Friday, October 1, 2010

Set Aside the Profit Motive?

“The world is upside down”. I have spoken these very words a million times since the bottom has fallen out of the economy. But perhaps we have always been a little upside down, and only now really seeing the results.

I would submit that a significant part of our issue is really the profit motive (blasphemy). Businesses that are least likely to survive these challenging times are most often those that focus more on the profit motive, rather than focusing on delivering a competitive product or service that provides value.

Business owners often ask themselves “How can we make more money?’. But the companies that will sustain success in this economy will set aside the profit motive and ask:

“How can we build a base of loyal customers?”

“How can we efficiently improve the quality of our product or service?”

“How can we deliver it better or faster?”

“How can we improve our product or service so that everyone will want to buy it despite the down economy?”

The successful companies will think outside the box to answer these questions, and make changes to maintain competitive advantage and perceived value. Most importantly, they will not spend dramatic amounts of money to accomplish this. The answers are usually associated with modest changes in their business and operating processes, or customer service procedures. But it does require vision and leadership. To quote one of my favorite leadership authors, Warren Bennis, “The manager has his eye on the bottom line; the leader has his eye on the horizon.”

Companies that set aside the profit motive and instead focus on customers and delivering value are those that maintain their customer base, and their profits. Focus on the customers first, and the profits will come. Consider companies like McDonald’s, or Apple, or Wal-Mart (there are others) who have exceptional customer loyalty, and have remained profitable in this economy. Customer loyalty is a key to sustained success, and these days, maintaining that loyalty is more important than ever before. Just ask the American auto industry.Some findings on customer loyalty...

  • 68% of consumers change their place of business for little or no reason.
  • It costs between five and seven times more to find a new customer than to retain one.
  • A 5% reduction in lost customers can increase profits by up to 75%.
  • Only 3% of businesses have a 'lost customer' reactivation program.
  • Existing customers are not as price sensitive as new ones, they require less sales time, administration and advertising.
  • A first-time customer has a 30% chance of becoming a long-term profitable customer. If they buy three times relatively quickly, their chance of becoming long-term more than doubles to 67%.

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