Posts Tagged ‘competition’

I Quit. Oh No! That Was My Top Customer!

June 23, 2010

by Doug Smith, President, The Woodhaven Group

One of the great “moments of truth” in the history of a business comes when a long time loyal customer quits and decides to take their business to the competition.

It can be like a family member dying.

When this happens, the sales, profit, and business cash flow of the company can take a major hit.

It can and should be a shock to everyone in the company.  I hope it never happens to you.  However, if it does there are 2 basic questions that must be answered immediately:

  1. Why did the customer leave?
  2. How do we get the customer back?

Here are 5 thoughts and questions I have on addressing why a long time customer left:

  1. First, the owner or CEO should personally be the one to analyze what happened.  It is not acceptable to lose an important customer or client and the responsibility falls primarily on the shoulders of the person at the top of the organization.  As a leader, you cannot be in the business of losing your top customers.
  2. If this customer found a reason to leave then it should be assumed that your company might be on the verge of losing other customers due to something you are doing or not doing.  This customer is like the canary in the mine.
  3. The owner or CEO should visit the other owner or CEO and have a heart to heart talk.  Find out exactly what the problem was that caused this decision and ask where the breakdown was occurring.  Chances are it was not one reason only.  Often there was an ongoing issue that was communicated repeatedly to the company, and in the opinion of your client, the issue was ignored or not taken seriously.
  4. Initiate immediately a listening campaign with your other large customers. It should be assumed that if the competitor persuaded one important customer to change then they will leverage that decision to go after your other top accounts.  A senior manager needs to visit your customer’s top management and find out if there are any problems brewing.
  5. The management team should meet back at headquarters and compare notes from all the conversations.  Are there common threads that require an action plan be put in place?  Some issues that may be identified are:
  • Has the processes in place to do business with your company become too complicated?  Has it just become too difficult to do business with your company?  For example, think of a customer service problem where the customer has to speak to numerous people and no decision is made.  Is your company lacking one point of contact for a customer to go to that would simplify the process or has your company become loaded with territorial silos.
  • Are your employees just going through the motions?  Are they taking customers for granted?  Is there a morale problem that impacts the relationship with all customers?  If so, why is there a morale issue?
  • Is there a growing quality problem?  Do finished products have mistakes and have to be remade?  Are shipments not delivered completely?  Are deadlines not met?
  • Do you have competitors now offering the same product or service as your core product and selling it at a lower price?  Has the competitor re-engineered your product to deliver more benefits?  Even a #1 product in the marketplace has to keep evolving to stay ahead of the competition.  

There may be other problems but it is my guess that one or  more of the above will be the cause of your business divorce. 

So, how do you get the customer back?

The reality of the situation is that you may not be able to.  Chances are the other company struggled for a long  time to arrive at this decision and will probably stick with it.

Regardless, here is what I would do:

  • Chances are the problem stemmed from a series of people issues.  I would put in place one point of contact and that person would only be the owner or CEO.  No one else.  If this is the real problem, then this solution will communicate how seriously the owner considers the situation.  
  • Schedule weekly meetings chaired by the CEO to review the status of the account with your lost customer’s management team.
  • Revisit with the customer’s CEO or owner the reasons why they chose to do business with your company to begin with.  Psychologically this allows the customer to resell themselves on what they liked about your company.  It also shifts the conversation from a negative to a positive one.
  • Identify the #1 feature that the customer likes and consider offering it at no  charge or reduced cost for a period of time.  Possibly throw in extended terms.  If you think it is too costly to do this ask yourself the cost of acquiring the new customers needed to replace the volume of this one top revenue generator.
  • If the customer is still reluctant to change back, ask if your company could take a reduced position in serving them instead of losing 100% of the business.  There is a good chance this strategy will work.   

One benefit coming out of this is that the CEO of your company will get a clearer picture of what is working and not working in the company.  That is a positive thing.

