What happens when you suddenly realize your company is inadvertently cornering the wrong market? What happens when your existing business is structured around customers whose future is in question? More importantly, what does this predicament mean for your company’s existing product lines, its current product introductions, its market share and its future revenue? Most companies rarely consider the consequences of focusing on the wrong customer segments. However, there is a way to protect your company’s interests and it starts by understanding how companies find themselves in these situations.
Consequences of Focusing on the Wrong Customer Segments
One of the issues with focusing on the wrong customer segment is that there never seems to be any immediate warning signs. There is nothing obvious that should force these companies to change course. The company is still generating revenue and its customers are still placing repeat orders. By all indications the company appears to be on the right path. Unfortunately, what happens in these situations is that these companies suffer from tunnel vision. They become so caught up in their pursuit of the next order that they fail to ask where their company is going, why their current customers are buying from them, and most importantly, why their competitors are ignoring this particular customer segment.
They simply ignore their own voice-of-customer (VOC) data. These companies stop inquiring as to why some of their customers continue to purchase what the market sees as an outdated product offering. In essence, they lose sight of their market, its customers and the future of their industry. So, what are some of the consequences of cornering a market that has little to no growth potential?
1. The Impact on Existing Product Lines: The company must immediately assess the viability of existing product lines. What current product lines are being driven by customers who aren’t likely to be around in the future, or ones who aren't leading the market? Are these customers pushing for outdated and antiquated products, ones the rest of the market has moved away from? Should production immediately be scaled back and diverted to other product lines with better futures? Answering these types of questions is pivotal to minimizing the damage of pursuing a portion of the market with little to no growth potential. It is a direct cost of focusing on the wrong customers.
2. Current Product Introductions: The company must immediately determine the consequences for current and future product introductions. Some of these may be close to being launched. In other cases, they may have already hit the market. How much raw material and semi-finished inventory has been allocated to these product lines? Do future products fall under the same concerns, and are they likely to be purchased by customers who will eventually abandon the market altogether? Ultimately, this type of situation puts the entire product portfolio under scrutiny. The company must immediately assess its product line and define its importance relative to the types of customers purchasing their products.
3. Research and Development: he company must assess its overall approach to research and development. An honest assessment must be made with respect to the company’s approach to sales and marketing. How did the company veer of course the way it did? Was it a result of customers providing inaccurate information, or merely the company ignoring the warning signs? Finally, what lead it to focus on the wrong customer segments? The company must assess why its marketing and sales team lead it off course. At some point the company lost touch with its most important customers, its market's biggest influences and its industry's most important decision makers. Either way, when a company ignores its market, it is sure to be saddled with a portion of that market that none of its competitors want.
4. Eventual Loss of Market Share: Ultimately, the company must resign itself to the fact that it will lose market share. Or, at the very least, it has secured a portion of the market that none of its competitors were interested in pursuing. This requires an immediate about-face in terms of strategy. The company must review what went wrong and why. In addition, it must refocus its efforts on identifying the type of customers that will fund its long-term growth. The immediate answer is to focus the company's attention on its market's leaders. These customers are defined by their innovation, their product development and their position as dominant market players.
5. Eventual Loss of Revenue: Last, but certainly not least, the company must face the inevitability that it will lose revenue at some point in the near future. The company can’t immediately abandon its current customers. Instead, the company must gradually reduce its exposure by scaling back production on current product lines, and reducing counts on all three inventory classes associated with its product offering; raw materials, semi-finished and finished good inventory. This requires the company use discounts, rewards and incentive programs to liquidate current inventory levels within a reasonable time span.
Again, most companies rarely take the time to assess the real value of their business. This is especially the case when times are good. After all, the company is securing business and there are few reasons to be concerned. However, when these situations occur, most companies are unable to respond. In most cases they are completely unaware that they are focusing on the wrong customer segments. In fact, they may even come to see their success as an indication of their strength in sales and marketing. They simply ignore the warning signs until they find themselves in a position where stagnant business growth leads to lost market share.
Companies looking to avoid the consequences of cornering the wrong market must first start by identifying their market leaders. Next, they must define the level of competition for their business. If competitors have all but ignored the company's customers, then it's a possible sign those customers aren't desirable.
To read about how a company can gradually move away from its existing customer base, please read: What are Customer Stratification Programs and When Should they be Used?
The above video is from the post: Stop Losing Business to Overseas Competitors: Define Your Customer’s True Purchasing Costs
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