2.1. The importance of customer companies/business

The customer is the central factor in each company. Without customers, no company can survive. The larger the number of satisfied customers, the better the chance, that the company will have long-term and sustainable success.

As already mentioned, over the last years the customer’s role changed from just being a “profit center” to becoming the core element of a company’s activities.²

The following diagram represents this change from traditional organizations to customer-oriented organizations:

Figure 1: Traditional organization chart vs. customer-oriented organization chart³

The chart on the right side shows, that managers at every level must be involved in the process of customer-oriented business.

Drucker recognized this many years ago and presented it in an apt quote:

„There is only one valid definition of business purpose: to create a customer. It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic re-sources into wealth, things into goods. What the business thinks it produces is not of first importance – especially not to the future of the business and to its success. The typical engineering definition of quality is something that is hard to do, is complicated, and costs a lot of money! But that isn’t quality; its incompetence.”⁴

With this quote, Bäuerle summed it up simply: long-term success can only be achieved when the focus of corporate activity is the orientation along the requirements of customers.⁵

It took a long time until the view prevailed, that it is not the engineer, economist nor any norms or standards but only the customer who is determining, what is to be understood as “Good Quality.⁶

The frequently used “Pareto principle” emphasizes the importance of customers. In the early 20 th century the Italian economist Vilfredo Pareto observed, that 80% of the land in Italy was owned by only 20% of the population. Meanwhile it was found out, that this 80-20 rule applies to many situations in life. If transferred to customers it means that 20 % of customers account for 80 % of the company’s success.⁷

Figure 2: Pareto Principle applied on ratio of customer to turnover⁸

These 20 % customers are worth gold. This principle also highlights the importance of grouping customers in different categories. The Pareto principle will help to focus on this important group of customers and to plan resources accordingly. Of course, the 80-20 rule is not fixed and can vary. It should not be understood as a rule, but rather as a principle, which can help to prioritize and concentrate on the most important elements.

The importance of customers is increasing: in Germany for example, customer loyalty is on top agendas of many companies and innovative approaches and programs targeting this (customer loyalty) are mushrooming. This is attributed mainly to three reasons:

• Change in customer behavior through the abolition of the Rebate Act
• New Media
• Intensification of competition

There is growing recognition, that it is much more expensive to acquire a new customer than to bind the customer to the company through increased customer loyalty.⁹ Oliver defines loyalty as “A deeply held commitment to re-buy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.”¹⁰

Countless sources are supporting this statement. The customer is a source of profit; the longer a customer remains loyal, the more profitable this customer proves for the company. This is because of the need to invest large sums of money in order to convince a new customer about the product or service. Often this requires expensive marketing campaigns and/or special offers that are cost intensive. It is also resource intensive to acquire a new customer compared to maintaining a customer as the marketing and sales forces are required to spend large proportions of their times on this effort. Thus with your existing customers, you can save staff costs.¹¹ To sum up and make it very clear; it is as simple as this: “No client – no company!”¹²

² Kotler, P.; Keller, K. L. (2007), p. 132
³ Kotler, P.; Keller, K. L. (2007), p. 132
⁴ Drucker, P., cited in Bäuerle, T. (2000): p. 1
⁵ Bäuerle, T.(2000): S. 1
⁶ von der Gathen, Simon (2002), Das große Handbuch der Strategie-Instrumente, S. 132
⁷ http://www.beyourbest.de/erfolgsgrundsaetze/das-pareto-prinzip/ [2 July 2013]
⁸ http://www.pareto-prinzip.net/ [31 May 2013]
⁹ http://www.beyourbest.de/erfolgsgrundsaetze/das-pareto-prinzip/ [2 July 2013]
¹⁰ Oliver, R. cited in Kotler, P. et al. (2007), p. 65
¹¹ http://www.heise.de/resale/artikel/Warum-es-besser-ist-alte-Kunden-zu-behalten-als-nur-neue-zu-jagen-1131586.html [29 June 2013]
¹² Geffroy, E. K. (1995), p. 103