Choose or Lose

Judy Corson and Jeff Pope, cofounders of Custom Research Inc., realized they could grow their company by cutting their customer base in half.

1 | 2 | 3 | 4 | 5 | 6 NEXT

Custom Research Inc.'s bet-the-company growth strategy: cut its customer base in half

Judy Corson and Jeff Pope stared in disbelief at the chart they had just made. The numbers in front of them were staggering--staggeringly bad, that is.

The year was 1988. Holed up in a meeting room at the Holiday Inn across the street from their Minneapolis office, the cofounders of Custom Research Inc. had gathered in a high-stakes meeting with consultants and top CRI managers to figure out why the then 14-year-old marketing -research company had stopped growing. CRI had more customers than ever, and dozens of them were household names. The company had a manageable number of employees. But looking at the chart they had just drawn, Corson and Pope suddenly understood what was wrong.

CRI had too many customers. Or too few good ones.

At that meeting Corson and Pope and their team had divided CRI's customers into four categories, based on the companies' perceived value to CRI's bottom line, and plotted the customers on a chart. (See "Life on the Quad: The Quadrant Analysis," below.) Only 10 of CRI's 157 customers fell into the most desirable category (bringing in a high dollar volume and a high profit margin). A whopping 101 customers contributed very little to the top or bottom line. Many, explains Pope, "weren't profitable at all when you factored in the selling costs." Corson adds, "We looked at this and said, 'Wow!'"

In short, CRI was spending much too much time and valuable employee resources on too many unprofitable customers. And the effect on the company's business was palpable. Corson and Pope had been so busy tracking the progress of their top customers--a group of 30 or so large companies--that they had never really ranked their 127 other customers. After all, those "second tier" companies included such big names as Texas Instruments, Harcourt Brace, and Young & Rubicam. Who would turn down business from those household names?

But the chart they had drawn for themselves made clear in an instant the problem with their business. And it forced Pope and Corson to make a dramatic decision. To jump-start CRI's growth, they would have to systematically dump a large number of their existing customers, and then ruthlessly screen new ones to make sure they passed muster. In effect, the company's new growth strategy was to turn away revenues--revenues it had come to count on.

That 1988 meeting marked the beginning of a complete overhaul of CRI's business model. And the results have been staggering--but this time staggeringly good. In 1987, CRI had 157 customers and nearly $11 million in revenues. By earlier this year, CRI had reduced its customer base to just 78 but estimates that its revenues will be boosted by 175%, to $30 million. And perhaps most important, during that same period, the company has more than doubled its profits.

CRI has spent years perfecting a system that gets to the heart of one-to-one marketing: the idea that you treat different customers differently. (See "A Tale of Two Customers," below.) Promising new customers, like potential employees, are eagerly screened through a series of interviews before and after they start with CRI. There are individual plans for customer "promotion," regular reviews, and special perks, and the company takes great pains to measure and to try to exceed customer expectations. But, after all that, if customers aren't pulling their weight, they can be effectively "fired," just as employees can be. In fact, customers even face an informal version of the six-month review. "We know within six months if it's working," says Corson. "We won't follow someone over the cliff."

Slash and burn
Making the decision to dramatically restructure CRI's objectives and customer base was one thing. Doing it was another matter altogether. Sam Marcus, a New York City-based consultant who had helped coach CRI through its revelation at the Holiday Inn, watched on the sidelines as the partners worked up the courage to change. "They'd ask, 'Sam, do your other clients get this nervous?'" Marcus recalls. "I reassured them the nervousness was fine."

Until they hit a plateau, Pope, 56, and Corson, 55, who had become partners after leaving positions at Pillsbury, had watched their business grow without much difficulty. The plan to turn customers away was a scary leap of faith.

Handpicking customers was a high-stakes strategy. At the time, CRI had no guaranteed contracts to cushion the risk. (That's still true today.) What's more, it seemed as if every day another marketing-research firm was born, ready to undercut CRI's prices. Did the company have the credibility in the industry to pull this off?

1 | 2 | 3 | 4 | 5 | 6 NEXT

Try a RISK-FREE Issue of Inc. Today!

Renew | Contact Us | Current Issue

Select Services