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Byrnes, a senior lecturer at MIT, recently published his book, "Islands of Profit in a Sea of Red Ink." The book contends that 40 percent of every business is unprofitable. He writes about ways distributors can fix that.
In Chapter 19, he talks about the importance of "service differentiation" as an effective profit lever. He writes that companies should set different service policies – ranging from order cycles to degree of operations integration – for different groups of accounts. "The company always keeps its promises," he says. "But the promises are different to different groups of customers."
"You need to form the right relationship with the right customer," he told me. "That relationship can change as the customer becomes more sophisticated, but if you over-sell a much more integrated relationship than the economics warrant, it could wind up being very expensive."
In the book, he presents a Service Differentiation Matrix, which sets relationships on a spectrum: Strategic Accounts, which includes longer-range planning and fully integrated processes and systems, as well as dedicated cross-functional teams; Integrated Accounts, which can include process-driven alignment; Emerging Accounts, which ask for flexible and innovative service, and meeting some unique needs; and Stable Accounts, which require reliable and cost-efficient service and a "menu approach to product and service offerings."
He explains: "If a customer wants to have a highly integrated relationship but doesn't have their act together internally it will be a massive headache for operations and sales. What you want to do is sit down with the operations people and salespeople together to decide what kind of account it should end up being. If they're not ready for it now, you can migrate them from arms-length to highly integrated, building their capabilities to partner with us."
The book, Islands of Profit in a Sea of Red Ink, is available at amazon.com and other major book retailers.