Have you ever been blindsided by changes in your customers? Have you ever felt that half or more of your marketing dollars are wasted? Were the surprises and the waste really unavoidable?
Perhaps the most insidious strategic risk companies today face is decimation of the customer base by shifts in behavior, preferences, and demographics. These shifts may happen gradually or literally overnight. Either way, they can destroy a business design.
Customers are people -- unpredictable, irrational, emotional, curious, and highly prone to change. Customers can't keep still. They resegment themselves from "product buyers" to "value buyers" to "price buyers" and then back again. Their priorities change from "quality" to "price" to "solutions" to "style" to "brand." They get richer. They get poorer. They get excited by and attracted to different styles, different offerings, different ways to buy.
They get better informed. They get more demanding. They decide to shop at different places; they start buying shirts through catalogs, jewelry from a TV network, vacations online. They want bigger cars. Then smaller. Then really bigger. Then really fuel-efficient. They pledge allegiance to product brands. Then store brands. Then no brands. They want carbohydrates, then they don't. They want big cars; then small, thrifty ones; then humongous ones -- then decide they value fuel-efficiency and ecological virtue after all.
Every time customer priorities shift, our business design is at risk. Our value proposition gets a little fuzzier, a little out of focus. We lose a little business from a few customers; they decide to peel away once in a while and buy a couple of items from another supplier. Then we start losing customers altogether. (That's a little more worrisome. But at least we've still got our old reliables.) Then we start losing our most profitable customers, the 20% that generate more than 80% of the income. A trickle of tiny changes turns into a torrent of departures. And a 1% loss of revenue turns into a 6% loss of profit.
Customer risk is the most subtle and perhaps the most widespread strategic risk that any company faces. It's also the most unnecessary.
How can you take action to prevent customer risk? You can't force people to buy from you. As Yogi Berra once said, "If the people don't want to come to the ballpark, you can't stop them."
No, you can't, but you can reduce the risk of losing customers by reducing the uncertainty that creates the risk in the first place. After all, that's what risk is about -- not knowing what's going to happen, what your customers are thinking, what they want, what they will do, what will they respond to. If you could know those things, you could react appropriately with the kinds of pricing, marketing, and service offerings that would motivate them to stay.
This is why the first countermeasure for defeating customer risk is creating and applying
