21/11/2022, 12:25
Putting The Customer First Is Good For Business
INNOVATION
Putting The Customer First
Is Good For Business
Jose Gomes Forbes Councils Member
Forbes Technology Council
COUNCIL POST | Membership (Fee-Based)
POST WRITTEN BY
Jose Gomes
Managing Director of North America for dunnhumby, responsible for leading growth and
customer success.
Mar 5, 2018, 07:15am EST
Shutterstock
It is difficult not to roll your eyes when you hear executives talk
about “putting their customers first,” especially when their
businesses behave like their customers are more of a burden than
a blessing. Interestingly, companies that truly do put their
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Putting The Customer First Is Good For Business
customers first continue to benefit from an advantage that their
competitors’ lip service fails to erode.
The truth of the matter is that customer-first as a discipline
continues to be misunderstood and underestimated, but it's a
legitimate and highly effective business strategy. Enabled by the
evolution of customer data and customer data science, businesses
can leverage their execution as a strategic and competitive
advantage. How, you might ask? By scientifically identifying what
matters most to customers and quantifying the ROI of delivering
it to them.
To bring this to life, I’d like to shine a light on food retail —
perhaps the toughest consumer market in the world, even more
so in light of the many recent mergers and acquisitions in the
industry — and show how product-driven strategies and metrics
deliver inferior results when you ignore customers. In the end,
the best metrics in food retail, as well as other industries like tech,
focus on the customer.
Percentage Margin Versus Dollar Margin
In retail, there are two fundamental metrics that dominate
thinking when it comes to profitability: Margin and profit and
loss statements (P&Ls). With either metric, being customer-first
provides the retailer with a distinct advantage.
Let’s start with margin. It is common today for many in the retail
sector (including but not limited to food) to reward merchants on
the percentage margin they deliver on the goods they sell. This is
particularly true when times are tough and top-line growth is
hard to come by, as is the case in today’s ultra-competitive retail
environments. Unfortunately, this approach fails to take into
consideration a broader view of the business that takes into
account customer metrics like:
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Putting The Customer First Is Good For Business
• The incremental and quantum dollar profit that a product
delivers
• The associated dollar profit a product delivers (what else do
people buy with it?)
• The profitability of customers that buy products (what’s the cost
of losing them?)
Note that I didn’t mention loyalty once. I don’t need to because
customer loyalty and customer profitability are almost perfectly
correlated, a statement that has held true for the 30-plus retail
brands for which I have worked. By evaluating customer metrics
alongside product key performance indicators (KPIs), it is
possible to make decisions that maximize total profit.
Channel P&Ls Versus Customer P&Ls
Now, let’s look at P&Ls. At a time of aggressive investment in new
channels such as e-commerce, mobile, click-and-collect and lastmile service providers, it is common for retailers to develop
business cases to assess the ROI of these channels. The
traditional approach of assessing direct costs and revenues tends
to create a myopic and siloed P&L which, again, does not factor in
what they know about their customers.
Unfortunately, customers aren’t aware of the nuances of the
retailer’s internal P&L structures, which is why they expect
seamless experiences across channels and are unforgiving of
differentiated pricing. On the other hand, if you look at the
opportunity from the vantage point of the customer (taking care
to avoid any clichés) it is possible to have a holistic view of the
investment by asking:
• What is the profitability per customer in the new channel?
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Putting The Customer First Is Good For Business
• How much is each customer spending incrementally in the new
channel?
• How much profit is at stake if you lose these customers to a fullservice competitor?
I’m not suggesting that capital expenditure (Capex) isn’t
important. It is, in the same way that percentage margin is an
important measure of efficiency. However, neither metric will
help you understand what is important to your customers.
The emergence of affordable means to collect multidimensional
customer data -- along with access to customer data science -demands that businesses both understand customer needs and
quantify the ROI of fulfilling those needs. It is no longer viable to
simply mouth one’s commitment to being customer first. Fail to
understand and deliver what your customers value, and prepare
for them to find a retailer who can. This is the new normal across
all industries.
Forbes Technology Council is an invitation-only community for
world-class CIOs, CTOs and technology executives. Do I
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Jose Gomes
President of North America for dunnhumby, responsible for leading growth
and customer success for retail and brand partners. Read Jose Gomes'
full... Read More
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