The Most Important Thing To Do in Tough Economic Times

Identify your best customers, and innovate to keep them happy

The last couple of years have brought one of the worst economies of our lifetime. What is the most important thing your organization can do to thrive in this climate? Identify your most attractive customers, then uniquely satisfy their needs.

First, you need to agree on which customers to focus on. Which are most profitable, which can you learn from, and which can you serve in a differentiated and defensible way? Find out what has changed for them in the last few months, and what they are most worried about.

For many, reining in costs is a key concern, and some may be downgrading to lower-cost options offered by your competitors. Consider what you can remove, debundle or simplify in your product offering. By shifting resources to things that your customers most value given current economic times, you can retain your best customers, and maybe even increase margins.

Times of great change tend to create opportunity. Amid the turmoil, prospects and existing customers are more open to considering new suppliers, and new solutions, that reduce risk and show measurable ROI. McDonald’s and IBM are two examples of companies that are doing well in this environment.

McDonald’s “4 Bucks Is Dumb … Now Serving Espresso” campaign taps into the new mood of frugality. This and other moves to meet changing customer needs has allowed the company to achieve consistent growth and performance. The New York Times reports “During a year when the stock market lost a third of its value shares of McDonald’s gained nearly 6 percent, making the company one of only two in the Dow Jones industrial average whose share price rose in 2008.”

Successful organizations pair cost-cutting efforts with new products and services aimed at the top end of the market. IBM is a great example of this. In January 2009, amid bad news from the rest of the market, IBM reported fourth quarter 2008 earnings up 12%, even on a 6% decline in revenues. How did they do this? Not only by cost-cutting, but by moving up the ladder to offer higher-value corporate packages of research, software and services. IBM shifted to higher-margin business, where specialized skills matter more than price, and to new, timely offerings such as energy conservation and fraud prevention.

Here are a few steps you might follow to uncover and exploit new opportunities in the current economic climate:

1. Identify your target customers

Depending on your business, these may be specific accounts or specific segments. What is key is getting agreement from your whole team on which customers hold the most potential for long-term profit, and which you can serve in a differentiated way. By deciding which customers are most important to acquire or retain, you can work to meet their precise needs extremely well, rather than trying to be “all things to all people.”

2. Understand how the economic crisis is changing customer needs

Times of great change tend to create opportunity. Now that you’ve picked your target customers, seek to understand what they are worried about, how they have redefined value, and what problem you might be able to solve for them. If possible, experience what your customers do firsthand. “Be” a customer by buying your own product or using your own service and your competitor’s. Observe customers directly as they buy and use your product. If you are in a business-to-business market, talk to a broad spectrum of “users” within your customer’s organizations, not just those responsible for the purchase decision. What do they wish you could do for them?

3. Identify alternatives for meeting the customer’s needs

Now that you understand how your customer’s needs have changed with the current economic times, get creative about what you can offer to meet emerging needs. It often helps to think about your product or service as a set of components—for example, how it’s designed, made, priced, communicated, specified, purchased, shipped, serviced, retired and disposed of. Think about each of these components in turn. Can we do it a totally different way? Should we eliminate it? Expand it? Debundle it? Do it twice as fast? Let a partner do it? This process should yield several alternatives for how you can meet new customer needs.

4. Evaluate the alternatives vs. agreed criteria

Evaluate each alternative identified in step 3 objectively. Criteria might include factors such as:

• Customer appeal and value
• Expected profitability
• Ease of implementation, including degree of organi- zational change required
• Investment required in R&D, operations, marketing, the channel, internal communication, etc.
• The likelihood of maintaining a differentiated position vs. competitors

5. Decide on and communicate a plan of action

You’ve chosen one or more alternatives for meeting the emerging needs of your target customer. Now lay out a clear plan of attack, assuring that each functional group knows its role and is committed to the desired outcome. If your new offering is substantially different or untested, manage risk by running pilots, or perhaps testing two alternatives simultaneously. Incorporate metrics and milestones into your plan and monitor progress vigilantly.

Finally, continue to watch the environment, and customer needs, for additional change. Those companies that listen hardest, stay nimble, and are courageous in changing are the ones that win.