• April 22, 2009
  • By Ed Emde, executive vice president, Wilson Learning

Is Your Customer Base at Risk?

In today's economic climate, you may find that prospective customers are strongly focused on downsizing and cost cutting. In the face of retrenchment, it is increasingly costly and time consuming to develop new business. Now, more than ever, it is critical to keep your existing customers close and invest in expanding business with companies that are already buying from you.

But how long has it been since you seriously looked at the loyalty of your current customers? Have you earned that loyalty by consistently focusing on how to deliver value? Or have you been taking their business for granted? If you aren't sure of the answers to these questions, your current business may be more at risk than you think.

What can you do to protect your base from the competition?

First, reassess your relationship with your major accounts and determine how likely they are to change suppliers in the near future. The second critical step is to develop strategies to shore up your defenses and reduce the risk of losing customers to predatory competitors.

To better understand the relationship with your key customers, answer the following questions:

Our products/services are critical to how the customer does business.

T / F

Our products/services are interconnected with the customer's business processes or procedures.

T / F

The customer has invested in lasting assets (equipment/products) we provide.

T / F

Price has not historically been a primary concern in this relationship.

T / F

Execution of delivery, restocking, and other aspects of how we do business are important, but not primary reasons to buy from us.

T / F

The customer sees great value in unique benefits we provide, such as consulting, sharing information about our technology direction, etc.

T / F

If you answered "true" to the above questions, you are fortunate in having strong customer relationships, and there are high "switching costs" in changing to another supplier. These are costs incurred when a buyer changes from one vendor to another. Types of switching costs include tangible costs such as people, equipment, and procedures, and less tangible costs like potential business disruption or increased personal risk to the decision maker.

Customers facing relatively high switching costs are less likely to change suppliers. Still, they may feel forced to make that choice if they are under strong pressure to find lower-cost solutions.

On the other hand, if you have customers for whom the answers were "false," you have business that is potentially at higher risk. If your customers see themselves as buying a commodity, they probably care most about factors such as price, delivery, and product specifications. They find it relatively easy to change suppliers because their switching costs are low. 

Strategies for protecting your base

The key to protecting against erosion is to focus on how you can increase switching costs and reduce the probability of engaging in unprofitable price wars just to keep your current customers.

  • Look at how customers use your product or service offering. If customers view your offering as a "commodity," consider how they buy it, use it, and dispose of it or re-order at the end the usage cycle. Can you link to the customer's ordering and purchasing procedures?
  • Make sure you are performing at the highest level to meet customer requirements. Consider what other sources of value you are providing. If your customers care about delivery, conformity to specifications, and quality, is your company aligned with how they need and want to buy? Make sure your company is performing in all areas to the highest standards.
  • Make sure the customer is aware of your value. Don't assume the customer understands the extent to which your company is meeting and surpassing their requirements. Arrange a meeting with customer executives to provide an update on what you are doing to help them meet their business requirements.
  • Look for new ways to address the customer's current business issues. Developing innovative approaches that impact business results will differentiate you and your product, and will create unexpected value to the customer's organization. You might be able to improve how you are delivering products or services to help your customers gain competitive advantage in their own markets.

Rapidly changing conditions are affecting your existing base just as strongly as they are affecting prospective customers. Maintaining a keen awareness of your current customers' issues and taking steps to strengthen your relationships can make the difference between falling behind and continuing to thrive.

About the Author

As executive vice president of Wilson Learning, Ed Emde drives sales, marketing, and service strategy in the Americas. To learn more contact: Wilson Learning at 1 (800) 328-7937 or visit www.wilsonlearning.com.

Please note that the Viewpoints listed in CRM magazine and appearing on destinationCRM.com represent the perspective of the authors, and not necessarily those of the magazine or its editors. If you would like to submit a Viewpoint for consideration on a topic related to customer relationship management, please email viewpoints@destinationCRM.com.

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