One of the core points in my book Rethink is to help people on getting really clear about who their customer is and what the customer does, and doesn’t, value.
That may seem like an obvious and simple point, it actually can become pretty complicated pretty quickly. That’s because companies don’t just have one customer, and quite often they don’t even know their name. If the majority of your customers are 13 year-old girls in low income households, what they value is probably going to be radically different from a group of 44 year-old affluent male customers. Then to complicate things further, what if both of those segments are actual customers of yours, for the same, or different products? Do they care if you raise the price of the product by a dollar? Will they notice, and leave you if you switch to a lower quality ingredient or raw material? Are they buying it because they like the packaging? Are they customers purely because of the location of your store? What would cause them to stop being your customer? What would it take for them to recommend you to their friends? If they are buying different products, maybe one of the customer segments is more profitable to you so you might spend more marketing money on them than the other segment(s). If you decide to make some change, if that causes one segment to away, will you get enough new customers from the other segment(s) to make up for it?
One of the reasons I like the company alice.com is because they capture all of that information and give it back to manufacturers so they can know exactly who their customers are and what they are, and are not responsive to, in terms of ads and coupons.
I heard that the restaurant chain Pizza Hut just decided to lower the price of their smallest pizza to $8, from $10. I couldn’t help but wonder who cares about saving $2 on dinner so much so that if the pizza was $10 yesterday they would have chosen something else for dinner, but now that it’s $8, they are there. Of course it’s an incomplete math problem if you stop there. Unless a person is in a food court where they are choosing between Pizza Hut, a teriyaki chicken place, and a Mexican place, that’s one thing, but in most cases, there is time involved in going to the Pizza Hut, and probably the gas (if you aren’t taking the bus). These things add up, and while I doubt many people calculate all of these things when they make their decision, it strikes me as a bold assumption on the part of the Pizza Hut folks that by changing nothing else, lowering the cost of their product will bring more customers. No change in the quality of the ingredients, no change in the recipe, no change in the location of the restaurant, no change in how clean the restaurant is, no change in how friendly the employees of the restaurant are, or the hours of operation.
Wow.
I for one am not a regular at Pizza Hut and the $2 price change isn’t going to get me there any time soon, but I will be very interested to see how successful this change is. I will be surprised if it has a big impact. Whoever their customers are, Pizza Hut seems pretty confident that the exact price of their product is vital to the decision about whether to eat there. For me, time is most valuable, so if they offered free delivery, that would be a lot more interesting to me but I still don’t think I would order one.
Do you know who your customer is and what they value most?
-Ric
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