September 9, 2019
This article originally appeared in the November 2018 issue of the Produce Business Magazine
In preparation for our 100th year in business, our company has prepared a very long "to do" list. We are working on refreshing our brand and logo, creating a new website and developing new strategies for revenue growth. I have done strategic planning in one form or another over the last 10 years, but I have never looked closely at the concept of "core customer." Before I looked into the research required to properly define our core customer, I used an anecdotal method based on favorable customer attributes and I named our core customer "Joe." As it happens, we have several good customers named Joe. They have professional traits in common that make it very easy for us to do business with them. They are accessible; look for good product at fair prices; are willing to try new items; and they pay invoices in a timely fashion.
Unfortunately, my team didn't buy my "Joe" theory or my methodology. They wanted something a little more scientific, tools they could use to add more customers like those that form our core.
I recently read a book on the subject of core customer development that seemed appropriate to our industry, The Pumpkin Plan by Mike Michalowicz. The main themes presented in The Pumpkin Plan really hooked me. The book lays out a plan to grow your company's revenue based on the methods used by competitive, colossal pumpkin growers (people who choose to grow pumpkins for massive size rather than volume). Many of us have customers that don't quite fit with our business model. Mr. Michalowicz lays out a very specific plan to determine which customers do and don't. When I read the part about culling "under-performing" customers, I had to close the book and spend some time in relfection. I was totally on board with developing customers like the ones that floated to the top of our "favorites" list. But having spent so much of my career just trying to acquire new customers, the thought of dropping anyone was tough to consider. Trust me, culling makes sense.
Every business in every industry has a few customers that march to a different drummer. Customer and vendor don't always align on core products, services offered, hours of operation, company values, credit terms, or a myriad of other ssues. Since these customers represent revenue, we continue to "grudgingly" serve them. We all have customers that have high standards, or are hard to please...but that isn't a reason to fire them. However, if a customer requires us to customize our offering and to supply products or services that we don't have the expertise to do well, that relationship needs to be re-evaluated. There is a direct cost in money and time if your staff has to deal with customers that frequently push you outside your comfort zone. These customers distract us from what we do well.
On the surface, determining whom you serve seems fairly straight-forward. A customer is a customer. I was trained in the notion that any customers that paid their invoices within terms were valuable ones. Slow-paying customers were tolerated but not valued. Payment terms are a useful criteria, but they are only one variable in assessing core customers. To define core customers successfully, you and your team must dig deep into the history with each customer. Collect data on each customer's revenue, pay practices, and profitability. Make notes about their industry segment, their likelihood to continue with you, their most purchased products, and more.
Business gurus and pundits have written reams about core customers, so you will find many opinions and methods to develop your own list. Once defined, your core customer list will highlight the kinds of customers you are best suited to be serving.
The former chief executive of an online meal kit subscription company that we supply once told me about their core customer. In a B2C world, they had done hundreds of hours of research into their demographic target. They built a "personality" profile from the demographic data and bestowed a name on it as a way to communicate that profile to staff and to keep them focused on that customer's needs.
As my team continues to work through a sound, scientific foundation for core customer development, I often go back to the anecdotal process. We have a very broad product line, and I don't want to draft a definition of our core customer that is too narrow. Our favorite, or best, customers do seem to have personal and professional attributes in common. Perhaps, in the terminal market segment of the industry at least, we can afford to be a little less scientific and work on making more friends like "Joe."