Progressive Distributor - Choose or lose

Choose or lose

Which customer relationship management (CRM) technology is right for you? You have choices, depending on how you categorize customers.

by Daniel Behnisch

Many managers of distribution companies have recently adapted technology solutions that empower them to solve their business problems while capitalizing on their opportunities. Those who have done this can see which customers are profitable and which are not. With customers clamoring for more services, it is imperative that distributors identify which customers deserve better service and find a way to be paid for it.

This is common sense. Your best customers deserve to be treated better than those customers with whom you are losing money or those who are less profitable or loyal to you.

A distributor can have three kinds of relationships with customers. Each is characterized by a different cost structure and varying degrees of service.

The first is a face-to-face relationship managed by a distributor sales representative. An inside sales representative or customer service representative handles the second relationship at a distance. The third approach entails self-service. The relationship
occurs on a Web site.

Generally, it is more expensive to deploy a distributor sales representative than it is to deploy a customer service representative. And it is more expensive to deploy a customer service rep than it is to offer a self-serve mechanism.

But those expensive distributor sales reps often maintain a closer relationship with their customers. So, distributors need to balance the cost of these three relationship types with the relationship value and with the service level they need to provide certain customers.

Which approach should you use?
Start by segmenting customers into three categories to help you decide how to provide service profitably.

1) Customer acquisition. These are companies that currently buy some or all of their goods and services from your competitors. Your objective is to move these customers from your competitors to you.

2) Customer retention. These companies are your "cash cows." Your objective is to retain them.

3) Customer remediation. These are companies with whom you do little business but have upside potential. Once you have defined customers in terms of these relationship categories, you can decide what level of service each deserves: a face-to-face relationship, a distant relationship, or a less personal relationship characterized by customer self-service.

Each option can be made more helpful to your customer and more profitable to you when reinforced by information technology. The key is to find the right mode of automation for the right kind of customer.

There are four ways to book orders and conduct business with customers: 1) sales force automation; 2) customer service automation; 3) electronic data interchange (EDI); and, 4) customer self-service technology.

Automate your sales force
Sales force automation systems allow distributors to equip their outside sales representatives with technology to manage their customer relationships and, in some cases, to capture the customer's order. This technology can be facilitated with laptop computers, handheld computers or personal digital assistants.

This hardware technology is coupled with application software that can provide the rep with contact management information, calendar and e-mail, order management; pricing/bids, customer profitability, inventory status, product information, configuration management, proposal preparation, customer information, performance reporting, credit management tools and commission management.

Most of this is data replicated from a host computer. The sales rep performs various tasks without being physically connected to the host. At the end of the day, or perhaps throughout the day, the sales representative connects to the host computer by means of a computer modem to upload and download new information.

The benefits are obvious; this technology helps a distributor's representatives with account penetration and empowers them to give customers better information and advice.

Ken Yontz of Sales Partner Systems (SPS), a leading provider of sales force automation, says there are several quantifiable benefits for distributors. For example, a recent customer realized savings of $1,100 per year per distribution sales representative by reducing daily phone calls. And, by reducing the number of product returns due to damaged goods, the distributor realized savings of $1,500 per year per rep.

This isn't just about savings; it's about expanding your customer base and increasing customer retention. These sales force automation tools enable your reps to provide better customer service, process more orders and spend more time with your customers.

Automate your customers
Customer service automation provides most of the same resources as sales force automation. But with this option, customer service representatives are generally able to work with real-time, host-based information rather than replicated information.

Customer service representatives need functionality for the same activities as distribution sales representatives. Fortunately, most business management systems or enterprise resource planning (ERP) systems offer integrated, real-time access to order entry, credit management and product information. And there are other
on-line customer service technologies. You may have heard about telephony-based applications designed to support telephone-based sales or catalog-based sales.

The primary difference between an inside sales relationship and an outside relationship is the cost to support customers. Customer service reps generally are a more affordable option, but they may not be able to establish the same kind of personal bond with the customer than an outside sales rep can.

Try EDI
Some customers prefer to transmit orders via electronic data interchange (EDI), a technology that enables their system to communicate electronically with your own, even if you and your trading partner use disparate systems, software and architectures.

In the past, distributors thought EDI was expensive and difficult to
implement. Much of the expense was attributed directly to transaction fees charged by value-added networks. Today, EDI is
growing in popularity because transaction fees can be avoided by leveraging the Internet as the communications transport mechanism.

In addition, the growth of the Internet has spawned a number of new application software solutions designed to reduce transaction costs and increase communications efficiency. These new solutions connect trading partners through the Internet so distributors no longer need to hire expensive information technology resources or consultants to facilitate the relationship.

Empower your customers
The fourth option available to distributors is customer self-service. Many distributors place their product catalogs on their Web sites, providing accessibility to customers who have access to the Internet. Often, distributors enable customers to enter orders on these Web sites. Others make their inventory status, order tracking and pricing available also.

This is a significant development because relationship costs can be sharply reduced if customers become more self-sufficient. Some distributors object to self-service, saying, "Not with my customers."

If you're one of them, try to remember the last time you didn't pump your own gas at a service station. If you are like most people, you opt for lower gas prices rather than pay the full-service price for the luxury of having an attendant fill your tank. Doesn't it seem reasonable that some of your customers might prefer a lower cost vs. the extra service you provide?

Mike Skinner of Pembroke Consulting in Philadelphia predicts that cost reduction opportunities and the convenience of Web-based purchasing in many lines of trade will eventually overwhelm any resistance to change.

"Two factors currently stand in the way of the oncoming revolution in channel partner interactions," Skinner says. "First, most companies do not yet understand the Internet and its potential to automate business transactions and the flow of information. Customers today are maintaining the status quo whenever they pick up the phone to place an order or check order status.

Second, Web-based purchasing solutions do not yet utilize the full functionality of available technology.

"As these applications are developed and standardized, purchasing and procurement will shift rapidly to the Internet," he says. "Providing product and pricing information as well as other value-adding services online will become a requirement of entry into most trading relationships."

Right relationship, right customer
It is important that distributors recognize there are many different technologies available to improve customer service and enhance the profitability of customer relationships. It is in your interest, for example, to make relationship decisions based on activity-based costing or activity-based management data, rather than anecdotal evidence.

It can cost a distributor $75 to $300 to have a representative make a face-to-face customer call. Consequently, it is vital for distributors to effectively determine which customers need personal contact and which customers might be effectively served by a customer service representative or a self-service Web-based
relationship.

You may be surprised to find that, in many cases, your most profitable customers may prefer dealing with you via self-service Web-based methodology. So it is important that you not make any sales coverage assumptions without further investigating your customer's needs.

Daniel Behnisch is solutions manager for wholesale distribution, IBM Americas.