Profit By Design: How to build a customer portfolio full of profitable promoters

INTRODUCTION

Welcome to Profit by Design. This book is the result of 20 years of working with organisations of all types and sizes, combined with many years of research and postgraduate teaching. I’ve watched so many businesses struggle to engage their target markets, and identified one common factor that always seems to be missing – meaningful exchange of value with the right customers. It was from this realisation that Profit by Design began to take shape and develop. The program in this book will take you all the way from selling products and services to engaging with the customers that are most likely to become profitable promoters of what you do. It will show you how to leverage two-way value exchange and build a portfolio of customers that will ensure you thrive. Want to succeed in this overstimulated marketing world? It’s time to stop closing sales and start opening relationships with the right customers. It’s time to stop chasing cash flow and start building sustainable profitability.

Let’s have a quick look at what you’ll find in each chapter. If you’re already partway along your Profit by Design journey, you can skip ahead.

In Chapter 1 we will delve into the dichotomy between the old-world, product-centric approach and the customer-centric approach relevant for this age.

So many leaders today fail to see this dichotomy for what it is. They look to the past to see how today’s large organisations successfully leveraged their products, then try to use the same strategies. When they do this, they ignore how times have changed. But more importantly, they ignore how customers have changed. Customers no longer want to be sold to. They want to buy, but they are influenced by the opinions of their social networks rather than by advertising.

Chapter 2 follows a case study that shows how the key principles of Profit by Design were uncovered. The case study follows a personal journey of discovery. Many people were quite shocked by the benefits of the Profit by Design approach, particularly since they directly challenged traditional approaches to growing value and profit. We will then see how these principles can be applied in a variety of business contexts.

Chapter 3 delves into the type of thinking that prevents so many leaders and managers from seeing what you will see. Your perception of your current constraints will become acute. Only by understanding those constraints will you be able to overcome them as you design and implement a new business model and novel strategies that will create long-term value.

From there we will go into detail on the process of using and applying the Profit by Design approach in your organisation. The subsequent chapters will traverse the following route, which will lead you to unlock the value in your customer portfolio – to foster a portfolio full of profitable promoters.

In Chapters 4 to 6, we will learn in detail how to build a Customer Strategy.

Our ultimate aim is to create a profitable portfolio of customers, so we will start there. Not all customers are equal, so we will need to examine the various customer groups. This goes beyond segmentation to really understanding how our customers behave and interact with our products and services. This will deepen our understanding of the two-way value exchange: what value the customer group gets from you, and what value you get from them. Primarily, the value businesses seek from customers is financial and advocacy, which are both measurable.

Once we know the customer groups and understand the two-way value exchange, we can then determine our intent for each group. Do we want this customer group to grow? Do we want to change how this customer group interacts with us to bring the two-way value exchange back into balance? This analysis and decision making will form our Customer Strategy – how we plan to build a profitable portfolio.

In Chapters 7 to 9, we will hone in on ways to identify and deliver customer value.

Once we know the customer portfolio we want to build and the value those customers seek, we then have to design a strategy for delivering that value. This starts with considering how we communicate value to specific groups of customers. We will see that, for customers, value propositions exist at various levels. Therefore, we will design a customer communication strategy that aims to clearly articulate value at all the various levels required.

When it comes to how we engage with the various customer groups, we will need to look at service design and an Architecture for Customer Engagement. These design elements will be the foundation of the Customer Strategy, the basis for realising the intent of creating a portfolio of profitable promoters. Of course, this will be an iterative process. We must be sure to use action learning cycles to continually finetune the customer portfolio.

Finally, Chapter 10 will wrap the program up with some helpful approaches to implementation and change. We will use a maturity model to help you assess where you are now as a starting point for your own mission to get out of the dark, product-centric age and into the light of a business model that delivers value both for customers and for your organisation.

Next, you’ll find a super-handy appendix that walks you through real-world case studies of the implementation of Profit by Design. In an effort to help you see more clearly how the Profit by Design approach can be applied to any customer context, the appendix contains three cases: a B2B case, a B2C case, and a non-profit, government agency case. As an added bonus, at the end of the book you’ll find a collection of all the templates you’ll need to build your own Customer Strategy.

Thanks again for joining me on this expedition of discovery. We will begin on territory that pioneers have forged, but you will soon discover this is an iterative journey where you create your own territory and map. All you need is an adventurous spirit and a positive attitude to learning and improvement.

Let’s start!

CHAPTER ONE

CUSTOMER PORTFOLIOS

The central theme of Profit By Design is that the overwhelming value for any organisation comes from the configuration of its customer portfolio. Your customer portfolio is your unique collective of customers. How these various customers behave drives the value and cost elements that produce your financial outcomes. Some customers will get more value from you than you can recover from them. Other customers will get the value you deliver and return value. Your customer portfolio is the total sum of those customers – the pluses and the minuses.

In this book, we will discuss how to unlock the value within your customer portfolio. That means creating or building a customer portfolio full of customers that are profitable and promote what you do. Once you learn to see businesses and organisations in this way, the strategic choices involved in creating more value will become much clearer, and the outcomes will be measurable.

