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Facts are stubborn”, declared Mark Twain, adding in the same breath “statistics are more pliable” And that includes sales statistics, he should have said. Consider this notorious nugget, quoted ad nauseum in sales meetings – “It costs five times more to find a new Customer than to sell more to an existing Customer”. From that derives the near-compulsive need to sell more, at any cost, to every key account.
No, it is no one’s case that selling more to existing accounts is bad strategy. However, argue Professors James C Anderson and James A Narus in MIT Sloan Management Review (“Selectively Pursuing More of Your Customer’s Business” – April 2003), if this strategy is not to degenerate into yet another “well-worn platitude”, it has to be informed by a more disciplined and finer-grained approach. Worse, mindlessly chasing a higher wallet share could erode profits and compromise marketing strategy
The professors’ 3-year research with what they call ‘best practice companies’ across US and Europe helped them distill a framework for a profitable pursuit of higher share of their key Customers’ business. Here are the 11 steps making up that framework:
First step to gaining a higher yet profitable share of business in a key account is to estimate correctly – What is the potential business possible in this key account, of which how much are we currently doing? This should be done in respect of every product that we offer to the Customer
How this can help – This can provide more insight, as the authors’ research showed. For instance, if we are catering to say, 10 manufacturing plants of a key Customer, then find out what percentage of each plant’s purchases are we accounting for. This could vary from being exclusive supplier for one plant with zero sales to another. Also, our own costs of supplying could also vary across locations and impact the cost of servicing that Customer. Arriving at this estimate can provide an insightful peek into the volume / value trade off to us as sellers
You could adopt one of two approaches in seeking out data for estimating our current share of potential supplies
How this can help – Approached creatively, this can become a potent vehicle for Customer engagement. In one telling example cited by the authors, the company in question offered to share, for free, expensive market size reports on individual products with Customers who contributed “share data”
“Progressive firms find a way to assess the accuracy of their estimates of Customers’ share of business” say the authors. This means that they regularly cross check the accuracy of collected data with industry references
How this can help – With accurate share estimates, higher share targeting can be made profitable
It pays to invest in a full-fledged database on Customer’s share information. Best practice companies often refer to these as “Customer Profiles” which are reviewed and update every quarter
How this can help – Profiling of Customers in terms of share enjoyed is useful in analyzing impact of market changes such as new product introductions. Data gathering for these profiling exercises also triggers dialogues with Customers leading to product/process improvements
Armed with an understanding of how much of each key account’s business you are getting and which product/service offerings are most valued by Customers, you can design a strategy to persuade Customers to buy the more profitable offerings which can be sold through more advantageous locations
How this can help – Intimate knowledge of Customers leads to discovery of new ways of doing business which add value or slash costs, the gain of which can be shared with key clients
The article gives a fascinating account of an European engineering major that uses account profitability analysis to guide its share building efforts. As the article points out “The company avoids pursuing business that builds revenue but is only marginally profitable … it attempts to attain 100% of a Customer’s business in targeted offering categories while not pursuing others”
How this can help – This approach promotes large gains in profitable segments while leaving the relatively less attractive businesses for competition to fight over. A case in point is the story of a company that chose to leave out the servicing of a new plant put up by its key Customer to the competition while retaining the entire servicing needs of older, existing plants. The logic was that newer plants would require minimum servicing with hardly any demand on their expertise, while the older plants held a distinctly higher service requirement potential
Adding expertise or capability to widen scope of your market offering could be another highly potent strategy to increase share in a key account. In the process the seller comes up with a solution that is highly valued by the Customer. This is best illustrated with the story of an European airline’s cargo division cited in the article. This division which was staring at the prospect of being reduced to a cargo-space provider rose to the challenge by getting into end-to-end, supply chain solution to the perishable goods business. By creating and making available an unbroken cold chain from the producer to the point of delivery, the airline discovered a sweet spot. It captured more profitable portions of the transaction chain while adding value and reducing costs to Customers
How this can help – Widening the scope of your market offering can often reposition your company in a larger arena with bigger business shares and higher profits. Use of this strategy enabled the European airline to emerge as the favored supply management provider to ship sea foods and flowers
Identify areas where your unique strengths are matched to Customer’s emerging needs to spot opportunities for collaborative relationships through which share can be grown
How this can help – This opens up possibilities of taking a step by step approach to building collaborative relationships with promise of higher business share at every step
Most large value Customers are uncomfortable with single source arrangements, regardless of how good the relationship is. Understandably so. Business continuity, price disadvantage and possible lack of access to new technologies are among factors that weigh on Customer’s minds. However, under multiple single sourcing the Customer is encouraged to have a network of service/product user-units, where there are several single-sourced units with at least two vendors/sellers across the network. This way each vendor becomes the back up for the other
How this can help – Becoming a single source supplier even to one or two units of a key account, throws open possibilities to picking a higher share of business with better margins by providing distinctive value additions in the selected locations
“Gaining a greater share of a Customer’s business does a supplier very little good when that incremental business comes at the cost of reduced profitability. Shrewd Customers can take advantage of a supplier’s lack of understanding of the true costs of serving them” say the authors. Frequently, this is the result of an eager-beaver syndrome that sales is sometimes afflicted with. Discounts, freebie services, programs and systems demanded by Customers are all conceded on the altar of higher volumes. To beat this, best practice companies do a Customer-contribution analysis that includes things like acquisition cost per product group, sales call expenses, logistics and handling cost, credit costs and end of period charge offs. With true profit-value of all Customers known, it gets easier to prioritize where to grow share. And unless these are documented, they do not become actionable insights
How this can help – Exiting or reducing share in low value relationships and correspondingly growing share in potentially profitable relationships becomes possible with this kind of documentation
Customer relationships are best strengthened by getting them to buy as many product or solution categories that one can sell profitably.
Every reason the Customer sees to buy something new from a salesperson, is reason not to buy from the competition.
The only way a salesperson one can build an impenetrable brickwall around his Customers is to keep opening more pathways for the Customer to buy from him.
Focusing limited resources on best avenues for achieving profitable growth is a function of how finely grained is your knowledge of Customers. As the article sums it up – “While gaining detailed knowledge is not easy to do, in an increasingly difficult world of strong competitiors and demanding Customers, it is becoming essential”
How this can help – In a rapidly digitizing world, information is accessible to all. It is insights drawn from Customer information and data and actions taken on those insights that can translate into profitable increase in business share that doesn’t end up as margin-sapping volume growth
You can read the MIT Sloan Management Review article on “Selectively Pursuing More of Your Customer’s Business” (April 2003) by Professors James C Anderson and James A Narus here
Author details – James C Anderson is William L. Ford Distinguished Professor of Marketing and Wholesale Distribution and James A Narus is professor of behavioral science in management at Kellogg School of Management, Northwestern University & professor of business marketing, Babcock Graduate School of Management, Wake Forest University respectively
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