The best way to prevent this loss from happening again is to be proactive by making sure your management team is taking the following 4 actions:

  1. Listening to your customers
  2. Managing with timely accurate metrics to find where the company is falling down
  3. Keeping your employees motivated and focused on the customer and not themselves
  4. Making sure your value proposition and core products are in tune with the wants and needs of your target customer as well as the marketplace. 

In my opinion, losing a top customer is a leadership issue.  Sales, cash flow, profit and net worth will suffer.

Don’t let it happen to you.

Advertisements

The Personal Value System Of A Salesperson Can Quickly Kill Your Business Cash Flow

June 20, 2010

by Doug Smith, President, The Woodhaven Group

One mistake many sales people make when selling to a consumer is to project their own personal value system into the selling process.

That is a major mistake that can be the difference between closing the sale or being disappointed with the outcome.  The result is no sale and no addition to your business cash flow.  The prospect ends up buying  from the competition and your company needlessly lost revenue.

I have seen many salespersons not want to build the sale because they personally believed the total price would be too much.  In other cases where financing the transaction is an important option, I have seen salespersons not quote monthly payments because they never personally finance any purchases and do not believe anyone else should either.  Others don’t offer the product in a certain color because they personally do not like that color.  One retail salesperson I knew did not present one line of clothing to customers because she personally did not like the designer.

This happens in sales forces of all kinds and can be a cancer that will kill sales and valuable cash flow.

Sales managers need to train their sales forces to ask questions and gather plenty of information from the prospect about what the prospect wants and needs.  Then tailor the product or service offering based upon that information only.

The next time you see the sales volume of a sales person drop consider that one option may be that they are projecting their own personal value system into their selling process. Correct it and  both your sales and cash flow will increase.

Is Your Core Product Still Generating Profit and Cash Flow?

May 10, 2010

by Doug Smith, President, The Woodhaven Group

Is your core product still a priority in your company?

Do your employees know what your core product is?

Is your core product profitable and creating cash to drive your business forward?

A core product of a specific business historically has solved a problem or fulfilled a unique need better than the competition.  Often it represents a product or service that is first to the market and is hard to displace.

As sales of a core product grows for a company a major benefit is a strong loyal customer base.  Examples of companies and their core products:

  • Starbucks:  a good cup of coffee
  • Google:  search and advertising
  • KFC:  chicken
  • Goodyear:  tires 

A few thoughts on core products:

  1. The core product of your business should be your company’s most profitable product line.  Calculate the direct profit of all of your products by taking the selling price less direct costs such as labor and materials.  You must know how profitable each product line is.  Based on profit, is your core product still #1.  If not, why not?
  2. Has your company become bored with your core product and branched into other product lines that are not as profitable but are using up cash and management time and talent?
  3. Does your customer know that you have been known for your core product and why?
  4. Have you evolved your core product to stay abreast of your customer’s needs or have you allowed competition to steal sales with a newer better version?

As a company grows sometimes it loses focus and direction.  Make sure your core product is the most profitable part of your business.

Never let a competitor take your core product and the loyal customers that go with it.

Consider Early Pay Discount To Increase Cash Flow

May 9, 2010

by Doug Smith, President, The Woodhaven Group

Many industries have a traditional preset discount off the invoice for paying early.  As the customer I used to take advantage of an 8% discount if I paid my supplier by the 10th of the following month.  The invoice was due, otherwise, at the end of 30 days.

As a provider of a product or service your business may want to consider implementing an early pay discount. The discount may only be 1-2% but will be enough to entice some customers to pay early.

The key decision for your company is balancing the bottom line profit impact against the potential for increased cash flow from your customers.

