HOOKING THE RIGHT CUSTOMERS
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The customer-led approach is both right and dangerous It is absolutely right to be marketing led and customer centred. But it can also have dangerous and potentially lethal side effects. If the product range is extended into too many new areas, or if the obsession with customers leads to recruiting more and more marginal consumers, unit costs will rise and returns fall. With additional product range, overhead costs rise sharply, as a result of the cost of complexity Factory costs are now so low that they comprise only a small part of firms’ value added—typically less than 10 per cent of a product’s selling price. The vast majority of firms’ costs lie outside the factory. These costs can be penal if the product range is too large. Similarly, chasing too many customers can escalate marketing and selling costs, lead to higher logistical costs and very often, most dangerously of all, permanently lower prevailing selling prices, not just for the new customers, for the old ones too. The 80/20 Principle is essential here. It can provide a synthesis of the production-led and marketing-led approaches, so that you concentrate only on profitable marketing and profitable customer centredness (as opposed to the unprofitable customer centredness very evident today).
The 80/20 marketing gospel The markets and customers on which any firm should be centred must be the right ones, typically a small minority of those that the company currently owns. The conventional wisdom on being marketing led and customer centred is typically only 20 per cent correct. There are three golden rules: