A Recipe for Customer Success Instalment 1
ELLIPSIS, THE CUSTOMER LOYALTY EXPERTS
Welcome to our whitepaper with a difference, where we introduce a cast of characters. They are loosely fictional, and the case study, Sue-Chef, is completely our invention.
All of our publications look to share thinking and hopefully instruct, but always to reward your investment of time. Ellipsis believes the best way to learn is through the deductive process; unveiling final conclusions is not the best way to instruct or learn, at best it is a way of rote training. So, the messages delivered in this whitepaper are delivered in the Socratic way. We think you will deduce the 'answers' well before Elsi and her team do.
"Our textbooks should not present us with a series of end results but rather a plot that enables the reader to go through the deduction process himself."
We hope you also find it entertaining to read. We would love to talk to you about it.
The Goal, E.M. Goldratt Gower Publishing 1984.
“We pioneered meal-kit delivery in Australia back in 2015,” Jeff announced to Elsi as they surveyed lines of food boxes being packed by people in white coats and hair nets. “The market was just right for it. A healthy, convenient food offering that appealed to time-poor families and professionals who still wanted to eat well.”
“Cooking healthy food at home, without the burden of having to plan and organise it all?” asked Elsi. “Sounds like a dream!” “Exactly right. It was quite innovative at the time – and we grew at a rapid rate as the only player in the market,”Jeff continued.
“In our first years, we had record-breaking customer acquisition numbers every month. It was exciting!”
Jeff went on recalling the early days to Elsi with a broad smile on his face. “We did a fantastic job with our marketing as we banged the drum about convenience and how ‘modern’ the product was. We invested loads of money in new customer acquisition and believed that if we could just keep getting customers to give it a try, the literal ‘gravy train’ would go on forever.” Jeff’s smile faded slightly. “Well it worked for a time at least...”
“Sue-Chef has still come such a long way,” Elsi responded reassuringly, as she and Jeff completed their walk-through of the Sue-Chef headquarters. Chatting about meal kits whilst touring a shiny new factory was exciting for Elsi, and Jeff was the sort of no-nonsense manufacturing expert whose company she enjoyed, but she wasn’t here just for fun.
As a customer strategy consultant, Elsi was here to help solve Sue-Chef’s emerging business challenges.
The leadership team realised that as their business evolved, their methods were not producing the results they expected anymore.
“For the first two years, we had no direct competition,” said Jeff wistfully. “As Covid hit, online sales jumped, but so did the number of competitors. Both look-alikes and pre-packaged products from the supermarkets,” said Jeff. “And I guess we did not respond as well as we should have.”
“Why do you think that was?” asked Elsi. “It sounds like you have some reservations about the current business model.”
“I’m the Chief Customer Officer now, Elsi.” Jeff paused momentarily before continuing.
“How am I supposed to build a customer base if all we’re doing is constantly replacing churned customers with new ones?”
“It might be a good time to rethink the Sue-Chef strategy. Don’t worry Jeff, we can help,” offered Elsi confidently.
In the warmth of the boardroom, Elsi and Jeff sipped on tea as they discussed what had caused disruption to the Sue-Chef business.
“In a nutshell, we are struggling to maintain profitability. The old approaches are not working anymore,” said a frustrated Jeff. “Maybe we even created our own hurdles, everyone is doing meal kits now. Look, even the supermarkets are competing with their pre-packed ingredient kits.”
“Is the overall market growing, Jeff?” asked Elsi. “Is it a market share issue or is growth slowing overall?”
“We are not 100% sure to be honest,” answered Jeff, head in hand. “We thought it was a market growth problem, but the market is nowhere near saturated as we see competitors growing around us. We released more marketing money and experimented with new channels. Things like introductory offers on TV and deals distributed through airline frequent flyer programs.”
“All the promotion and acquisition activity are bringing customers in the door,” Jeff continued. “It delivers sign-ups, but you’re running at a loss on every customer. Then you start to get complaints and negative feedback from existing customers who want to know why they’re not getting the same deals. You’re just fighting fires on all fronts,” Jeff sighed.
Elsi understood well. “It’s not unusual to ‘front-load’ the costs when growing the customer base. Many companies establish those customer relationships by investing ‘ahead of the game,” Elsi confirmed reassuringly.
“But it doesn’t work so well if they leave before you can make a profit.”
The boardroom door opened. “Sounds like I arrived at the right time to join the conversation,” announced Sue the CEO as she entered.
Sue was her own first customer when she founded the business. A busy mother of three young children, who wished someone else would occasionally decide ‘what’s for dinner’. Sue was ultimately looking for help providing delicious and healthy food for her family, but being a real foodie, she still wanted to be the head chef. She needed… a sous-chef. And so Sue-Chef was born.
“Clearly, a high rate of customers is leaving us after the introductory offer expires. But that’s always been the case,” Sue explained. “And it’s completely normal in subscription-type businesses,” she stressed. Sue is definitely a ‘glass is half full’ personality, with an entrepreneur’s energy levels.
“Acquisition has slowed. That is the problem and key profitability challenge. We have been reading research from the Ehrenberg-Bass Institute that aligns with our growth experience and they make it clear; marketing budgets are better spent when pulling the acquisition lever,” continued Sue with a raised eyebrow, inviting a challenge from Elsi. “Jeff believes customer churn is the source of our current challenges. I am not so sure, but I am open to being convinced otherwise.”
“Smaller brands do have fewer customers, and they tend to be slightly less loyal,” replied Elsi. “But Sue-Chef was the market leader so should benefit most from any category growth. You may still be growing fastest, just not profitably.”
Elsi took control of the conversation. “Before we can make any decisions regarding the acquisition strategy, we’ll need to do a few important things.” She began to step Jeff and Sue through a process for making sense of their business situation.
“First, let’s understand how Sue-Chef created its competitive advantage, and how you might maintain that into the future. Afterwards, we’ll get our data analytics team in to see what they can add to the discussion. After all, as Deming said, ‘In God we trust. All others must bring data’.
Elsi smiled as she spoke, to a wry acknowledgement from Sue and Jeff...
To find out what happens next, download the full instalment.