Ten times one million equals ten million and one million times ten equals ten million (I know it’s not rocket science, but stay with me for a second). What I am getting at is comparing two scenarios: first, having a few big customers and second, having a lot of small customers. Which is the better option: having ten customers and earning $1 million from each or having one million customers and earning $10 from each?
The first scenario is where you are targeting for specific customers. This is the more common when your customers are businesses and you are selling expensive products like computing grids, plane engines etc. or services like supply chain management. The size of the customer’s order and one-on-one relationship with a customer is what matters the most in this case.
Now let’s look at a few things that play important role in this type of business. First is goodwill. You got to (literally) have really good customer relationship management in place and maintain great relationship with every customer. A successful operation in this business turns more into a consultant-client relationship than a supplier-buyer relationship. Second, word of mouth marketing. When you are serving a niche and large amounts are at stake, referrals make all the difference. Third, brand equity. This is as important as anything else. For you to be successful in this business, your customers and prospective customers should be able to recognize your brand, depend on it and vouch for it.
The second scenario is where you are targeting for volume. This is the most common type of business in the consumer marketing and the Internet world. In case of consumer marketing, you will be selling products like soaps, cellphones, cars and so on. The success of your business depends on the size of your customer base. Similarly in case of Internet, what matters is the number of customers using your search engine, reading news on your website, participating in your social network and so on. More the eyeballs, better are your prospects.
Advertising plays a crucial role in this type of business. The goal is to reach the masses and increase the number of customers using your product. Advertising your product to the right audience at the right place and the right time can make all the difference. Another important thing is the network effect. Having a network around your product can draw more customers to it. Some services like social networking sites on the Internet naturally attract customers to the same place in order to serve their basic purpose (networking). In case of other products like cellphone, the mobile operators provide incentives like free calls to others on the same network to initiate the network effect.
There are loads of success stories (and unsuccessful attempts we don’t even know of) in both scenarios. It doesn’t matter which approach you take, what matters is how well you execute on that approach. Another thing I want to point out here is goodwill, brand equity, word of mouth marketing, advertising and networking is required for any business you choose, by pointing them in specific scenarios here, I am trying to put forward what matters more where. You cannot ignore any one of these, irrespective of whether you choose to go for few or many.