If you ask your sales reps what customers want, you’ll get a lengthy inventory of needs, whims and wishes, as expressed by customers over the years.
More than a decade working in LIPA (Line-Item Profit Analytics) with hundreds of the world’s best distributors has answered this question much more directly.
In reality, there’s only five fundamental items that truly influence customer purchasing decisions. Distributors with mastery of these items always lead the market. Moreover, you’ll need either parity or superiority in all five to seize and hold a leadership position. If you fail in any of them, competitors that outperform your deficiencies will pass you by.
There are no exceptions – you either have them, or you lose.
The 5 Things Customers Want
Customers are affected and influenced almost exclusively by:
- on-time delivery
- no product failures
- smooth (and short) interactions
- acceptable price
The top element that matters is the availability of the product or service needed by the customer.
Efficiency metrics surrounding fill rates on critical products are foundational to customer experience and company productivity. Fill rates exceeding 99% are certainly possible for your most profitable products and most profitable customers – when you can identify your most profitable products, and know who your most profitable customers are.
You need a dedicated cost and profit system to identify profitable products, customers or anything else. Margin will not help you find those that contribute most to your bottom line, because profitability is all about cost-to-serve and has almost nothing at all to do with margin. (Heresy, I know, but this is the most important finding from a decade in the numbers of the market leaders.)
Once identified, you can increase stock levels on the most-profitable products and prioritize your most-profitable customers. This will reduce stock-outs and raise fill rates where it matters most.
Customers want what they want, when they want it. The “when” part is best achieved by formally offering a range of delivery time options. (“You can have it tomorrow, in two days, or sometime next week.”)
Each will have its own associated delivery charge ($25, $10, free), giving the customer complete control over the balance of time versus cost. It also facilitates the vital addition of delivery revenue to your OpCash (operating cash) and cash flow.
More importantly, formalizing options puts the balance of speed versus cost for every order into the hands of the customer, while eliminating the costs and inefficiencies of exception processing driven by provision of informal options.
Product failures (and delivery failures) are an irritant to your customer relationships. As they accumulate, your company will be tagged as unreliable and customer loyalty will plummet. It’s also important to stay on top of quality issues, be they product-related or service failures in your logistics chain.
Failures happen – what counts is how quickly and conveniently (for the customer) you correct them. Have a Concierge Customer Service group for your Platinum accounts, and be proactive with the vendors, as they’re upstream from product issues and may not have any notice of widespread problems until they hear from you.
Your customers are properly focused on what they’re doing for their own customers. Your sales reps are an unwelcome distraction in their world. Make customers’ interaction with you as effective and as minimal as possible – that’s how they like it.
Customer loyalty doesn’t come from the relationship with the sales rep, it’s from the company’s execution on the things that matter. Using analytics to manage operational efficiency improves performance and reduces errors. Both drive customer loyalty, and also reduce costs.
If the customer connection actually does hinge on the rep’s relationship, then the customer isn’t yours, it belongs to the sales rep. If the rep’s relationship is holding the customer relationship together, then your company performance isn’t. You need to have a hard look at the customer experience because your company may have an inability to deliver on the things that matter. You’re vulnerable, and competitors will take your accounts.
Customers don’t want to feel like they’re being exploited. That is, feel like they’re paying an unfair price. Outside this caveat, they’ll pay a price premium if they evaluate the experience with you to be efficient and trouble-free.
If you’re executing competently, price is seldom the ultimate determinant, but where price does have sway, having a low expense rate on the customer relationship gives you options. (This is a critical feature of LIPA – knowing the actual expenses for a customer.)
For instance, you could help a profitable account where the margin is 18.3% (already below your company average) win a specific bid with an order you’d price at 15%, knowing the customer’s expense rate is 10.4%. You’d take a reduced profit (but still a profit) because you’d add profitable incremental cash flow (OpCash) to your sales, and would be seen by a key customer as a great partner, increasing loyalty.
What’s the Take-Away?
Total customer experience determines customer loyalty and market share. You get advantage in your market by executing above your peers on these five items. Superiority on one or more will increase share and profits – as long as you’re not underperforming on others.
If you’re feeling “margin pressures,” “evaporating customer loyalty,” or an inability to maintain historic profit levels, you’re certainly behind your peers on one or more of these elements.
Gather your team and get to work on these five items and you’ll begin your advance to new records in cash-flow, profits and market share.
Randy MacLean is the founder of WayPoint Analytics, the inventor of LIPA, and best-selling author of a series of profit practices books. For more than a decade he’s been analyzing company results, thinking about, writing about and advising on profit issues in distribution and manufacturing. WayPoint software is used by hundreds of companies to control their profits, and their destinies. This article is adapted from a section in Profit-Driven Analysis & Practices: The CEO’s Guide to Record Profits by Randy MacLean. The book explains the field of LIPA (Line-Item Profit Analytics), and how you can use its unique metrics and strategies to out-perform everyone else in cash-flow, profits, and market share. Reach him at email@example.com.