Oswald Letter

It’s the Customer, Stupid

It’s hard to believe but 2009 is coming to an end. For many, 2009 can’t be over soon enough. For most businesses, it has been a challenging year. And while we’ve seen a rebound in the stock market, most companies are reporting earnings that, while they beat analysts’ estimates, are still significantly less than they were a year ago.

Many companies report their results on a calendar year, which means they’re in the middle or just wrapping up their budgeting process for 2010. So, as you look into your crystal ball, what are you predicting for the year ahead? Do you see an economic recovery?  What about the so-called “jobless recovery”? How will an economic recovery that doesn’t include jobs affect your business? Will things get better in the first quarter or the fourth? When will corporate spending return, since so many companies are beating earnings estimates by cutting costs?

I know, a lot of questions with no answers. But anyone who is involved in budgeting for 2010 knows that these are just a few of the questions that you must contemplate as you try to figure out what the next year will hold for your business. Every industry is different. Every business is different. Every product line is different.

It seems to me that when you start your budgeting process you must begin with your customer. All too often we get caught up in our own theory, processes, or products but don’t look to those who keep us in business — our customers.

We’re experiencing extraordinary times, and you might as well forget everything you think you know about your business and start over. We’re dealing with an economic downturn that most of us have not experienced in our professional lives. At the same time, technology is advancing at a breakneck pace and changing just about every industry. We’ve seen some of the most successful companies in the history of our country fall to their knees. Just consider what has happened to GM, AIG, and Merrill Lynch.

When everything around you is chaos, you need to turn back to your customer. In marketing they talk about the four P’s: Product, Place, Price, and Promotion. Product is the physical product or the service that you are selling. Place refers to distribution or how you get the product or service to the customer. Price is the pricing strategy you employ, discounting, etc. Promotion is the way in which you promote your product or service to your target audience (direct sales, advertising, public relations, etc.).

When we sit down to budget, we often talk about these four items. What can we do to enhance the product or service we offer? Are there new distribution channels that will help to increase sales? What if we raise prices, will sales go up or down? If we dropped our price, could we grow market share? Are there more cost-effective ways to reach our target audience?

What we should do is begin with the customer. How do they view the product or service we offer? How are they currently purchasing what we have to offer? What technological advances are changing the way they consume what we have to offer? What alternatives to our product are they finding? How are our customers spending their time? How does our customers’ use of technology create new opportunities for our business?

It all starts with the customer!

We get so hung up on what we do well that we forget about the customer. You’ll hear executives talk about their efficiencies, their processes, their theories — but do they talk about the customer? You must always remember that it is not really about what you do well but what your customer wants and needs. In the early days of Ford Motor Co., they perfected the process of mass production, and it created a huge advantage for them — until someone else came along and gave the customer what he wanted instead of what they could produce easily and inexpensively. People liked the choices of models and colors, and GM dominated the U.S. auto industry for the next 70 years.

This year when you sit down to do your budget, or before you turn it in if you already have it in hand, consider your customers. Have you asked them what they want? Have you studied how their behaviors have changed? Have you talked to them about how they use your product? Have you asked how or where it would be convenient to get your product? Sure, you must consider the four P’s of marketing, but do it through your customers’ eyes.

We have experiences and knowledge that shape our decision-making. Companies have long histories and established processes that dictate how they act. I’m suggesting that you challenge your own ideas and your company’s theories by looking outward to the customer for guidance instead of inward at what you can do well. It’s not about what you can do, it’s about what the customer wants.