Progressive Distributor - Defending your turf

Defending your turf

Three strategies for keeping your customers safe

by Ross Elliot

Distribution is an industry that has not historically experienced “breakout” growth. Certainly, business strategies have evolved and the market has become more complex. But the pool of customers available to distributors has remained fairly steady, making the job of growing a distribution business particularly challenging. As a general rule, when one distributor gains a customer, someone else loses one. Michael Marks likes to call it a “net sum game.” The ability to retain existing customers and develop strategies that result in competitive differentiation is critical to any distributor’s success.

When it comes to protecting your customers, a multi-faceted approach is your best defense. Following are three strategies that can help you create a solid plan for keeping the customers you have – and steering some new business your way in the process.

Conduct a SWOT analysis
When evaluating ways to increase customer loyalty, it can be difficult to know where to start. To build a foundation for moving forward, a method known as the SWOT analysis can be a highly effective tool. For those of you who’ve never used this technique, SWOT is an acronym for: Strengths, Weaknesses, Opportunities and Threats. This analysisis designed to determine where your company stands today and where it should be heading in the future. To generate the best results, it should be a team effort, conducted by the top members of your organization.

The SWOT analysis will help you position your company against the competitive landscape for products, customer segments, geographic location, management team, and company size. To complete it, work through the four SWOT elements, listing the strengths of your business, your weaknesses, and so on. When you have identified all relevant factors, your team should then rank them to determine the three that are most significant in each category.

The results will help you identify areas throughout your business where you can make improvements, including ways to better protect your customers. The analysis can also provide a framework for technology investments and help you ensure that your overall corporate strategy is the foundation for these critical decisions.

Keeping that in mind, let’s move on to strategies two and three, which leverage technology to put you ahead of the competition.

Know your customers
As you begin to digest the results of your SWOT analysis, it will probably become apparent that a complete knowledge of your customer is crucial to implementing the strategies you’ve identified. All too often, businesses make investments to attack opportunities without a clear understanding of what’s in it for their customers. Enter customer relationship management (CRM).

Much has been made in the last five years or so over the CRM movement. Numerous software companies evolved to address this need alone. In the distribution industry, the initial response to CRM was primarily one of wait and see. Distributors were justifiably reluctant to invest in unproven technology. However, the results from CRM initiatives are in, and industry experts agree the ability to more effectively manage customer relationships should be an essential part of a distributor’s business strategy.

CRM doesn’t have to be an expensive and all-consuming initiative. In fact, most projects start simply, with companies using tools like the SWOT analysis to identify their goals and determine how they can get to know their customers better. While significant strides can sometimes be made by simply restructuring the way you interact with customers, technology is a major ally in the battle to keep your customers loyal.

Too many companies, distributors included, view CRM as merely the next generation of sales force automation tools. They use them to aggregate companies, contacts and activities. Without question, CRM is useful as a data capture and organization tool. But, if you stop there, you’ll never really know or understand your customer any better than you do today.

To be truly effective, CRM must become a fully integrated component of the software that runs your overall business operations. It’s interesting to note that many successful CRM providers have been acquired by ERP software vendors to effect this tight integration between transactional data and customer preferences. It is only through this level of integration that you can identify behavioral patterns and use them for predicting and planning how to deal with your customers.

The true value, or “holy grail” that companies seek with CRM, is using technology to segment customers based on the way they have done business in the past. Have you ever received an e-mail from Amazon pointing to a new book, CD or DVD recommendation based on your previous buying or browsing behavior? Amazon knows its success rate skyrockets when it can hone in with laser clarity on those things you are most likely to buy based on past experience.

So, the bottom line of CRM is getting to know your customers – what are they buying, how do they buy, what other products might they benefit from, and most importantly, how can you become a strategic business partner? This information is essential to a core goal of every distribution company – having the ability to compete on factors other than price.

The rub of CRM is the ability to leverage the information it provides. To get some ideas on how that can be done, let’s take a look at strategy number three.

Adapt to changing customer needs
Most of you have experienced this without necessarily naming it — the role of the salesperson in distribution is changing. We’ve lived for years believing that customers buy from us because of the strong relationship (or lack thereof) with our sales team. With workforce reductions, union restructuring and a multitude of other economic factors going on around us, sales strategies that depend on lots of face time with customers have become flawed. Customer expectations are changing, and distribution’s strategies for selling to them must change as well.

An effective CRM strategy is a significant advantage in managing the impact of this trend. Using the information you track about customers, you can identify ways for adapting to their changing needs. An essential component of your strategy will very likely be some form of customer self-service.

In today’s consumer market, buyers want both convenience and choice, and customers of distributors are no different. Customers now want purchasing options to conform to their business models. The good news is that making the buying process more flexible for customers can result not just in increased loyalty, but in increased efficiency and cost savings as well.

So, what exactly does customer self-service mean? There are some fundamental elements common to most self-service programs. Primary among them is communication. Customers want to communicate via e-mail and gather product information, including pricing and availability, online. This flexibility allows them to do business with you on their schedule.

Another essential element is the availability of multiple sales channels. Customers want to be able to purchase online, through a contact center, at a sales counter, or in the field. Distributors that can allow customers to purchase using whatever method is most convenient for them have a chance to significantly increase loyalty and retention.

When implementing these strategies, however, it’s critical to recognize that integration and communication are the glue that holds them together. Customers will increasingly expect you to treat them in a consistent, integrated manner across numerous points of contact in your organization. If they use both conventional and online methods to communicate with you, they won’t want to repeat themselves just because different parts of your organization don’t share information.

As you work to insulate your customers, the ability to serve as a strategic business partner and articulate a clear value proposition is essential. A good way to approach it is to imagine how your customer would respond to a competitor. “We can’t make a change right now because our vendor allows us to ________.” The next time a competitor tries to steal one of your customers, what would you ideally like your customer to say?

Strategies that reduce the importance of price in the decision-making process are critical to building a sustainable competitive advantage, and the ability to meet your customers’ changing needs establishes a firm position from which to demonstrate your value. By challenging your company to look outward, understand your customers, and provide the solutions they seek, you can add brick after brick to the walls keeping the competition at bay. With the value that existing customers provide, the battle to protect them is one that is well worth fighting.

Ross Elliott is vice president of product strategy for Infor, a global enterprise software provider exclusively focused on developing solutions for the manufacturing and distribution industries. He is a nationally known speaker for associations such as NAW, NAED, HIDA, AIPPM. He has also contributed information about his vision of the distribution market to the last four “Facing the Forces of Change” books.