Here are some thoughts to guide you in your decision making:

  1. Does your industry currently offer a discount for early pay?  If not, then this could be a way for your company to differentiate itself from the competition.  The result could be added sales as the early pay discount is perceived as added value by your company and you can steal marketshare. The fact that the customers you acquire would have strong cash flow (evidenced by the ability to take the discount) would be a plus. 
  2. An ongoing argument against early discounts is its potential negative impact on profits.  Can the discount be passed on as a price increase?  Your customer may not balk at a 1-2% increase in prices if it has been some time since the last increase and you provide a high quality dependable product.  If you are concerned about implementing a price increase at this time  then wait and piggyback the increase on top of an increase in price in the future.
  3. What is the interest cost to your company to currently fund  accounts receivable?  This should be factored into the profit computation.
  4. Also, determine if there is operational savings realized by having less accounts receivable to collect due to accelerated payments.
  5. Not everyone will take advantage of the early payment discount.  For those who do not, if a price increase is in place to support the discount, then your company just realized more gross margin dollars and percent.
  6. You cannot let a customer pay late and take advantage of the early pay discount.  An aggressive accounts payable manager will attempt this if you do not catch it and cut it off.  Assume this will happen.  
  7. Invoices need to be received at the same time the product is delivered so that your customer has time to process the early pay discount. You do not want to give your customer an excuse for taking the discount late.  
  8. Your best creditworthy customers will take advantage of the discount.  Prior to your company offering a discount your customer was most likely aggressive in delaying payment as long as possible to preserve their own cash.  The trade-off, as discussed earlier, is faster availability of cash for your company back against the discount cost. 

Which is the best way?

In my opinion, I want to find a way to make an early pay discount program work with a minimal cost to my profit.  I believe the quicker I can get use of cash the faster I can put it to work and  the greater potential there is to increase my overall return on investment.

I would be interested to know what your experience has been.

Increase Cash Flow With A Unique Value Proposition Strategy

April 27, 2010

by Doug Smith, President, The Woodhaven Group

What makes your company unique from the competition?

Can you ask a higher price and get it?

What is your competitive advantage?  Can you say it in about 10 words?

A unique value proposition is what your company is promising to deliver to a prospect that is better than anyone else can deliver.  A well executed value proposition delivers benefits that will address your customer’s wants or needs in ways that competitors wish they could duplicate but cannot.

If you have no value proposition or have an unclear value proposition then you will not be different from the hundreds or thousands of companies competing in your category.  You will get lost in the crowd.  

Your business will find itself competing on price as the differentiator and we all know there is always someone who is willing to keep dropping the price to get the deal.  This will kill marketshare, gross margin, profit, cash flow, and eventually your company.  Don’t let the competition dictate your pricing, profit strategy, and your future.

Here are a few thoughts to guide you when considering your value proposition:

  1. You must first know who your prospective customer is and what they want.  What is their pain?  What is their want or desire?  Do they think of your company first as a source to address that desire or pain?  Once you have identified your prospective customer, take a sample group and ask them what their biggest need is.  You will soon see a pattern that will give you direction.
  2. Be specific about the benefits you deliver, how they address your prospect’s wants and needs,  and how they differ from the competition.  Also, keep in mind that benefits differ from features.
  3. Show that your company has experience delivering this value proposition to others.  Third party testimonials often close a sale.
  4. Is your company capable of consistently delivering your value proposition at the quality level that you promise and your customer expects.  In otherwards, don’t over promise and under deliver in an attempt to be different.
  5. Can your value proposition be easily duplicated by others?  If  it can then do you really have a unique value proposition?  A $1.00 menu item or free delivery are examples that have quickly become the norm in some industries.  Make it hard for others to copy what you do.
  6. A well thought out value proposition becomes an effective guide for strategic and tactical decisions involving product development, customer communication, marketing, recruitment of talent and overall financial planning.
  7. Can the value proposition evolve over time as your customer’s wants and needs change?  If so, it will allow your business to think strategically and lead your customer forward with game changing innovations.

A unique value proposition gives your company a road map to growth and increased cash flow. It will make you different and allow your business to ask and get a higher price for what you offer.

Don’t try to be all things to all people. 

You just waste cash doing it.