A primary objective for any organisation is to attract sufficient numbers of quality customers. In the process of doing so, it is not unusual for a business to end up servicing a small percentage of problem customers who tie up valuable resources and can be difficult to deal with. While being selective about the types of customer a business attracts may sound counter intuitive, it is a concept worth considering when examining the ongoing operations and growth potential of the business.
One example of a customer who may fall into the ‘problem’ category is the ‘bargain hunter’. This customer will generally be attracted to the business that offers the lowest price but that does not necessarily mean they expect a lower quality product or service. As a result, the bargain hunter can often be the customer you hear from most often after the sale has been made. Other challenging customers include those that take unreasonable lengths of time to make purchasing decisions or pay their bills. And they all directly affect the efficiency and sustainability of the business.
While you might attract more customers and sell more of your product or service by offering lower prices it is important to consider the cost of servicing those customers in the long-term. These costs might not be immediately evident – additional time taken by your sales person to close the sale, customer service staff to pacify an overly demanding customer or extra time taken to chase payment. Some customers might be in a habit of returning products, which can also be very costly for the business. Problem customers eat into your margins. They take more resources to service and rarely result in increased revenue so monitor the quality of the customer you are attracting. Not all customers are good customers.
Removing problem customers and attracting higher quality business can be done in a number of ways. One of the best ways is to increase your prices. Not only does that positively impact the bottom line but it forces the problematic bargain hunters elsewhere to irritate your competitors. Never market your business by price alone, promote your quality, service record or point of difference. Competing on price alone is a dangerous strategy and likely to attract a certain type of customers. If you have bargain hunter customers they will probably go elsewhere if you increase your prices. I have met a number of business owners that do not have a pricing strategy and worry about increasing prices for fear that they may frighten customers away.
Most people are more concerned with solving whatever problem or challenge they have. Price is less of a deciding factor than most people realize. This is certainly the case in the business-to-business sector. A price war between competing businesses should be avoided wherever possible. A business with shrinking margins must compensate with greater sales volume in order to remain viable. Unless that is a realistic possibility it is best to compete on your other strengths.
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