A recent Google search of the phrase "best customers" yielded 506,000 results: There were links to articles, blogs, books, essays, news items, and reports on everything from identifying your best customers to "cloning" them. There's even one article—hold your breath—advising that it's important to pay attention to your best customers or someone else will. Another advises that "Screwing Your Best Customers Is a Mistake." Duh.
Buried somewhere in this cacophony of the interesting, obvious, useful, and silly is an article I wrote in July 2009 for Businessweek.com: "Serving Customers in the Downturn." My conclusion then was that smart companies will continue to spend on their best, high-margin customers.
What else is there to say? Actually, quite a bit.
I'd especially like to elaborate on three points. First, that your customer base—including your "best customers"—is always changing, never static. Tomorrow's best customers may be companies or individuals with which you're not even doing business today. Find them. The sooner, the better. Related to this is my second point: Don't be afraid to poach your competitors' best customers; they would poach yours in a heartbeat. Third, even your best customers probably account for just a fraction of your business. There may be considerable room for growth.
The first point: The group that constitutes your best customers likely will change over time. Companies change, needs change, finances change, capabilities change, the marketplace changes, and your own company will change. Several years ago consumers were trading up, seeking affordable luxury. Today, with consumers and the economy still reeling from recession, value and price are the priorities. Amid this churning, you always need to be looking for new opportunities to expand your business. Your best customers 5 or 10 years from now may not be on your radar screen today, but you should be thinking now about who they might be.
China third in millionaire households
As I've discussed before, with developing economies growing more rapidly than developed economies, many companies will find more opportunity for growth in Asia and Latin America than in the U.S., Europe, or Japan. Commercial Aircraft Corp. of China (or Comac), for example, has reportedly tapped General Electric (GE) and GE's joint-venture partner, Aviation Industry Corp. of China (AVIC), to supply avionics systems for China's new 150-to-200-passenger C919 jetliner. Eaton (ETN) of Cleveland reportedly will provide the fuel and hydraulic systems; Honeywell International (HON) of Morristown, N.J., will contribute the wheels and brakes; and Rockwell Collins (COL) of Cedar Rapids, Iowa, will furnish the communications and navigation systems. According to news reports, China's eventual objective is to capture a third of the market for such aircraft; the C919 is expected to go into service in 2016. GE, Eaton, Honeywell, and Rockwell Collins will provide much of the thrust for that ride.
China and other rapidly developing countries provide new growth opportunities not only for industrial firms, but for financial services and consumer-goods companies as well. Globally, the number of millionaire households—defined as households with investable assets exceeding $1 million—jumped 14 percent last year, to 11.2 million, according to Boston Consulting Group's 10th annual Global Wealth report, released this summer. While the U.S. had by far the most millionaire households and Japan came in second, China rose to No. 3.
Indeed, in terms of overall wealth, the largest year-to-year increase occurred in the Asia-Pacific region, where overall wealth jumped nearly 22 percent last year, to $3.1 trillion. China and other rapidly developing economies (RDEs) are growing across the board. While the number of millionaires has been increasing, so have the numbers of entry-level—now estimated to be more than one billion strong—and middle-class consumers. The RDEs now teem with customers. Many of them are up for grabs.
Pitching your competitors' customers
So grab them. At times competitors' customers—even their best customers—can be surprisingly easy to capture. A recent paper, "Creating Value in Key Accounts," by my BCG colleagues Mark Lubkeman and Vicas Taneja, noted that there's frequently a disconnect between account managers and customers. "One global company with a sprawling and historically successful sales force found that 70 percent of its key accounts were dissatisfied with the relationship," Lubkeman and Taneja reported. Such conditions create fertile ground for competitors. In the world of globality, virtually everything is up for grabs.
Get to know who your competitors' best customers are—what they want; what they need; what they're willing to spend; and where your competitors may be most vulnerable. Survey your competitors' customers to understand their dissatisfactions and then find ways to show them that they would not have such problems if you were their supplier. Next map out a game plan to get your foot in the door. Start a relationship on which you can build.
Comac, China's commercial aircraft company, clearly has a plan to grab customers from the established western aircraft giants. The company plans to begin with its rapidly growing home market, which will need more 2,000 new single-aisle jetliners over the next two decades, according to current estimates. Companies such as Boeing (BA) and Airbus (EAD:FP) need to expect such challenges as the economic engine of the developing world continues to rev up.
Make "best" better. Getting new customers is only half the battle. The other half is keeping them, developing long-term relationships with them, earning their loyalty, and increasing the profits you realize from them.
In this regard, Lubkeman and Taneja made another important observation: Even your top customers may be buying 75 percent to 85 percent of the products and services they purchase from your competitors. To put this another way, your "share of wallet" may only be 15 percent to 25 percent. That's a sobering thought.
devote resources to potential growth
So what should managers do? Lubkeman and Taneja have several suggestions that are worth considering. First, focus at least as much on your customers' potential as on the dollar volume of their current purchases. Some of those with the greatest potential may be small accounts today. Others may be relatively large but represent low "share of wallet." Lubkeman and Taneja observe that companies too often identify their best customers, their key accounts, simply as those that generate the most revenue. In a two-speed economy—one in which the developed world economies will grow at 1.5 percent and the developing world's at 6 percent to 10 percent year—a factor needs to be added to the mix: potential for future growth.
Second, customize systems for each company with which you have a relationship. What you do to build your ties with an established industrial firm in Dayton, Ohio should be significantly different than what you do to develop a business relationship with a fast-growing industrial firm in Guangdong, China. In the first case, there may be some potential for modest growth; in the second, there is potential for explosive growth. Allocate your resources according to where the potential lies, not where it's easier. It can take many months to create and staff such systems, which can cut across several business units. The sooner you start, the sooner you reap the benefits.
Third, remember that the best way to win is by playing with winners. Picking winners, as we all know (just ask the investment community), isn't easy. It's necessary to try. One thing we know is that there will be a lot of big winners in China, India, and other emerging economies in the years and decades ahead. If you can hitch their wagons to yours, or vice-versa, you'll have a step up on the competition.
The crystal ball is never fully clear. What is clear is that some customers are more valuable than others. The most valuable are those with the greatest growth potential. Your challenge is to identify these future winners, nurture them, grow with them, and get a bigger share of their wallets.