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Comments or Suggestions?
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By Tony Carter, Professor of Sales and Marketing Management, Columbia University
Stay in touch with customer perspectives on your company, prove that you care what your customers have to say, and nurture consumers to feel like partners
with your company with easy-to-set-up customer advisory boards.
A dynamic, practical sales tool that can greatly increase customer development and retention and give firms a distinct competitive advantage is a customer advisory board. A board can help a sales force broaden its decision-making expertise and generate more business.
Industries and markets are changing so rapidly that some firms have a customer advisory board, or its equivalent, to act as another tool to keep up with changing conditions. Since customer relationship building is a driving force in the sales process, companies must first identify why their customers chose to trust them.
Customer advisory boards essentially target actual prospective customers as members. The boards are a cost-effective way to find out how to become the company that this particular type of customer would want to do business with. The boards also provide a fresh perspective on business opportunities.
The advisory board is more informal than the board of directors and counsels without the voting power and legal responsibility to protect shareholder interest. A board should have between 5 and 15 people.
Ideally, the number should be around ten board members. They should be accomplished members of the business community that also match your market’s demographic as closely as possible. This way, they’ll cast a critical eye on your business practices while still giving you insight into a buyer’s decision-making process.
Many companies feel vulnerable when allowing outsiders to look inside the workings of their company. In fact, only five percent of closely held companies actually allow their boards to be dominated by outsiders. But, it’s important to remember that a board can be far more effective than standard market research because board members are empowered to offer proactive advice that can affect the company instead of just offering a snapshot of the market.
This is a group that the company can turn to for guidance on difficult decisions, so they should all to a certain degree embody the core values and standards that the company wants to stand for.
People should serve 1-2 years on the board. Ideally, instead of having all new members every year or two, members should serve staggered terms so that there are always both new members and established members. The board should meet at least twice per year but can meet more often as the situation dictates.
Beside members’ business acumen and matching the market demographic, the advisory board could include members with particular skills like long-range planning or technical expertise. The unique feature of the board from the members’ point of view is that they can expect their advice to be taken seriously.
Board membership can serve as a perk for current customers and as a good public relations move to attract attention from potential customers. Almost all airlines, not famous for their customer satisfaction ratings, have been forced to form customer advisory boards and have made it a point to publicize the formation of these boards.
In 1992, companies spent approximately $3.5 billion with the 50 biggest research firms to learn about their customers. Customer advisory boards can, and probably should, operate without paying fees to the members. Besides being cost-effective, this makes sure that people never start saying what they think management wants to hear.
A critical role for the board is helping to identify and resolve strategy performance issues. This means that board members must have a solid understanding of the industry, the company’s functions within the industry and what the company’s value proposition is to its customers.
Board members should be routinely informed about relevant company, industry, and economic events. They should get press clippings, subscriptions to appropriate journals, and any other relevant information.
They should know the concerns and thoughts of the people working in the company and should know what the competition is up to. Upper management should be involved in the board to signal a serious commitment on the part of the corporation to provide high-level feedback that can impact company policy.
A few good questions you should be able to answer while forming the board:
- Do you want to treat board members like partners, which could color their perceptions of the company, or as impartial observers?
- Can you count on the board to give you an informed and objective opinion?
- Is the company getting full value from the board?
- Is the board’s perception of your company’s performance in tune with your own?
- If not, are you concerned about where that perception might lead if the company’s performance took a turn for the worse?
Many larger firms have a customer advisory board or its equivalent. Fortune 500 firms such as IBM, Merck & Co., and The Equitable have them and have found them to be extremely helpful in their customer relationship building process.
Mid- and small-size companies who don’t have customer advisory boards may wind up regretting it when and if they start losing customers to a start-up company.
A disproportionate search for new business is costly, since on average two thirds of all of a business’s revenue comes from current customers. The cost to cultivate new customers is about four to five times greater than the cost of maintaining existing customers.
On average, 91 percent of unhappy customers will never buy again from a company that dissatisfied them and they will communicate their displeasure to other people. These dissatisfied customers may not even convey their displeasure by saying anything. They could just stop doing business with the company, which keeps the business unaware that there is a problem.
When you consider that about one third of all dissatisfied customers leave because they were unappreciated by the company, and don’t say anything about it, a customer advisory board can be a much needed antennae tuned into popular opinion.
Customer advisory boards allow a company to listen and keep in touch with their customers, a very effective way to build trust and promote retention. The board will obviously never replace talking to customers during sales calls, but boards do provide a formal interface where the relationship is based on honesty, not negotiation.
The successful companies of the 21st Century will be the ones that customize their products and services so they are tailored to individual customer preferences. Today’s consumers know what they want and how much they’re willing to pay, and the burden is now on companies to fulfill those wants.
The sales force won’t know what customers want, be it durability, faster service, warranties, or easier financing, if no one asks. If you don’t know what your customers want, chances are slim you’ll be able to give it to them.
Dr. Tony Carter is based in New York and can be reached by phone at (718) 390-3182, or fax at (718) 227-9236.
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