Reinvent Your Company Around Customers
The authors of Angel Customers & Demon Customers are proposing
a radical transformation for businesses, and it does not include
layoffs or restructuring. Instead, they propose companies should
center their companies around their customers -their sources of
dollars - and re-envision themselves as portfolios of customers
rather than groups of products or services. Larry Selden, a
professor of finance and economics at Columbia University Graduate
School of Business, and Geoffrey Colvin, Fortune magazine's senior
editor at large, take a new look at the way companies handle their
customers and offer them better ways they can maximize their share
price in any economy.
The authors explain how companies like Fidelity, Dell Computer,
Best Buy, and Royal Bank of Canada were able to use a
customer-centric process to transform themselves into profitable
The first step in the process was learning how to rigorously
track profitable and unprofitable customers in a way that shows
which customers - the angels - are helping the company's stock.
They also found out which customers - the devils - are hurting the
company's stock. Using data that was already available or could
easily be obtained, the authors discovered that companies often
found out that a mere 20 percent of their customers were
responsible for the company's entire market capitalization.
The Bottom 20 PercentThey also discovered that "the
bottom 20 percent of customers by profitability can generate losses
equal to more than 100 percent of total company profits." This
showed the authors that treating all customers equally is not a
business plan that helps a company's stock price. So, they offer
companies a better way to manage their resources and find
opportunities for profit.
The authors explain that the customer-centric principles they
discuss can be applied to any business in any industry. Along with
urging companies to analyze the profitability of its portfolio of
customers, they offer two more principles that companies should
embrace to improve profits. They are:
- Every company's portfolio of customers can and must be managed
to produce superior returns for shareowners - meaning a
consistently better than average share price appreciation.
- Companies enhance customer profitability and drive their stock
by creating, communicating and executing competitively dominant
customer value propositions.
According to the authors' research, many managers understand the
importance of the customer knowledge opportunity and want to begin
realizing it. Because they have not placed customers at the center
by following the three key principles, however, their programs are
not working as well as they could.
To make these new opportunities work, the authors write that
companies must use a premium price-earnings multiple as the measure
of success, think about the process in terms of Value Proposition
Management (VPM), and create an organization and culture where
managers are accountable for realizing the potential of customer
knowledge. By implementing these practices, companies can quickly
begin to see benefits realized.
To help organizations embrace the book's key principles, the
authors offer expert advice to help them better understand how the
average customer creates or destroys shareholder value, and define
the concepts that will allow them to figure customer profitability.
By showing companies how others have made bad decisions and
misallocated resources, they show organizations the economic
profitability of customers. A practical scorecard is provided that
can help firms track their progress.
The authors explain that customer-centric companies focus on
meeting the customers's total needs. This focus encourages
companies to offer services and intellectual property, on which
profit margins are almost always much higher than those of
products, and the return on invested capital is very high because
little invested capital is needed.
Why We Like This Book
The business experts who wrote Angel Customers & Demon
Customers present a well-formulated strategy to help companies
understand customer profitability and develop improvements that can
create a more profitable business. By showing organizations new and
improved ways they can grow by developing a customer-centric
mindset and a service-oriented culture, the authors provide them
with valuable strategies for reinventing their businesses to better
serve investors, customers and employees.