But first, we need to discuss what prevents leaders and managers from seeing value creation this way. For many leaders, the well-trodden paths to ‘success’ have resulted in rigid mindsets that, in this age, are becoming less and less meaningful. So to understand how we got to where we are today, and how things have changed, let’s start with a story from the Industrial Age.

The Wedgwood empire

Let me introduce you to Josiah Wedgwood, an English potter and entrepreneur born ‘poor into the squalor and dirt of a peasant industry’ in 1730.¹ In his early days, products were made and bought locally in market towns and sometimes carried further afield by various merchants and traders. But by the time of his death in 1795, his name (brand) was known around the world for running one of the ‘finest industrial concerns in England’.² He was worth £500,000.

Wedgwood was the first to produce product catalogues and put them in the hands of travelling salesmen. These salesmen travelled first throughout the British Isles, then into Europe, and ultimately right around the world. Wedgwood also had elegant showrooms with offerings like, ‘Buy one get one free’ and ‘Free delivery for orders over £50!’ Wedgwood was able to sell his products at a premium price, in large part thanks to what we would now call celebrity endorsements. Wedgwood went to great lengths to become the British Queen’s potter, and later gained endorsement from the Queen of Russia.

Wedgwood was able to leverage all the technological and organisational advances that the Industrial Revolution provided, such as division of labour and industrialisation itself. These efforts not only improved the quality of the products he produced, but also the volume. And this was a hallmark of the Industrial Age. Pre-industrialisation entrepreneurs made and produced goods at a much smaller scale and really only exchanged or sold these goods locally. Industrialisation brought about a new problem for entrepreneurs: How do we move the volume of product we can now make? While Wedgwood was no doubt a talented potter and industrialist, what sealed his ultimate success was that he applied himself to solving this very problem: how to move large volumes of product. He was a pioneer of what we now call sales and marketing.

The Wedgwood business continued to outperform its rivals by developing and applying sales and marketing practices that are still popular today. The business was purchased in 1986 by the Waterford Glass Group for US$360 million and now trades under the name Waterford Wedgwood, continuing to thrive even today.

No doubt about it, the sales and marketing approach Wedgwood developed to move product worked – and it worked for over 200 years. It still works to some extent, particularly for organisations like Apple or Coke that have high brand recognition and serious volumes of product. However, the product-centric approach that Wedgwood built his empire on no longer works for the majority. The world has changed – but businesses are yet to catch up. Yes, the technology has changed. Yes, many organisations are now digitised. But more importantly, people have changed – in how they feel about businesses and, importantly for this discussion, in how they behave as customers. It is the changes in customer behaviour that have triggered the need for new insights into how businesses can gain better value through better design of the customer portfolio.

Customers have changed

These last 10 to 15 years have seen a complete change in the way customers behave. This isn’t just about the Digital Revolution or the proliferation of apps, though that has of course contributed. This is about a change in how customers buy. A huge portion of customer buying journeys are completed without any interaction with the people in the business. And even in those journeys that do require interaction with a salesperson, about 60–70% of the journey is completed before the interaction even occurs. It appears that we don’t need travelling salespeople with catalogues anymore!

What customers need and want from businesses has changed. When they need it has changed. And how they need it (the experience) has also changed. Yet most leaders and managers haven’t really adapted their customer engagement practices to align with the way new customers engage and buy today. We may have added some self-service tools or catalogues to websites, but many of the old product-centric sales and marketing tactics are still being used.

There are probably many ways you’ve seen customer behaviour change, in yourself and others. Here are the top five ways I’ve noticed that customers have changed.

Customers are sales resistant

No one wants to be sold to. Anything that looks like, sounds like, or feels like selling will make the customer’s resistance rise. Back in Wedgwood’s day, products were new and information was shared by word of mouth, so salespeople were indispensable. But these days, after decades of dodgy sales practice and stereotypically pushy sales behaviours, people don’t want to talk to anyone, let alone someone they think is pushing them to buy purely out of self-interest. In short, customers have had enough of being sold to.

Customers want to do it themselves

The widespread resistance to selling has triggered a self-service revolution. It seems the optimal experience for a customer today is not when they can access the experience and advice of someone from the business to help them make a decision, but when they can make the decision themselves. If they want advice, typically they will check in with their large and connected social networks. A customer today can ask their online social network about the best local Indian restaurant or what car they should buy, and within moments have the information they sought direct from a trusted source… which leads us on to the next point.

Customers have more information available to them than ever before

Scattered across the internet are endless expert reviews from ‘independent’ sources that have done the comparisons for you and, even more importantly, reviews and comments from other customers – real people, just like you, with no bias (well, not much). Customers will do their research, read other people’s reviews, ask around, and then decide for themselves. As bestselling author Dan Pink puts it, sales people are needed when there is information asymmetry, where the seller always has more information than the buyer. The sales person knows more than the buyer and the buyer needs to ask someone about the product, service or solution provided.³ In many contexts today however, the buying customer knows more than the person selling, particularly when it comes to what other customers are saying about their products.

Customer expectations are rising

No matter what type of organisation or business you are in, the expectations your customer has of you are now much higher than ever, and increasing. Customers expect that things should be easy. They expect you