-to-business firms, acquisition costs can be major and today are being lightened through Internet-based tools that facilitate communication and automation. Ownership cost may include credit terms and plans to allow a customer to receive a product and delay or space payment. Firms often supply information or adjunct supplies to customers, which the customer might undervalue. However, in addition to helping the customer see the value of each part of the total product, there is often opportunity to increase the value.
For consumer products, websites can provide information about ingredients, approved usage statements, details about side effects or interactions, and generally increase a customer’s knowledge. In addition, there may be opportunity to increase customer usage for consumer products through reminder packaging, communications tools, or other resources that allow the product to play a bigger role in a customer’s life. All of this adds to the customer experience.
By staying in better touch with customers and measuring customer satisfaction, there is opportunity to provide new products for the same customers. Customers should be considered a prime asset to a business and gaining the most revenue from each customer should be a prime target for the firm. Once revenues per customer are maximized there is also the opportunity to look at expenses per customer. Some firms find that certain customers are just not profitable and it enhances company profit to allow those customers to drift away, or to specifically increase costs of allied services to keep the customer from taking advantage of the firm.NW