The Customer-Focused Business Model: Is It Sustainable?
There are many misconceptions about businesses that describe themselves as “customer-focused” and about the term in general. Some people consider this a negative term, although it isn't a bad thing at all. Let's examine what a customer-focused business model means and whether your business should consider it.
What is a Customer-Focused Business Model?
A customer-focused approach involves putting the wants and needs of a company's clients first. Under this system, the company ensures that its top priority is giving customers what they want and need as much as possible.
According to a 2019 study, two-thirds of respondents stated that the quality of customer service they received was an essential factor in their brand loyalty decisions. By maintaining high customer service, those customers can be more easily retained.
Claim #1: Most Businesses Already Do This
Although some companies do prioritise their customers, many of them don't. Companies have to care about their customers to an extent because word of mouth gets around quickly. If people see a company mistreating others, they won't be likely to use the product or service themselves. However, a company must remain profitable if it wishes to stay in business.
For example, imagine a restaurant that sells pizza. In response to a survey, the company finds that most of its client base wants to see their pizza made with the freshest possible ingredients. However, buying frozen pizza toppings in bulk is much cheaper, even though they won't taste as good as the fresher ones.
Although the restaurant isn't doing anything wrong, its actions in this regard wouldn't be classified as “customer-focused”. However, it could focus on other things customers want, like faster delivery, a wider variety of toppings, or similar requests.
Claim #2: Customers Shouldn't Be in Charge
Many businesses are wary of giving customers too much control of their companies. “Why did I go to business school for so many years if I'm just going to let them run the whole show?” they might ask. This line of thinking is understandable but mistaken – just because the focus is on the customer's wants and needs, it doesn't mean they're in charge or will always get what they want.
Under this approach, customers' wants and needs are prioritised but not guaranteed. To continue with our pizza analogy from earlier, let's imagine that the company analyses the cost of the fresh ingredients the customers have requested. It turns out that a 12-inch vegetarian pizza would have to sell for $40 just to break even (not including any profit).
As charging $40 for a medium-sized pizza is not a sustainable business model, the company can remain customer-focused in other ways. Still, it would go out of business quickly, trying to give them everything they want.
Claim #3: Customer-Focused Businesses are Less Profitable and Not Sustainable
The first part of that is probably genuine in some cases. By focusing on customer relations rather than trying to maximise the amount of money a business receives, it would stand to reason that the company would have a lower profit margin than one whose primary focus was money.
However, the second part is not accurate, as businesses that prioritise their customers' happiness can still grow and even thrive. “Customer-focused versus profitability” is a false dichotomy because the two concepts can co-exist.
One easy way to provide high levels of customer service without spending too much money is to outsource it to a contact centre. A contact centre is similar to a call centre, except it handles much more than just phone calls. Their customer care experts take social media outreach, text messages, live chats, and more.
Instead of training and paying a dedicated customer service team salary plus benefits to make sure customers are satisfied, the contact centre company handles everything for a yearly fee. The money saved by contracting out care can be reinvested into other parts of the business, increasing the overall profits.
Final Thoughts
These are just some common myths surrounding the customer-focused business model. Although it may appear too expensive or reduce profit margins on its surface, it can create a positive customer experience and lead to strong brand loyalty that ensures the company stays open for many years.
FAQs
What is a customer-focused business model?
A customer-focused business model is one where a company centres its operations, products, and services around meeting and exceeding customer needs and wants. The goal is to build long-term relationships and loyalty.
What are some key features of customer-focused companies?
Some key features include understanding customer pain points, co-creating products/services with customers, empathising with customers, collecting feedback, anticipating needs, offering personalised experiences, focusing on customer lifetime value, and providing exceptional service.
Why is a customer focus important for business sustainability?
Focusing on customers is critical for sustainability because it builds loyalty, which leads to repeat business. It allows companies to better weather downturns. Meeting needs better than competitors also enables capturing more market share.
What risks come with a predominant customer focus?
Risks include over-customising at high costs, pleasing vocal customers rather than the entire market, reacting to every customer's wish rather than sticking to a strategy and reducing process efficiencies to maximise flexibility. Companies have to balance customer-centricity with business practicalities.
How can companies implement a customer-focused approach?
Ways to implement a customer-focused approach include customer journey mapping, regularly surveying customers, monitoring metrics like net promoter score and customer satisfaction, empowering frontline staff, installing customer-centric values, and building cross-departmental collaboration to address pain points. A customer focus requires a company-wide commitment.
