Sellers as well as buyers are taking stock of priorities as the economy continues to show weakness across most industries. As a result, most sales organizations are pursuing new business—which often means taking advantage of competitors’ complacency or mistakes in providing service to customers. In the face of relentless competitive pressure, sales leaders are looking for smart answers to an urgent question: How can we protect our customer base from erosion as competition intensifies?
While there are a variety of potential answers to this question, most fail to get to the crux of the problem: a lack of understanding of how customers want to buy, and a subsequent failure to apply the right resources in to the right accounts to ensure protection from predatory competition.
The following discussion offers three effective strategies for strengthening your relationships with your most profitable customers. The goal is to first free up resources that may be tied up in unproductive accounts. These resources can then be applied to create value for your best customers, which will make them resistant to even the most persuasive cost-cutting competitor.
Strategy 1. Assess Your Portfolio
To strengthen ties with your best customers, start by making sure you know who those customers are. Analyze the type and quality of business delivered by each account, and assess the cost of sales compared to revenues. Are some customers using resources that could be better spent on securing more profitable relationships? Are there customers with the potential to provide more business? And what is the status of your relationship with your loyal customers who offer a steady flow of good opportunities? Are they getting the attention and level of service they expect and deserve?
When it comes to the less-productive accounts, sales leaders are sometimes surprised to discover how much it costs to keep customers who are not consistently providing good sales opportunities. Often these same customers demand value-added services they don’t want to pay for. The resources spent to keep these accounts might be better applied to building value for other customers.
As you evaluate your better, more profitable accounts, look for those that were more productive in the past. These may have the potential to provide more business again in the future. And look carefully for customers with whom you have a relationship, but where business may have fallen off due to benign neglect or a lack of adequate service. These should be viewed as “at risk.” With renewed focus and a greater investment of resources, some of these customer relationships could be the source of more revenues.
But how do you determine which customers are too costly, and which should be kept and strengthened?
What is needed is an objective way to evaluate which customers are your real “keepers,” and which ones should perhaps be “fired.” Below are some questions you might want to ask to get a more systematic analysis of your account portfolio.
Questions to Ask About Your Important Accounts
• How do you know which accounts are the most profitable?
You are probably tracking sales per customer, and know the sales and revenues you are gaining per account. But how recently have you compared the cost of sales for key customers? Do you know what you are spending in terms of time and other resources to gain those revenues? If you are tracking COS you may have this data, but many sales leaders say they have focused primarily on the top line and do not necessarily compare the COS to revenue per account.
• Are you aware of which accounts are regularly providing good, winnable opportunities?
As you review your customers, look closely at the quality and quantity of opportunities in each account. Ask these three questions:
o Is there a consistent flow of real opportunities?
o Do the opportunities tend to bring true value for both your organization and the customer?
o Do you generally win the opportunities you identify, or are you competing for business at the cost of discounting and providing value-added services the customer doesn’t pay for?
• Do any of your current customers have potential to deliver more sales?
o Did any of your accounts previously provide more business?
o Are there accounts that have been neglected or taken for granted?
You may find that some of your long-time customers, even key accounts, are taking up resources such as technical advice, consulting, and other services they don’t pay for. And some of these customers are not yielding a comparable amount of good business. Consider cutting your ties or pulling back from these accounts, and re-allocate the resources to build stronger connections with genuinely profitable customers. Also look at renewing relationships with accounts that have potential for increased business.
Strategy 2. Strengthen and Protect Current “Big R” Relationships
As you assess your current business, determine what type of relationship you currently have with each customer, and what kind of relationship you want. First, it’s important to keep in mind the difference between what could be called a “Big R” and “little r” relationship. We define “Big R” as long-term relationships with strong company-to-company connections. The best of these customers are loyal to your organization—for reasons to be reviewed in a moment—and provide a steady flow of good business.
We define “little r” relationships as the networks of interpersonal connections sales reps must build with individual customers. These “little r” relationships—built on personal trust and confidence in the sales rep—are absolutely necessary, but not sufficient to protect a customer from predatory competitors.
As every salesperson knows, individual contacts may change roles, leave the company, or otherwise become unavailable to influence buying decisions. (One study suggests that as many as 33% of employees change jobs each year. ) When the relationship between your two companies is strong, the loss of even a key contact is less likely to affect the customer’s commitment and ongoing sales.
So one question to ask is: How many Big R relationships do you have among your productive accounts, and what are you doing to make sure these customers continue to do business with you? The advantage of having these customers in your mix of accounts is that price is usually secondary for them. Typically they are buying solutions from you that are more integrated into how they do business and for which they may lack expertise. Their concerns are with the kind of training and support you offer, your track record and stability, and your capability to grow with them. These factors create switching costs. This means it is not easy for these companies to change suppliers without incurring significant costs associated with re-training, disruption of their business, and other issues.
