BASIC STRATEGY GUIDE: STEP 11




Activity One (Steps 1-12):
Segment customers, both by size and by need, to identify targets for the Company.


Step 11: Classify and assign a Company objective to each current and potential customer

What:

Place each current and potential customer into one of three categories:

  • Core customers: customers with whom the Company will earn its cost of capital through the business cycle

  • Near-core customers: customers with whom the Company will maintain or establish a relationship in the expectation that the customer can be turned into a Core customer. These customers earn a positive return on investment but a return below the Company's cost of capital.

  • Non-core customers: customers with whom the Company would do business only during periods of overcapacity. Sales to Non-core customers produce cash for the Company but do not produce any return on investment on the sale. The Company would not add capacity to support these customers. As its industry emerges from overcapacity, the Company would use the volume sold to these non-core customers to support the growth of its core customer requirements.

The Company should set specific objectives for each customer in these customer categories. The objectives are:

Why:

This classification becomes the framework around which the Company develops its sales and marketing programs, its responses to customer requests and its program for product and service innovation.

What to Watch For:

Action:

The Company would focus its resources on developing, first, a superb value proposition for the Core customers and, second, programs to convert Near-core customers into Core customers. The Company would serve some Near-core and Non-core customers, but only if it had unused capacity available for a period of time and if the sales to the customer would produce cash for the Company.

More Information on Final Targets on the Advanced Site >>

For helpful context on this step:

Videos:

Perspectives:

Symptoms and Implications:


Guide Index Next: Basic Strategy Guide Step 12