Stick or Twist?

Last month I talked about ‘creative dissatisfaction’ and it being a driver of positive improvement.  Does improvement necessarily need to be a binary choice of “Out with the old and in with the new” or is a more subtle approach required?  

The need to grow revenues so often drives a company to seek new customers.  But there are many comparisons that show investment required to win customers is many times higher than that of keeping them.   Depending on which set of analysis you believe it can be anywhere between 5 and 25 times more expensive to win a new customer than retain an existing one.

Research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) shows that increasing customer retention rates by just 5% can increase profits by 25%-95%.

Finding and winning new customers is tough.  That doesn’t mean that keeping and growing them is necessarily easy – but there are undoubted benefits in not losing sight of the value of the customers you already have.

Of course in the real world it isn’t always that easy.  Given the option to choose more customers or existing customers spending more for longer, most business leaders would opt for ‘both!’.  

The new vs existing debate is very similar when we look at the way companies deal with their suppliers.   

We need to save money, improve service, enhance products.  A change is needed.  But it’s worth considering whether this really needs a new supplier?

Change can be good, it can freshen things up.  But change can hurt.  Change for change’s sake is not a good thing.

It’s a challenge I often make to clients. You want to improve – but you have a good supplier already.  Why not work with them rather than taking a chance on somebody new? There may be good reasons for looking outside but it’s worth answering the challenge objectively.

There are many benefits to retaining them.  It’s faster, it’s lower risk, it avoids teething problems and the existing supplier often has lots of good ideas that just haven’t been tapped into (something I’ve talked about before in ‘Beyond the Transaction’) .   

Very often the supplier is delighted to have the opportunity to review the relationship and has much to bring to the table.

How this is managed is vital.  It can seem easier and faster for the business to carry out a ‘market review.

But it could be better to have what may seem a difficult conversation at the outset.  Rather than throwing everything up in the air and seeing where it lands, set the supplier a challenge.

This is where an objective third-party can add value.  In our work as  consultants it’s much easier for us to broach a difficult subject with a supplier – for example challenge the commercials – whilst leaving the business to maintain good relations at an operational level.   Conversely it can also be easier for the supplier to open up without fear of compromising relationships or over-selling.

Change is a big decision – so don’t gamble.  It requires a balanced view of options – which needs a degree of objectivity.  A fresh pair of eyes and somebody to play “devil’s advocate” with you and the “bad-guy” with your supplier) is often exactly what is needed to create renewed stimulus for improvement.