How Productivity Programs can drive growth at Mid Tier customers
Ask any senior Key Account Director at a B2B supplier to summarize how they retain their strategic customers, they will proudly run through a list of tools and processes they use based on training, the market they operate in and their experience. Amongst that list of tools will likely be one called a Customer Productivity Program.
In its simplest form, a Customer Productivity Program is a commitment between supplier and client to reduce the overall costs of the customer over the life of the contract. Preferably for the supplier this does not include reducing the price of its products. This approach is well known and well proven, once the contract is signed the work on the program begins immediately to draw the customer in to a working partnership which if it is well executed will benefit both parties over the life of the contract. By the time the next contract discussions begin the relationship will be deeply entrenched and the risk of losing that customer to a competitor is significantly reduced.
Such programs are commonly found at a suppliers largest strategic accounts. For pretty much all of a company’s smaller customers however, such programs are usually missing, competitive advantage efforts are focused more on attracting or retaining customers at the moment of contract renewal or tender, perhaps with attractive pricing, a new product launch or promises of better service in the future.
If the benefit of customer productivity programs is so well accepted, why is it reserved only for key strategic accounts?
A Customer Productivity Program requires a lot of resources over a long period of time to be successful. This includes people across multiple functions and skill sets that may not otherwise be brought in front of a customer directly. Because of this, most company’’s that employ Productivity Programs with their strategic customers deem it not cost effective, or even necessary, to apply the same focus and resource to smaller customers.
The importance of Mid-Tier Customers
if we take the next segment of customers, the so called mid tier customers, is there an opportunity to differentiate here by applying existing Productivity Program tools? Does it make sense and if so, why is no one doing it?
Your mid-tier customers are those who fall between your largest strategic customers and the smallest customers in terms of revenue and size. They may not generate the most significant revenue individually, but collectively, they can have a substantial impact on your bottom line. Some of them may be up and coming future strategic customers or they may stay in the mid tier. You will likely have dedicated resources focused on your largest most important strategic customers. It is not uncommon for mid there and smaller customers to get grouped together in the same bucket, which can be a missed opportunity.
It is our belief that there is untapped growth potential to be gained by applying the thinking of Customer Productivity Programs to your mid-tier customers.
Many mid tier customers will not be getting the level of attention that collectively, they likely expect from their suppliers. If they are growing fast, perhaps by acquisition, they may expect to be getting more resources focused their way. The supplier that recognizes this and captures it, is more likely to be the winner.
The Power of Customer Productivity
Customer productivity programs take many forms. All such programs have a few traits in common - a supplier and their customer working together to ensure the customer is able to use your products or services more effectively and efficiently.
To break it down simply, you jointly look at some proposed projects that can reduce the cost or improve the efficiency of a process at the customer, agree a plan how this should be measured, changed, tracked and the value captured, then agree to recognize the value that has been created as a result.
In most cases this will be related to the product that the supplier provides although this is not a hard rule, the Customer Productivity Program does not have to directly address the product or service that is being supplied. When two large company’s work together they have common objectives that fall outside the scope of the buy/sell relationship they share. They will both have sustainability goals, waste reduction goals, development and Capex budgets. Shared learning between them can support both party’s objectives and benefit both organizations to achieve their goals faster, more efficiently, or at a lower cost.
Examples of productivity programs can include:
Optimizing pack sizes to reduce packaging consumption / cost.
Implement structured ink room management to reduce wastage consumption / cost.
Tracking curing oven temperatures to ensure coatings are cured efficiently at lower overall temperatures or faster line speeds, driving reduced energy consumption/ cost.
Optimizing freight routes and frequency to reduce overall freight cost for both parties.
Improving consistency of coating coverage while achieving the end use specification targets to allow reduced film weight and coating consumption / cost.
Sharing sustainability learnings, waste reduction programs, factory emissions reduction and benefiting from shared experiences and ways of working.
Improved sales success rates in a specification market where both supplier and customer are jointly involved in a sale (relevant to distributor business models).
Customer productivity programs like these examples bring to a customer relationship the ability to apply resources to reduce their cost of consumption at minimal resource investment to the customer.
What are the risks of Productivity Programs?
Risks are limited and are far outweighed by the benefits.
For the supplier the two risks are additional resource allocation and, in the case of programs focused on product consumption, potentially lower sales volumes. The logic being, a program that reduces consumption by 2% effectively means 2% lower sales. This should not be a barrier; lower short term volumes with a successful program will lead to more secure longer term business and should avoid the need to reduce prices when under competitive pressure.
For the customer, the risks are limited to resource allocation, as resources are needed from both parties to be successful, if not successful those resources are effectively a sunk cost.
Conclusion
We see it like this: If you are running Customer Productivity Programs with your large strategic accounts, you already have the tools and processes in place. You will have seasoned account managers who are familiar with the process steps, and how to leverage the benefits. Bringing some of your mid their customers in to the same process requires minimal additional focus and very little additional resources, if any. It also allows some of your less experienced account managers to start to build the experience with your mid tier customers.
From a customer perspective, bringing this proactively to a mid-tier customer, especially one that is growing, is going to clearly demonstrate your commitment to them through your willingness to invest resources in the relationship. They may even be flattered that you are seeing them as a future potential growth customer.
While this may sound basic, in most B2B consumable industries many key account tools such as Customer Productivity Programs are reserved for the strategic accounts only. It takes a step to decide to bring the processes and benefits to mid-tier customers, and requires some rigor to ensure that it is a defined group of customers only so as to limit scope creep, but the competitive advantage that this approach brings will have significant benefits to your success in the market.
The purpose of this post is to share some of the experiences we have either as an independent consultancy or during 30 years leading teams at global corporate and private equity companies. If you would like to know more about how Customer Productivity Programs could help your success contact us here for a no obligation confidential discussion.
Julian Cass
November 2023
This blog post represents thoughts based upon our experience and observations. It is written to be thought provoking and not intended to be acted upon directly. If you would like to discuss your specific scenario or would like to know more about how we can help with industry expertise contact us here
