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.

Invest in Expanding 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 took a serious look at the loyalty of your current customers? Have you earned that loyalty by consistently focusing on how to deliver value with each meeting? 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 price cutters, and continue to expand your business, even in these hard times?

The first step is to reassess your relationship with each of your major accounts and determine how likely they are to consider changing 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 true-or-false questions:

1.  Our products/services are critical to how the customer does business.   T or F

2.  Our products/services are interconnected with the customer’s business processes or procedures.   T or F

3.  The customer has invested in lasting assets (equipment/products) we provide.   T or F

4.  Price has not historically been a primary concern in this relationship.   T or F

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

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

If you answered “true” to the above questions, you are fortunate in having strong relationships with customers who will experience high “switching costs” if they consider 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, as well as 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, even they may feel forced to make that choice if they are downsizing or under strong pressure to find lower-cost long-term solutions.

On the other hand, if you have important 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 of your existing relationships 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? These kinds of links can be developed with any customer, whether their current switching costs are higher or lower.

• 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 and concerns.  Developing innovative approaches that impact business results will differentiate you and your product or service, and will create unexpected value to the customer’s organization.  Perhaps your company can offer financial arrangements that will provide a solution to a cash flow problem. You might be able to improve how you are delivering products or services to help your customers gain competitive advantage in their own markets.

Consider this: 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, even in the current hard times.