Customer Flexibility – The New Metric
This entry was posted on July 30, 2015.
I believe in axioms.
Pareto’s Law and Occam’s Razor are two big ones.
Pareto’s Law says 80% of revenue (or more) comes from about 20% (or less) of the customer base. This means that businesses usually spend 80%, or more, of their time on customers who generate 20%, or less, of their income. This problem has plagued businesses over time and there is no easy resolution. How do you focus more on the 20% and how do you efficiently serve the 80%?
There is no easy answer to the questions Pareto’s Law poses, but we here at Tent and Table believe that greater flexibility is a step in the right direction. Greater flexibility is easier for the customer and should make transactions easier to discuss and close; which brings us to my second axiom – Occam’s Razor. Simply put, Occam’s Razor states that when posed with a complex problem, the simplest solution is usually correct. So, when posed with the complexities of Pareto’s Law, the answer is to simplify the process.
Previously, Tent and Table packaged its inflatables with free shipping, on some, free blowers and free stakes. We chose the blower, the stakes and the packaged price. If the customer wants the package as is, the transaction was easy. However, if the customer wanted a different blower, or no stakes, the transaction became complex. If the customer wanted a further price break, or wanted to add additional sales to reach a certain price point for a discount, the cost of goods and profitability metrics became very complex.
Moving forward, there will be no packaging. Inflatables are put on sale and priced separately. If our customer purchases an inflatable, they will get a sale price on a blower and stakes. This way, customers can choose the blower they want – or no blower. Customers can choose the stakes they want, and the amount, or no stakes. This policy gives us greater pricing flexibility to keep costs down and gives the customer greater choice over what products they really want and what they want to pay.
Pareto’s Law will always be a challenge, but I believe adding flexibility of choice as a metric will help better service the needs of our customers.