Finding the perfect customer

With the rise of social media we’ve spoken a lot about customers’ ability to rate businesses and overlooked that companies have been rating their clients for a lot longer. The same technologies that are helping consumers are also assisting companies to find their best prospects.

A business truism is that Pareto’s Rule applies in all organisations – 20% of customers will generate 80% of a company’s profits. Equally a different 20% of clients will create 80% of the hassles. The Holy Grail in customer service is to identify both groups as early as possible in the sales cycle.

Earlier this week The New York Times profiled the new breed of ratings tools known as consumer valuation or buying-power scores. These promise to help businesses find the good customers early.

While rating customers according to their credit worthiness has been common for decades, measuring a client’s likely value to a business hasn’t been so widespread and most companies have relied on the gut feeling of their salespeople or managers. The customer valuation tools change this.

One of the companies the NYT looked at was eBureau, a Minnesota-based company that analyses customers’ likely behaviour. eBureau’s founder Gordy Meyer tells how 30 years ago he worked for Fingerhut, a mailorder catalogue company that used some basic ways of figuring out who would be a good customer.

Some of the indicators Fingerhut used to figure if a client was worthwhile included whether an application form was filled in by pen, if the customer had a working telephone number or if the buyer used their middle initial – apparently the latter indicates someone is a good credit risk.

Many businesses are still using measures like that to decide whether a customer will be a pain or a gain. One reliable signal is those that complain about previous companies they’ve dealt with; it’s a sure-fire indicator they’ll complain about you as well.

What we’re seeing with services like eBureau is the bringing together of Big Data and cloud computing. A generation ago even if we could have collected the data these services collate, there was no way we could process the information to make any sense to our business.

Today we have these services at our fingertips and coupled with lead generators and the insights social media gives us into the likes and dislikes of our customers these tools suddenly become very powerful.

While we’ll never get rid of bad customers – credit rating services didn’t mean the end of bad debts – customer valuation tools are another example of how canny users of technology can get an advantage over their competitors along with saving time in chasing the wrong clients.

Paul Wallbank is one of Australia’s leading experts on how industries and societies are changing in this connected, globalised era. When he isn’t explaining technology issues, he helps businesses and community organisations find opportunities in the new economy.