Customer Service Matched with Customer Margin

Take a look at these news stories

 

The first one is about a tech startup, Backup My Info

We love working with all of our clients, especially the smaller ones, but if we find ourselves spending all of our time helping the small customers get started with our service, we will not be able to grow into a $5 million-a-year business — or even remain profitable.

The second one is about Iron Man XC,

XC provides its 25 athletes with what it refers to as “high-touch” service: breakfast with the pros, a seat up front at the welcome banquet, Ford (a dedicated handler) at your disposal. He books your travel. He’ll find out your favorite snack is Oreos and have a pack waiting in your suite.

For non-XC athletes, a bike tune-up requires a sweaty, anxious wait at an overburdened cycling shop and lost sleep over whether a year of training will be lost to some stoner bike mechanic who fails to true a wheel. Not so for XC guys. Expected wait time: zero.

Was Backup My Info wrong to offer same great service to all customers regardless of what they spend with them?

What about Iron Man XC? Don’t you think the non-XC athletes who trained the whole year would love to have great mechanic service (with zero wait)? Why aren’t they offered the same great high touch service?

Customer Service and loyalty publications are rife with advice on how crucial it is to delight your customers, go the extra mile, keep them happy etc.  But such an advice is pointless or even downright dangerous in leading businesses down path to destruction. A generic one size fits all advice to provide same great service and experience to all customers is wrong.

The starting point of any marketing strategy is customer segmentation – finding out the needs of different customers, what alternatives are available them to fill those needs and what are they willing to pay for a service that offers to fill those needs.

For sure everyone would love to be treated as XC athletes if offered at same low price. But – if that high tough experience is not what they are hiring the product/service for or have no willingness to pay for such a service then it makes no business sense to offer that to them.

If you cannot charge for it you should not be offering it. That does not mean you start with same great customer service for all and try to distribute your costs as price to customers. You start with which customers value the service, find out what they are willing to pay and deliver that at costs that generate profit from each customer (Customer Margin).

Customer Margin is the total revenue a customer generates (from all transactions) less the cost to acquire and serve them.  You want a mix of customers that deliver positive customer margin – delivering same great service to all is not the way to get there.

2x2_revenue_cost2

Do you know your customer margin?

Other readings:

  1. Pricing the Customer’s Experience by Wim Rampen
  2. Beating Customer Expectations – An Experiment

 

2 thoughts on “Customer Service Matched with Customer Margin

  1. To be honest i don’t have any customer margin.As an call center i am focusing more on giving customer service which we all know that if we give a good one there is a possibility of satisfaction that we all want.

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