This english proverb (that means that your nature mandates, and that in spanish is “the goat is attracted to the hills”) serves many cases, I think it is perfectly applicable to the customer-supplier relationship in B2B service companies. I’ve always believed in transparent and honest relationships, but I have in mind the famous story of the vermin who is rescued and cared for their food, and one day attacked their savior, and when he complains replied “I’m sorry, is my nature “… to increase the EBITDA … A “good” manager maximizes results. Well I think that not always! As I will explain below.
I remember some years ago at IESE Business school, a phrase that stuck with me, “a manager goal is to ensure the long-term business”. That is, we have a strategic function beyond the very short term. Sometimes companies make decisions based on the short term (especially when using bonus), and I think it is a serious mistake.
The truth is that in every business there is enormous pressure for results, always ask for more, and the obligation is to “scratch” increasingly. Via upsellings sale, new services, further development, etc. Nobody asks to reduce the benefit of customers, whether they are much higher than expected. In my career, I have sometimes found with these dilemmas. Great customer, with which we are making a lot, basically more than expected, and of course, much more than you would win if the client come out to tender (RFP). What to do? Conditions may be competitive in their initial negotiations, but efficiency improvements, or proper development of the account have lead to an extremely profitable account, to the extent that the company is “get used to” that result disproportionate to the market conditions, or the logical EBITDA. Also, sometimes these accounts are what enable to gain other customers in a more aggressive “mode”, later improved and is a virtuous circle … So we do have to take care of the good accounts much, much, much more.
I should start saying that no two cases are alike. It is key to separate the truly captive customers, and in these the situation is easier (for the provider …). But I refer here to non-captive customers very profitable local contract 100% and I think you are reading like, “Wow, those are few”, but surely you have had the experience that I have. One of those ever called you to say the dreaded phrase “we will go out to tender in March, Iñigo sorry, but comes from above …” yours face is the poker one, or the circumstances, try the last lap, but very often is inevitable! If it is a surprise , the work has not been good, as one of the key points is to anticipate those processes, as we will see later. And on the way to the office, you think “we’re done” (to be gentle I will not use the “f” word), when customers see that we lower our price offer 35% … they will get more anxious to go by feel mistreated these years, especially when they will find deals 50% below its price from close competitors. True, but there are my considerations:
1) Customers must have the best service in the market and that is not a commercial phrase. The last thing to do is get good resources and a high satisfaction from those clients to others with less than half profit, but I have such confidence with the old one, and we need to look good to the new one. I do not mean that we should not rotate resources, I mean that dismantling a perfect customer is a serious mistake. The best customer of my company should have the best service in every way: level of resources, dedication indirect Depts, etc. It can not fail anything, and the client should feel that way.
2) The customer has to have that feeling of absolute priority, we should feel for him, and that remains our top priority despite the years we’ve been together. And tell him, sell to him the efforts we are doing.
3) More important than the conditions is the quality of the service, we should prepare the RFP schedule with a detailed business plan with actions to improve, with a full an complete dedication, planning and executing savings plans with a very nice and “easy” reward … an extension of the contract! I am talking of 18 months advance timing!
4) Within the savings actions, look for costs reductions that should be fully passed to the customer. For example optimizing service configuration, increasing the online adoption rate, etc.
5) Still, I think that respecting the correct timings, we should adjust the conditions. Certainly not radically, but planning it and looking for a win-win in such change. A contract extension approach with gradual reduction of conditions I think is a very good option. In this sense acting before the customer is highly recommended.
6) Do not break the cow, that is, if a customer is on the best side, do not try to win much more with upsellings, but rather do the opposite, let us sell those advantages to lower prices to increase more even the feeling of value, and that if the cost of the service is X, tell the customer that becouse we care for long term customers we will sell the product with a high discount but linked to an extension of the contract … Logically, upsellings that are meeting customers needs are always possible and desirable, but let’s do it at competitive prices.
7) Build exit barriers. This is critical, great service is useless if exit costs are low, but if we have a great service and we have built strong integrations and personal relationships with the customer, they will not want to change providers becouse the cost of change, and our RFP will be the last to be launched.
8) Bring on board the senior executives, it is important to create that relationship. The yearly agenda should include 2 times per year with that preferred customer segmentation.
Of course, in fifteen years of senior experience with leading companies in Spain in the B2B segment, I have learned something, the less the customer pays, the less happy he is … we may think it is the opposite, but it is not truth (I am talking about the TMC business …). Moreover, the very aggressive client with time slips on a slippery slope to the negative P&L zone of the supplier. Of course I am talking about services not products.
Still, there are clients (and growing) that go to a mandatory RFP every X years (usually three), although there are cases of annual RFPs process (crazy in some services). Customers with a high rotation rate if they act very agressively with the provider, they are in the risk zone and bidding is not allways a good decission (a clear NO-Go decission in many cases). To be in that group is “unpleasant” for everyone, especially because customer service is not excellent because it is not a priority and the customer is also aware that he is paying below market. Those customers with high rotation often are looking for a miracle, that is, one supplier that is losing money will solve all his problems. Curiously, some of these buyers give the speech that suppliers do not want to lose money, but their actions and words do not match, and are caught in a situation were a change will increase costs, so they can not change now. Even though the service and the final cost is not within the objectives. Often they do not start an RFP surprisingly no one goes!
In short, the leopard never changes his spots, but sometimes it is better trying a little bit …