As Peter Drucker said in 1954, “The purpose of a business is to create and keep a customer.”
This statement still holds true today, especially for companies looking to grow and expand into new markets. As firms enter new markets, the company will be faced with the task of developing a new strategy for customer acquisition, and due to the high level of fragmentation it will be even more difficult to attract and retain customers. But there are several approaches a company can take in focusing their business around customer acquisition and retention.
Perhaps the most notable and direct approach would be through traditional advertising and marketing campaigns to create awareness about the company. However, it is important to note that this strategy is possible if the company’s marketing budgets are high enough to afford such campaigns. Moreover, customers brought in through a marketing based approach will require even more investment to keep costumers loyal. Additionally, these investments have on average a lower purchase rate and smaller customer lifetime values. The ideal customer acquisition model for firms entering new markets would be a referral-based model whereby customers are brought in through word of mouth (this approach relies heavily on a company having an extensive customer network). This approach is much more beneficial to the company as customers brought in through word of mouth tend to have a significantly reduced acquisition cost as well as higher customer loyalty.
Now that the problem of customer acquisition has been outlined it is essential to explore possible solutions in order to remedy this issue.
A customer centric approach is an effective way to align the company with its intended audience; this requires an in-depth knowledge of the customer base through extensive research both qualitative and quantitative to gather a complete profile of the target customer. But just having an understanding of the target customer is not enough; the company must also shift its priorities to become customer centric in its approach.
To achieve this goal some of the top Fortune 500 companies have created a new position specifically dedicated to ensuring that the organization is focused on finding and attracting the right customer. This position is known as the Chief Customer Officer. Much like other officers with in the firm, the CCO holds accountability for driving profitable customer behavior as well as creating a customer centric company culture by leveraging in-depth customer insight to drive corporate strategy. CCOs are a fairly recent position with about 300 CCOs currently operating globally. Some of the key roles of the CCO include: addressing chronic customer crises, creating sustainable competitive advantage and retain existing customers.
A CCO is a great option for smaller firms as they may have a “line authority” over many of the customer facing functions which would ensure that the company keeps its customer centric focus. Therefore, as part of its expansion companies would benefit from considering a CCO to increase the chance of success in a new market as well as gain competitive advantage by being one of the early companies in their field to have a CCO guiding the company’s customer focused approach.
Finally, the structure and dynamics of decision-making within companies must be analyzed within a theoretical framework in order to draw conclusions about the flow of ideas and the process of innovation development. This will better guide the strategic decisions being made as a company expands into new markets.
To understand the decision making process, it is also important to examine the human capital available to make key decision within the company, as human capital is regarded as a critical resource in developing and sustaining competitive advantage. It has been determined that within small firms, the role of decision making and innovative idea generation usually resides with the CEO, as smaller firms usually forgo HR practices and rely more heavily on the CEO's knowledge to advance the firm. This could lead to significant under utilization of the available human capital of a company, and therefore should be minimized when possible.
CEOs should refrain from depending solely on their own action and ideas in the innovation process, instead CEOs should leverage the human capital available to them within the company to extract the maximum amount of potential for innovation and growth. Because in most cases it is the employees who have direct interaction with the customer that can help generate ideas, which can lead to innovative improvements. There are several way that CEOs can influence their teams to be more responsive to the company's idea generation process.
A simple yet effective solution would be for the CEO and managers to be more open and display confidence about entrepreneurial projects, this has been proven to enhance employee willingness to act entrepreneurially and may lead to new innovation. These theoretical frameworks can easily transition to practice for small firm’s company structure as all employees should be encouraged to participate in the idea generation process. Also the ease of accessibility of the CEO to discuss and develop ideas ensures that the company maintains an entrepreneurial company culture and does not stifle creativity.