Differentiate customers from beneficiaries

Many readers tell us that they have learned a lot from our responses to their e-mails. This has prompted us to publish more of such e-mail exchanges to multiply opportunities for entrepreneurial growth. A reader in the water dispenser business sent in the following interesting situation.

E-mail #1

I have been reading your column in the Philippine Star for some time and I would like to ask some questions which may help me in my business. We are in the water dispenser business.

We plan to market our product aggressively this year but there are already many existing brands in the market. How can we get the market of our competitor?

They are giving terms to their customers but we are not in a position to do the same.

My reply

First, do not fall into the trap of playing the game as dictated by the current players. Do not use credit as a marketing tool. It may solve a marketing problem but it can create a financial disaster.

When the entrepreneur does not know what are the customer’s needs and wants, the only recourse is to use financial tools to compete. These are price and/or credit terms.

The object of a good marketing strategy is to have more people buy more, more often and at higher profits. You can do this by differentiating from the rest in a manner that the customer appreciates. Customer appreciation is manifested by choosing you over the rest.

I suggest that you find out who is the customer and what the customer needs and wants. By the way, there is a difference between customers and beneficiaries. Do not mistake one for the other.

When a parent buys a toy for a child, the customer is the parent and the beneficiary is the child. The customer pays for it, hoping to make the child happy. And the toy must indeed make the beneficiary or child happy.

Who is the customer of the water dispenser? Who is the beneficiary of the water dispenser? You can only differentiate if you really know your customers and beneficiaries.

E-mail #2

Aside from price and credit, durability of the dispenser is very important. Basically, the temperature of the water dispenser is almost the same for all brands. The cold temperature is between 5 and 10 degrees Celsius.

In our business, it is hard not to give credit since most of our customers are not the end-users. Most of them are water refilling stations. They buy water dispensers from us and then lend them to their customers who, in turn, buy water from them. They want credit for the water dispensers since they are not getting cash payments from their customers.

Incidentally, how can we change the perception of customers regarding the superiority of one brand over the other? They simply don’t want to try using other brands aside from that which they think is superior.

My reply

Clearly, your customer is the water refilling station owner and the beneficiary is the person to whom he lends the dispensing unit. By giving terms, you are actually financing part of the marketing and distribution strategy of the refilling station.

In other words, the refilling station owner is using OPM (other peoples’ money) or, more specifically, your money. If the water refilling station sells water at a higher price to their clients (because a dispenser is provided), then you are financing the water refilling station to finance its customers.

There are two options here.

One is to accept that you are the source of OPM. I do not suggest this. If, however, you take this option, it is best that you be good at the lending game. You must impute a "cost of money" into your price. Some people call it interest.

You must have the competence to evaluate the credit-worthiness of your customer. In other words, you must be like a financing company. Make sure that your product is being purchased for its inherent quality, not for its mode of financing.

The other option is not to sell the product. Offer the service of providing cold water. Change the way the business is done. Do not compete in the traditional way. Innovate. Create a new business model. Buy water from your customer (the water dispenser) and sell the service to the market.

This is also known as "going forward". Your customer is the person approving the contract for water service and the beneficiaries are the people who need cold water (5 to 10 degrees C).

The issue of the durability of the dispenser is still too general. The superiority of the dispenser is a function of the unit, which is to consistently meet the temperature and volume requirements.

It is good to know the range of the temperature (5 to 10 degrees C). But what is the demand pattern? How many liters are needed in the first hour until the last hour? Do not forget that a refrigerated water dispenser cannot give the required water temperature all the time. If the withdrawal of water volume per unit time is greater than the capacity of the system to supply it, then the desired consistency of the water temperature will be lost.

This is the point where the beneficiaries will begin to complain–a sign of their dissatisfaction. You must device a combination of the right capacity of the water dispenser plus a service and water delivery system.

Make an offer to service the cold water needs of your customer’s beneficiaries at the time when they demand it. Device a delivery process that will ensure consistent delivery of these requirements. Bill the customers monthly for the facility. Your new business model may be installing water dispensers and even providing the drinking water plus maintenance service.

Just be sure that your system does not give more than or less than what the beneficiaries need. If you give more, there is an extra cost that the customer may not be willing to pay for, or other costs that could have been your profits. If you give less, then the beneficiaries will complain to the customer and you may not be paid.

Do this for all your customer types–their needs and wants may be different. The temperature, volume and demand pattern may not be the same. As such, your strategic response may have to be different. You may want to also focus on particular types of customers and be the best for that segment of the market.

The lesson here is to know the difference between your customers and their beneficiaries. Then innovate, differentiate and change the rules of the game in order to make more customers buy more, more often and at a higher profit. You must keep on doing this to keep ahead of the game.

Master entrepreneurs are those who change even the rules that were set by them.

(Alejandrino Ferreria is the associate dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further information/comments, you may mail him at: [email protected]. Published "Enterpreneur’s Helpline" columns can be viewed on the AIM website at http//: www. aim.edu.ph).