Not all customers are created equal. Some generate more revenue and some require support more often than others.
Specifically, this problem has been magnified in the past years for manufacturers of Integrated Circuits (IC). ICs have a wide range of applications. The IC market has seen an influx of engineers and electronics enthusiasts that don’t necessarily have the required level of expertise in IC applications. This is why customers often require and rely on customer support to configure the products they’ve bought or to troubleshoot their compatibility with already existing equipment.
When it comes to customer support, IC makers face a big challenge. Customer support is not free. It costs money and resources that the company could re-allocate elsewhere if the need for customer support wasn’t so extensive.
It is evident that customer support is becoming more and more of an issue for IC makers. In this blog post, we are going to discuss why customer support is vital to your business’ success and how to make it more efficient and cost-effective.
First things first: Do customers really care about customer support?
Absolutely. The numbers1 speak for themselves:
- 78% of consumers have bailed on a transaction or not made an intended purchase because of a poor service experience.
- 3 in 5 U.S. citizens (59%) would try a new brand or company for a better service experience.
- In 2011, 7 in 10 Americans said they were willing to spend more with companies they believe provide excellent customer service.
- 91% of unhappy customers will not willingly do business with you again.
…and the list goes on and on.
Figure 1. The impact of customer service. Source: shopify.com
Do all the customers add the same value to your business?
Companies usually have two types of customers, some generate a lot of revenue and others provide a much lower revenue stream.
Vilfredo Pareto, an Italian economist, observed that in many companies, 80% of the revenue was generated by the 20% of its customers. This is commonly known as the Pareto Principle or the 80/20 rule2, which still applies today. So, it makes sense, that the 20% of the clientele has a much higher significance for the company, as it is responsible for 80% of its revenue.
In 2004, Chris Anderson was the first one to study what was going on in the “20%” of the 80/20 rule. The findings of his studies were published in his 2006 book “The Long Tail: Why the Future of Business Is Selling Less of More” and what he found out was that, due to the rise of the Internet, the mass market started breaking down to a mass of niche markets.
The categories he broke down the customers to were the “head” and the “tail” customers, that can be more or less matched to the “80%” and “20%” of the Pareto Principle respectively. But what differentiated his approach from Pareto’s was that he realized that the tail customers were gaining momentum.
Obviously, those two are not the only ones that have tried to categorize customers. There is a whole management style that is basing on customer classification: Customer Value-based Management (CVM). With CMV, each customer’s value is quantified and, based on their value, they have other benefits. For the sake of simplicity, we can assume that there are 2 types of customers: “good” or “high value” and “poor” or “low value” customers.
Customers can either be of “high” or of “low” value. Source: landerapp.com.
The tail customer support problem:
Tail customers, by definition, generate just a fraction of the revenue generated by head customers. In the IC market, head customers are usually companies that buy ICs in large quantities and tail customers can be either smaller companies or individuals that buy significantly smaller quantities.
However, both customer groups have the same needs for customer support and face pretty much the same challenges when implementing ICs into their designs. Let’s take touch sensor design as an example. Due to their complex nature and different design characteristics, they sometimes are not sensitive enough to be compatible with the controller the customer has bought, even if the customer has used the proper guidelines when designing the touch sensor.
But IC makers can only afford so many customer support representatives and the cost of field engineers prohibits their use on the tail customers. For example, one way to verify the compatibility between the touch sensor the customer has built and the controller provided by the IC maker is to create a mockup of the sensor the customer uses and then test them in-house. But the IC makers can simply not afford to do this for every single customer: the human resources and materials needed are costly.
The core essence of the problem is that the cost of customer support reduces the profit margin or can even exceed the revenue generated in the case of tail customers.
What's the importance of tail customers?
Asking this question makes sense. You could “fire” your tail customers and allocate all your resources to head customers. This way, you will keep the “high value” and high revenue generating head customers even happier, while losing on a small percentage of your revenue. Some have suggested that firing the low-value customers can benefit your business.
Unfortunately, things are not that straightforward. Tail customers can be useful for your company for (at least) these three reasons3:
- Low-value customers can be used to keep the competition in check. Not only will some of your competitors benefit from their revenue once you’ve fired them, but also your competitors will know that your remaining customers are of high value and will try to poach them. So firing your low tail customers can indirectly decrease your profits by motivating rivals to compete more intensively for good customers.
- While tail customers generate less revenue, they offer a better profit margin. Head customers tend to buy in larger quantities so they get bulk discounts. Smaller transactions can add up and offer a significant profit stream for your company, and as Kevin Law said: “The biggest money is in the smallest sales”. This point can be made clearer by looking at this chart:
Figure 2. Even though tail customers account for 20% of the revenue, the profit they generate can be higher due to the higher margin of profit.
- Especially in the IC industry, the ecosystem surrounding a product plays a vital role in the customer’s choice. Here’s a recent survey4 concerning the ecosystem:
Figure 4. The ecosystem’s importance. Source: Aspencore study.
68% of the participants identified the ecosystem as the most important factor when choosing a microprocessor. Sure, support plays a big part in the ecosystem, but so does the community surrounding your product. And what does that this community consist of? Tail customers, of course! Tail customers are much more likely to go online and spread the word-of-mouth about their experience with your products!
In other words? If you fire or lose the long tail customers and you lose the community, your product’s ecosystem gets disrupted and you lose your competitive advantage.
But the problem remains: tail customers are expensive to maintain.
The fact that the tail customers are important, does not make the problem of them being expensive to maintain go away. What can an IC manufacturer do to offload some of the burdens of its customer support techs?
To find a solution, you have to look at the habits of this type of customers. Undoubtedly, most of them adore doing things themselves. The “Do-it-yourself” ethic is embraced by the vast majority of the tail customers. What if, IC makers offered a “DIY” type of solution when it comes to customer support? Self-customer service is something that these customers could go for. Again, the data can back this claim up.
86% of them would rather tinker if they can’t get something to work rather than ask for help5.
So, customer support is as much of your problem as it is for the tail customers.
How software can pave the way to customer self-service
It’s easy. Provide the tail customers with the proper tools that enable them to solve problems for themselves. These can be FAQs on your website, guidelines for common issues and, even software.
But we have to keep in mind that giving access to these types of clients can be a slippery slope. If it is complex, it can create more confusion, instead of helping them. So, easy to use software can be the key to benefiting both of you.
Simple and intuitive tools, like Fieldscale SENSE can enable the customer to self-service.
On the one hand, a tool like SENSE can give the ability to the IC maker’s customers to find out on their own the flaws on their designs and resolve them. This way, the customer experiences less frustration and your customer support team has less customers to deal with.
On the other hand, SENSE is a powerful tool that can be used by IC Maker’s Field Application Engineers to enable them to make decisions faster, thus further empowering them to better serve your head customers.
SENSE can be used by experts & non-experts to effortlessly get the data they need.
By offloading customer service, you can allocate more resources to your head customers and keep them happier. Happy customers usually means customers that are willing to spend more on your brand!
If you want to give your customers the chance to use a super user-friendly and easy to use tool to enable them to easier design touch sensors, you can check out our product, SENSE.
If you like it (I’m sure you will), you can even request a free demo.
 Customer Service Facts, Quotes & Statistics, helpscout.net
 The Pareto principle, Investopedia.com
 “Customer Value-Based Management: Competitive Implications”, Subramanian, Raju, Zhang.
 “2017 Embedded Markets Study”, by Aspencore.
 “An In-depth Profile of Makers at the forefront of Hardware Innovation”, MAKE/Intel Maker Market Study.
“The Long Tail: Why the Future of Business Is Selling Less of More”, Chris Anderson.