First, let’s kick-off by defining what a Customer of Choice actually is. It is, simply, a company which, through its practices, positions itself to receive the best access to ideas, resources, and innovations from its suppliers. It’s a company acting in a way which will get it chosen as a Key Account.
Benefits of customer of choice status
Marco Nink, senior consultant at Gallup Management Consulting, points out that there are 5 main benefits to having improved supplier relationships and being recognised as a Customer of Choice:
- Higher quality. Your supply chain contains less waste or rework.
- Improved planning. You have greater access to more accurate forecasts, or more on-time delivery.
- Improved product development. Suppliers give you access to the latest innovations.
- Greater support and value. Suppliers provide you with greater resources and provide beyond-contractual support.
- Lower costs. There are lower transaction costs, reduced price per piece, and a lower cost of doing business.
These are all great wins within a buyer and supplier relationship, and could be crucial to the overall success of a businesses. But David Rae, of Procurement Leaders, reveals that when the audience were asked, at a Procurement Leaders Masterclass in Singapore, whether they considered themselves good customers only 3 out of 100 delegates raised their hand. But if we don’t consider ourselves good customers, will our suppliers? So why, despite all the benefits, are we missing out on the opportunity to become Customers of Choice?
It may be because we’re misunderstanding how exactly companies pick their Key Accounts. Traditionally buyer-supplier relationships were dictated by money. The more a company spent, the better they were treated by the supplier. This doesn’t hold true anymore. As I’ve discussed before a price-centric focus is one of the biggest frustrations for Key Account Managers. Well now people are beginning to recognise that a focus solely on cost is short-sighted, and deters from overall value creation. Suppliers are more likely to prioritise a company whose views on overall value are aligned with theirs. Now money isn’t the only thing we should consider when attempting to become Customers of Choice.
So what should we consider? In their book, Key Account Management: The Definitive Guide, Malcolm McDonald and Diana Woodburn highlight 3 elements which are prioritised when companies select key accounts.
Three customer of choice priorities
- Financial Outcomes. Companies will consider past and present income streams, as well as the potential for superior revenues and profits. They will also, most likely, consider ‘wallet share’: it can cost 5 times as much to capture a new customer than it does to deepen a relationship with an existing one, so companies often err on the side of keeping a customer rather than winning a new one.
- Customer needs. Does the supplier’s vision, and objectives, align to the customer’s needs? These can be things such as having compatible technologies, to sharing global growth plans. Suppliers may also consider the extent that they will be viewed as a ‘trusted partner’. Will the relationship be equal, and mutually beneficial? The length of the relationship, and the number of competing suppliers are other determining factors here.
- Customer attributes. The supplier may use behavioural signals and attributes of the customer to signal whether the ‘trusted partner’ status is a reality. The attributes they’re looking for are an openness to ideas, a willingness to collaborate and pay for value, access to customer executives, brand and market share and efficient decision making.
Financial outcomes are, of course, still relevant when selecting key accounts but, as Diana and Malcolm’s book shows, overall value is a key priority for suppliers. Instead of a focus solely on cost-reduction, suppliers are thinking strategically. They’re considering their stakes in the relationship, and whether they are considered a ‘trusted partner’. Mutually beneficial collaboration is being heralded as a priority, and everyone is focused on overall value creation, and how it can be reaped through SRM.