All Customers Are Not Created Equal

By Fred Thal

"If the 1980s were about quality, and the 1990s were about re-engineering, then the 2000s will be about velocity," noted Bill Gates in his book, Business at the Speed of Thought. Velocity, however, is not measured strictly in speed, but also in direction of motion or change. Both factors should be primary concerns for successful distributors.

Many times in business, distributors group things together to make it easier. All customers are lumped together and then strategies and tactics are aligned with them. Unfortunately, when it comes to grouping clients by financial category or size, the larger and most important part of the picture, velocity, many times is not taken into account. It is overlooked.

BRICK WALLS AND CUSTOMERS

What is the customer's current direction and velocity? If two cars are clocked at 50 mph, you might immediately group them into the same class and category. If one was headed toward a brick wall and slowing down, however, and the other one was headed away from a brick wall and accelerating, it would create a different result. Immediately the distributor would separate them into two different groups.

When it comes to separating customers into groups, the same applies. Customer direction and velocity are critical. Distributors must ask themselves, "Is this a small customer accelerating to $100,000, or is it a large customer failing to spend $100,000?"

To start, look at the customer's sales trends month over month and year over year. Analyze information such as client purchase gain/loss, frequency of purchase, and general account activity. Compare the individual customer results with the total overall business numbers and determine where each one falls. Don't forget to take into account seasonality, weather extremes, or special circumstances.

What do the customer's business mixes look like? Are they increasing in residential replacement, new construction, parts, condensers, or complete systems? Did they have one big job that skewed the results or have they been growing steadily? Distributors must know what their customers are selling so that they can look at their overall margins to determine profitability of a customer. If customers are cherry picking the supply house only on a low margin product the distributor needs to know.

CONTROL DESTINY

Using velocity marketing customer relationship management can catapult sales and profits to higher levels than thought possible. It's a new way to make 80 percent of the dollars distributors spend actually earn them money. Here are several core beliefs and principles that are tried, tested, and consistently true:

A customer at rest will probably stay at rest until something significant changes their business. Accounts that have leveled off at a purchase level often don't change drastically. These accounts have usually reached their own level of comfort and will not grow beyond that point. The best strategy is to keep them happy and make sure their needs are met. Their purchasing growth will come by expanding the number of lines or products they purchase from a single distributor.

An account that is declining will probably keep declining. Declining accounts can be hard to get back on the positive growth cycle. Distributors need to determine why the customer is purchasing less. Is it their business practices? Are they selling less? Have they failed to keep up with technology? Has their info structure changed?

On the other hand, if the customer's business is growing, but not with the distributor, then it is important to examine the territory sales manager's relationship with the account. If the problem is not identified and corrected immediately, it can be incredibly difficult to get the business back.

An account that is growing will probably continue to grow and this is where distributors need to put a disproportionate amount of their time and money. This is where margins will increase and the return on investment (ROI) will improve. This group of customers holds the key to a distributor's successful future.

Most companies will spend their sales, marketing, and advertising budgets almost equally on all of their accounts. In net effect, what they are doing is spending less than 20 percent of their resources on the top 20 percent of their customers. This translates into 80 percent of their resources being spent on those accounts that are either declining or stagnant. In reality, they should spend 80 percent of their resources on growth accounts and 20 percent on stagnant and declining accounts.

Once distributors start spending time and money on those people who make them money, they'll see an outstanding ROI. Then, when distributors think about reinvesting 80 percent of their money on the accounts that have earned the right to spend it, they'll sleep a whole lot better at night. The customer will also feel better knowing they qualify to be in this special category.

Publication date: 10/09/2006

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