Frank Lio: Practical Product Management, Marketing, Strategy, and Life
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Should Your Best Offers Go to New or Existing Customers?

9/25/2013

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Age old question: Do you give your best discounts to new prospects or existing customers? 
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Every argument is legitimate. Couple them with these other arguable "axioms":
  • Never leave money on the table.  Management's job is to maximize profits.
  • Some customers are high profile and sought for prestige. They can influence other prospects, like the celebrities who get free clothing or jewelry from sponsors.
  • There are some customers who cost you more than they are worth.
  • Sales people on commission don’t care at this level – their job is to get the order and the commission (especially if they are judged by bookings).

So what is the answer?  Do you give your best offers and discounts to new prospects or existing customers? 

Answer: It depends.  You need to determine; 1) how valuable the customer is to you and 2) how flexibility the market and shopping around is for the buyer.

Customer Value means profit.  Pareto’s Principle (80/20 rule) applies: Approximately 80 percent of your profit will come from ~20 percent of your customers.  These are the customers who buy your higher end products and services, subscribes to updates, routine services, etc.  There are other customers who do cost you more than they are worth through buying low volume/low margin products, requiring extra support, are remote, never being happy, bad mouthing you, etc.  Focus on the customers who bring in the money and keep them happy.  Learn to treat the others differently so that they don’t drag you down, e.g. charge zone fees for services, give priority support to your premium customers,even raise prices or minimum order levels for the less profitable customers.

Flexibility refers to how easy is it for the buyer to shop around and switch.  In the home improvement business, Home Depot and Lowes are almost always near each other so the buyer can easily go the store he likes.  People can now go online to make most purchases. Flexibility may be based on personal factors and the particular situation. For example, many at work buy auto insurance from an affinity company that offers direct payroll deduction. They might like another insurance company but the direct payroll deduction makes the auto insurance easier to buy and renew.

Yale University Professors Jiwonong Shin and K. Sudhir studied the idea of "punishing or rewarding current customers" in their 2008 paper "A Customer Management Dilemma: When Is It Profitable to Reward One's Own Customers?"

Their general rule is:
  • High Customer Value + High Flexibility = Retain Existing Customers (Retail, Airlines, Car Rental & Hotels catering to Frequent Business Travelers)
  • High Customer Value + Low Flexibility = Go after New Prospects (Mobile Phone Providers, Cable TV Providers, Landlords in high occupancy areas)
  • Low Customer Value + Low Flexibility = Go after New Prospects
  • Low Customer Value + High Flexibility = Go after New Prospects (Health Clubs)

In only one situation do they suggest going after the existing customer base: customers with high value and high flexibility. Going after new prospects should take precedent in all other scenarios.
The "rewarding" of customers does not necessarily have to be straight forward offers or discounts during the next purchase request. In the Business-to-Consumer world, many businesses use frequent user clubs where purchases become member award points that can be redeemed in some future form.  Free hotel, airline seat, or car model upgrades are reserved for high value customers.

It's a good general rule although human emotions tend to turn most situations into individual exceptions, especially when a customer threatens to go take his business elsewhere.  Do try to understand whether you have a "good" or "bad" customer, cater to the 20% of your customers who make the most contributions to your purchase volume and profit, and learn how to treat your less profitable customers differently.
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Run Your Own Race

9/10/2013

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My original plan in life was to go into social work or law.  In fact, I received a full scholarship to a combined, accelerated undergraduate and law school program.  I was very surprised when my parents objected violently when I gave them the news. “Where did we go wrong?! We didn’t work so hard to raise you so you can become a lawyer! You’re not going to make it.” I asked them why.  “You’re not Jewish. You’ll be eaten alive as soon as the judge sees your face.”  So, as the dutiful son and an 18 year old who didn’t know much about careers, I went onto Columbia University for Engineering (because every other Asian kid was also going to engineering or medical school).

Throughout the years and into my career, I’ve seen people advised to act a certain manner, dress a certain way, and unfortunately, watch people get stereotyped and labeled.  “Well, the Myers Briggs test results show that she is in quadrant 3 so she can’t be a leader and should be in this type of role.  Only quadrant 1 people are shown to be good leaders".


I also got caught up in this by accepting certain opinions regarding what success and leadership meant and the means to attain it. That only led to internal doubt, fear of being inadequate, frustration, and stress – until I heard the best advice from Robin Sharma: “You need to run your own race”. 

Run Your Own Race
Everyone needs to run his or her own race.  We have our own start and finish lines, and will encounter different people and experiences along the way.  Be mindful and grateful during your unique journey.

“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.” - David Thoreau in "Walden Pond"

Don’t let yourself be labeled or you will restrict your own boundaries.  You can realize your potential only by refusing to follow the herd.  Don’t be in in a battle with what everybody else thinks.

So define your mission statement and run your own race.  Stop and enjoy the scenery.  Live your life, make your own choices, and help others do the same without preaching or labeling.

Nelson Mandela said "As we let our own light shine, we unconsciously give other people permission to do the same."   


Let your light shine.

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Simple Secret to Success: Get Back to People as Promised

9/5/2013

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“I will call you back when I have an answer.” 
 “I’ll let you know…”  
“You should hear back from us in 3 days.”
Just how many of us have heard that and we wait…and wait…and wait.  
What do you think of a person or business that does that?  Not much, eh?

I received my mini 360 degree feedback results* and one of the top positive characteristics that my peers and manager listed was “dependability”, “to do what I say and say what I do”.  I think that has much to do with one very important habit – I always reply to people as promised.

Getting back to people when you promise is one of the most positive traits there is.  If you made a promise to reply by a certain time or day – do so even if you don’t have the answer or deliverables.  Just telling others the status and that you are still working on it is important and appreciated.  No excuses.  Unfortunately, very few people do this!

Replying to people as promised tells others that:
1.  You keep your word.
2.  You care about and value them or their situation. They are important to you.
3.  You are transparent.
4.  You are dependable and trustworthy.

Not getting back to people insinuates that:
1.  You are not trustworthy and undependable.
2.  The other person is not that important to you. You don’t care about them.
3.  You are a liar. ("I told you that I will reply to get rid of you!")

4.  You are disorganized and unable to remember/track commitments.

A person is only as good as his or her word.  It defines you and the organization that you represent.

Remember that people tend to do business with those whom they like and trust.

*Alas, it also showed some "imperfections" which I will diligently work on.

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    Frank Lio is a Product Manager, Strategist, and Change Agent in the Hi-Tech industry. His growing track record of successes include creating 3 winning software products, leading nationwide seminars, and turning around a failing business unit.  He is currently serving a dual role as Product Manager and Business Team Support Manager at Instron ITW.

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