Four Client Types
From a business development point of view, we like our clients to segment their target audiences. Through segmentation you deliver resonant messages. i.e. the right message to the right person at the right time.
In March’s Harvard Business Review (HBR) there is an interesting article, ‘What Professional Service Firms Must Do to Thrive’. One section considers four different client types described in the grid below. These boxes illustrate some of the HBR findings, along with thoughts from the Chartered Developments (Chart Dev) team.
Low CTS / High WTP
Two types of client in this box. Firstly, the unwaveringly loyal, who pay a premium for a highly valued service. And the spuriously loyal, who either don’t realise they pay a premium, or who’s costs to switch are too high.
Professionals create high margin from this box. We look for these clients and try to move others into this box. One downside is that there is little or no drive to innovate.
Strategies to move others into this box are to cross sell multiple services, increasing the switching cost and secondly, build trust/value in your service/partner.
High CTS / High WTP
Clients in this box regard your practice as adding value, they do not build in-house expertise. To retain them, you need to remain a step ahead and recruit top notch skills.
From the Chart Dev BD point of view, when targeting these prospects, they want to hear about innovative new ideas and solutions (see our article on Freeports). We believe that a client that takes you up on this offer will demand attention and a full service to help them fulfil their potential.
HBR suggest that PSF have 15% – 20% of their clients from this box.
Low CTS / Low WTP
Two types of clients in this box. Firstly, according to HBR, a cohort who can comprise up to 50% of a PSF fees, who reject added value services and want an unbundled offering at a reduced price. Lean process and workflow is required to make them profitable.
They are flighty and tempted by reduced costs. In the past, cost reduction exercises such as offshoring, made these clients profitable. At Chart Dev we see a cohort of our clients with AI starting to win this type of client from labour rich competitors.
According to the HBR there is a second group in this box who work with firms, even investing with them in joint ventures. They can become very long-term clients and a fully outsourced model can develop.
High CTS / Low WTP
This group invariably make the least margin, often a firm’s largest clients are in this box. Partners value them deeply as they ‘look’ good. Relationships can creep up, increasing the cost to serve further.
From Chart Dev’s perspective, we see many of our clients using these ‘Marquee Brands’ as leverage in their own business development.
If you can’t use them as an unimpeachable brand for your marketing, then according to the HBR you need to shift them into another box or shed them.
To move them into another box might need innovative services for them to buy into.
Another interesting comment from HBR which we agree with, (from evidence of client satisfaction/cross-selling), is to educate your client about the cost to serve and your need to charge them more. In our client satisfaction work, we have found that clients who have a high cost to serve invariably have close relationships with a partner and can be persuaded.
In conclusion, the boxes above are more about strategies for dealing with your current client base rather than new business.
However, we have found that our most successful clients are fully aware of their current client base, and as a result, are completely clear on what types of new clients they need to win.
Peter Rosenwald, Founder Chartered Developments