To retain these Big R customers, you need to:
• Provide high-quality support and service commensurate with the customer’s investment in your offering and the relationship.
• Keep them well informed about your organization’s technology, business direction, and development of new capabilities and products.
If you find that you have a lot of these types of accounts, make sure they are paying their way. If they are, make sure they are being well served and are completely satisfied with the relationship. Most salespeople can only manage a few of these accounts at best, as they do tend to require a lot of hand-holding and rightly expect quick responses to their questions, problems, or concerns. If they don’t receive the level of support they need, they may begin to question the wisdom of remaining locked into your solutions.
This is why it is so critical to make sure you are not neglecting the needs of these customers, and that there are adequate resources available to keep the relationship strong and thriving. As long as you are demonstrating your understanding of what these customers need from your organization, your competitors are unlikely to make headway, even if they offer the lure of discounted prices.
Strategy 3. Build a Strong Track Record with Your Important Transaction Customers
Think of your Big R customers as buying in a Relationship style. Then think of another set of customers you have who do not buy from you all the time, but buy regularly on a repeat transaction basis—order by order. These customers can provide very good opportunities, and may even be the “bread and butter” accounts you count on for a regular stream of profitable business. Unlike your long-term Relationship customers, however, these Transaction customers typically avoid getting locked in to a given supplier. Their business model and the products they buy make it possible for them to “play the field” if they wish, as they are not going to incur much in the way of switching costs. These companies are less dependent on a supplier for support, expertise, or long-term mutual growth. They are most likely purchasing a solution or product that is viewed as a commodity and are more likely to be responsive to offers of price reductions. How do you ensure you don’t lose these Transaction customers to competitors? By providing them with what they care about the most:
1. Price—These customers do care about getting a competitive price and are vulnerable to cost cutters.
2. Conformance to specifications—They may have quality specifications and other requirements they expect to be met; it’s important to make sure they receive exactly what they need, every time.
3. Delivery—How and when do your Transaction customers need and expect delivery? If you can be faster than your competitors or more able to deliver at certain locations at certain times, you will have a competitive advantage with these customers.
4. Availability—Transaction customers need to know they can rely on you to have what they need, when they need it. A supplier who runs out of stock or asks the customer to wait to receive the materials or products they need may not get another chance to fulfill an order.
So these Transaction customers have the advantage of being low maintenance and lower cost in terms of demands on your sales resources. At the same time, it is critical to pay attention to hitting their targets every time with quality and consistency. They need to feel you are providing them with a fair competitive price, a product or service that consistently meets their specifications, and delivery and availability that fulfill their expectations—without exception. Since they do have choices and it costs them little to switch from one supplier to another, it is imperative to be responsive to the concerns of these customers. If they are completely satisfied, they are far more likely to continue to give their business to you, rather than to a competitor.
With competitive pressures to contend with and finite resources, your best strategy is to focus the time and energy of your salespeople on building strong and lasting relationships with your most valued customers. Taking customers for granted is the enemy of retention. Make sure you know what kind of relationship you have with each account, and that your sales reps are aware of their customers’ expectations based on those relationships. Keep abreast of any changes in the customer’s business model and buying preferences. That will ensure you are providing Big R customers what they need from your company, while meeting the very different needs of good Transaction customers as well. If each customer feels you are providing not only valuable solutions, but selling to them the way they want to buy, your relationship with them will be a strong barrier to competitor encroachment.
About the Author:
Michael Leimbach, Ph.D., is Vice President of Global Research and Design for Wilson Learning Worldwide. With over 25 years in the field, Dr. Leimbach provides leadership for researching and designing Wilson Learning’s diagnostic, learning, and performance improvement capabilities. Dr. Leimbach has managed major research studies in sales, leadership, and organizational effectiveness, and has developed Wilson Learning’s impact evaluation capability and return on investment models. Dr. Leimbach has served as a research consultant for a wide variety of global client organizations, is on the editorial board for the ADHR professional journal, and serves in a leadership role for the ISO technical committee TC232: Standards for Learning Service Providers. Dr. Leimbach has co-authored four books, has published numerous professional articles, and is a frequent speaker at national and global conferences. To learn more about the concepts shared within this article and how Wilson Learning can assist you in addressing these issues, contact Wilson Learning at 1.800.328.7937.
Disclaimer: The views and opinions expressed in this article are strictly those of the author. CPSA does not endorse any of the companies, products and services mentioned within this article.