How to Cost-effectively Target Small- to Mid-sized Customers
Instead of tightening your grip on your most fruitful customers, aim for the low hanging fruit: the middle 60 percent
We all want to improve our sales.
If a company is not improving or at least taking steps to improve, it will fall behind. Every market is shifting and adapting, especially in today’s world, but the concept of staying ahead is by no means new. So, if the question is not, “Do we need to improve,” then it’s, “How do we improve?” Should you continually reach out to your best customers and try to squeeze even more from them? This idea falls in line with the well-known Pareto principle, which explains that, generally, the top 20 percent of performers produce 80 percent of the performance or sales. According to this theory, the remaining 80 percent of customers or salespeople contribute only 20 percent of revenue even though they make up the great majority of customers you do business with. Thus, it would seem logical to believe that the people responsible for your best business could eke out a bit more for you.
THE MIDDLE 60 PERCENT
But, instead of tightening your grip on your most fruitful — those in the top 20 percent — we want to suggest that it can actually be more worthwhile to pick the low hanging fruit: the middle 60 percent. This group of customers, commonly known as the “undiscovered,” can offer a lot of potential for companies like yours. But how? How can you maximize the untapped potential of this group, and by doing so, smash the Pareto Principle?
The middle 60 percent, or undiscovered, refers to the great majority of customers that do business with you: the small- to mid-size buyers. For most distributors, these customers can range in their contribution to your sales and revenue, but the percentage of revenue is typically found to be around 20 percent. For our purposes (and yours), this number just isn’t good enough. If we are going to smash the Pareto Principle, we’ll need to find a way to drive more consistent and/or robust purchasing behaviors from this group. So, how do we get started? The middle 60 percent of customers lie just below the top level buyers and above the bottom-level buyers. Ultimately, they make up a wide range of customer purchasing behaviors, and, although buying behavior varies, it’s safe to assume that the potential account penetration for these customers can be much higher. When your customers’ purchasing choices are discretionary — meaning they could spend it wherever (and with whomever) they please — they can choose to spend their money for one of these three reasons:
• They’re leaning toward companies they have a genuine relationship with;
• They’re looking for the most competitive pricing; and
• They may have a “what’s in it for me” behavior, in which case, they are looking for added value.
In light of these reasons, a common explanation for most shallow account penetration is a customer’s feeling of being disengaged from your company. If customers feel disengaged, it tends to be because of a lack of communication. It may sound simple, but asking for someone’s business will often lead to business, especially when no other connective communication is being made elsewhere. Think of it like trick-or-treating. Getting candy on Halloween isn’t necessarily a skill, but good trick-or-treaters know how to get their “unfair share.” If you’re traveling in a big pack of candy grabbers (your competitors), the ones that get the most candy will be the first ones to the door, yelling “Trick or Treat!” Standing out from the crowd can make the difference when it comes to acquiring new business from the middle 60 percent. Unlike trick or treating, achieving this difference and generating further account penetration is certainly a skill, and a well-equipped, targeted campaign to the middle 60 percent of your accounts can often do the trick. If during this campaign, you can reinforce your brand through compelling marketing communications and a unique rewards structure, you should be able to give some of your customers a small, but significant, added value of doing business with you. This can make all the difference. After all, according to research done by Matt Harris at the Incentive Research Foundation, just a small increase in purchases can lead to a much higher percentage of growth within the middle 60 percent when compared with the same increase within the top 20 percent. This means that even a small increase of one or two SKUs per invoice can lead to a significant gain in revenue and greater account penetration if that increase is implemented across the middle 60 percent. In this way, it can be argued that a campaign targeting the middle 60 percent of customers, if implemented correctly, will provide the best opportunity for return on investment (ROI) and gross profit increase.
The first and most important strategy when targeting middle 60 percent customers is marketing and communications. Engaging this audience and keeping them up to date on sales, product launches, and the like can lead to an overall improvement in terms of account penetration. In order to improve your account profitability, you need to increase your sales through two cost-effective channels: marketing and motivation.
Marketing and communications are tools used to help achieve overall growth and diversification by calling out differing product categories or specific products themselves on a regular basis. Increased awareness and visibility will help to push these products out to the middle 60 percent and increase your revenue. You may already have steady in-person communication with the customers that give you the most business. Chances are, though, you probably don’t have the ability or staff to have that kind of in-depth relationships with undiscovered customers. After all, there’s a lot of them (three or more times the number of your top customers). Due to the wide swath of buying behaviors present in the middle 60 percent, gaining 100 percent of the discretionary dollars from everyone is simply impossible. However, this strategy, in turn, can bring the buyers within the top tiers of the middle 60 percent to the surface and make their accounts much more profitable.
The best increase from the undiscovered customers stems from an additional strategy, which plays on one of the more basic principles of capitalism: an aspirational desire to achieve a specific reward or to get something in exchange for their purchases. In other words: incentives. You can motivate customers to give you their business using incentive solutions and reward programs. This strategy helps shift customers’ share of their wallet to get you your “unfair share.” Incentives provide buyers with an added value to entice them into spending money with you rather than your competitors. If created and managed in the right way, incentive programs can be the perfect way to gain and maintain the undiscovered audience. An incentive strategy can also act as a communications vehicle to these buyers by promoting a company’s value-adds. It can also assist in the promotion of special offers, specific manufacturers’ products, and new products. By providing rewards for the products your customers already need and use, you can create an engaging relationship and generate interest among the program participants for your business.
For more information, visit www.hmiaward.com.
Publication date: 04/26/18