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Know your limits

Maximize profits by matching service level to customers

by Frank Hurtte

You don't have unlimited customer service. To those of us who live in the distribution world, this concept probably seems strange. Most of us understand limitations on physical things such as phone lines, warehouse space and finances. A few of us have come face to face with the concrete fact that there are a limited number of hours in the day. Yet in our zeal to excel in the competitive landscape, we fail to realize how these same limitations affect our ability to provide unlimited customer service.

The hard, cold truth is, customer service is a limited commodity. What's worse, we relegate its allocation to employees who lack the skills and training to properly understand its value. Think about your inside sales and customer service representatives. Every day they make dozens of critical customer service decisions. They react to customer requests and allocate a precious commodity, your customer service. Some of these customers are critical to your business success. Others drain your profitability.
Optimal intersection of customer service and profitability revolves around three important points:

  • What does the customer really want?
  • What does the customer need?
  • What does the customer deserve?

The first two are elementary. Understanding them eliminates waste in the customer service pipeline and builds your value proposition with customers. But the final concept of what the customer deserves is fallow ground for the vast majority of distributors.

What does the customer want?
Sometimes we confuse our ability to deliver service with what the customer actually wants. We've all heard the old axiom, "Exceeding the customer's expectation" until we're blue in the gills. Forget this 1980s drivel; delivering more than the customer really wants is wasteful, irritating and contrary to our goal in customer service.

To illustrate this point, allow me to share a story from a trip to Latin America. My wife and I were driving through a remote area of the Mexican countryside and decided to detour into one of the picturesque roadhouses that lined the narrow mountain highway. Our goal: a quick cerveza and snack. We hoped to spend a half hour relaxing and then resuming our trip.

As we walked into the scenic spot, the owner of the establishment was excited to have a couple of Americans frequent his place. And, he ceremoniously rolled out the red carpet. But soon a customer service breakdown occurred. Instead of the short stop we hoped for, we were treated to a five-course meal. Two hours later we were still using every gesture in our (non-Spanish speaking) vocabulary to politely extricate ourselves from the situation. The result: great customer service turned into a customer service nightmare. The delay forced us to drive down some pretty iffy roads after dark.

Similar situations occur in our world. An angry customer once explained how early shipments created expensive issues for their receiving and warehouse departments. In their zeal to exceed customer expectations, our inside sales group had actually created customer ill will. Adding insult to injury, the early shipment had required extra handling, phone calls and a quick turnaround in the warehouse.

Machismo of the sales department costs distributors money. Salespeople want to demonstrate their superior performance, whether it comes in the form of more inventory, faster delivery or easier location of hard-to-find parts. Plus, this attitude spills over to human resources like specialist time, troubleshooting assistance and after-hour deliveries. They often miss an important point, which is what the customer really wants. If the customer doesn't want "super-duper" next day service, it's a waste of money for you. While it feels good to puff your chest and blow on about whipping the competition, this stuff doesn't really add value.

Think about this. Our experience with distributors all over the country indicates customer service reps often have a perceived standard of excellence for customer delivery dates. If the customer doesn't say they need it tomorrow, the person entering the order defaults to
whatever their perception might be. Often it's a week, sometimes it's sooner, whether this aligns with the customer's wants or not. A deep dive into the specifics of order history turns up many absorbed freight charges, internal expedites and vendor phone calls to provide the customer with something they really don't want. Call this what you like, I call it wasted dollars.

What does the customer need?
Problem solving and customer service walk hand-in-hand down the twisted path of distributor loyalty. In our world, customers often depend on our teams to help them discover exactly what they need. Call it problem solving, application support, troubleshooting, solution selling or whatever, we provide it. This is an important ingredient in our recipe for value. When sold properly, distributors create a thing of beauty.

As our customer intimacy grows, we develop the ability to help anticipate issues. Think of this as recognizing needs. We move from the logistics and transaction of "the sale" and launch out on a proactive journey which may take us to places the customer may not completely understand.

We remind the customer of ancillary items required to make a larger piece of equipment work, suggesting items that assist in avoiding downtime, lost labor or other extra expenditures. The review of premature failures by our technical staff steers the customer to a better and more workable solution. By monitoring customer behavior and providing training suggestions, we work toward advancing the customer. All of our efforts circle around an environment of satisfying customer needs and creating value. But an important point remains: does the customer understand the intrinsic value of your efforts? Each need is associated with a measurable monetary value.

Research indicates our technical contacts in engineering and maintenance do not have the skills to recognize the monetary value of our customer service work. The best way to maximize the value of customer service is to understand its true value to the customer. Failure to do so results in wasted efforts.

What does the customer deserve?
Allow me to be painfully blunt. Some of those people you call customers don't deserve your best customer service. According to the financial guys who slice and dice distributor cost figures, about half of your customers consume more gross margin dollars than they produce. They're negative profit. Others are price shoppers; when faced with a purchasing decision, they dwell on great customer service for a nanosecond then buy from the guy with the lowest price. Not all customers are created equally and not everyone deserves the same level of customer service. We need to make decisions about what level of customer service our customers deserve on a multi-tiered basis. The differentiation needs to start at the front door. Here's why:

Pretend that you're the sales manager at a distributor in the very heartland of America, Iowa. The phone is ringing, Farmer Joe is on the line, and he needs help. You're still operating on the Mr. Nice Guy mentality and, after exchanging some words with the receptionist, Joe is transferred to one of your best inside salespeople. Joe's a swell guy and he does buy from you once in a while (heck, the margins are even respectable). So, while your salesperson dishes out a hearty platter of great customer service, your best customer calls in requiring assistance on a big project. But that person gets put on hold for a very long time. Suddenly, service is a rare commodity and Joe got more than his share.

And, what about that price-only customer? No matter what you do, their purchasing department will buy from the distributor with the lowest line-by-line price. They, too, may be sucking the life's blood from your profit vein. Do they have the same return privileges as your best customer? According to statistics gathered in a multi-discipline study, it costs nearly eight times as much to process a return as an order.

Now the cold, hard facts: not every customer deserves our great service. Equally important to realize, salespeople and customer service types don't automatically understand this point. Their very DNA pushes them to serve up a giant plate of steaming hot customer service to everybody who crosses their path. It's our job to set some kind of guidelines.

I suggest a tiered customer service plan. Some customers will get almost no customer service; others will receive the whole enchilada. The plan will outline who gets which services and the conditions for expanding the types of services they receive. The list will be reviewed every six months and customers will be moved forward or back based on their business.

Here is a quick 10 to get you started:

  1. Return privileges
  2. Special-order/non-stock processing
  3. Back-order processing
  4. Delivery via your truck
  5. Credit terms
  6. Free technical support
  7. Free warranty processing
  8. After-hour service
  9. Low minimum order size
  10. Assigned inside sales/customer service rep

Finally, everyone deserves to be treated with respect. We're not talking about rude treatment or abusive behavior. Someday we'll live in a perfect world where every customer recognizes our value and bases their purchase decisions on the mix of services we provide. Until then, not everyone deserves our best.

Frank Hurtte


Frank Hurtte, founder of River Heights Consulting,
brings 28 years of distribution industry experience
and a lifetime in sales. Reach him at (563) 514-1104


This article originally appeared in the Nov./Dec. 2011 issue of Industrial Supply magazine. Copyright 2011, Direct Business Media.


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