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the channel win in the age of michael
dell?
By Jim Carey, Core Strategies
I'm your worst nightmare.
A business owner, with money to spend,
who has lost faith in the channel. What
are we going to do?
Ugly, but True stories:
The business needed laptops. We called
a big reseller (we're loyal, you know).
After a while, we were able to get configuration
and pricing, and asked how we could lease.
"No problem. I'll have my finance
guy call in a couple of days." Sure.
We thanked him, waited 30 seconds, and
called Dell. Twenty minutes later, the
deal was done. Better boxes, better price.
No muss, no fuss, lease approved. Three
days later, we were up and running. A
new customer was won. Two days later,
the finance guy from the reseller called.
Now, we're loyal, but we're not fools.
I also have a real life. My occasionally
adorable children prevailed upon me to
buy an iMac. Either Blueberry or Grape.
(I suggested plaid, they were not amused.)
On a Friday night, we all went to the
world's biggest computer retailer (you
know who you are) prepared to slap plastic.
We (my 12-year-old son) knew exactly what
we wanted. I walked into the Mac department
and tried to get help. It was easy money,
"Wrap it up, I'll take it."
Ten minutes later, I was able to get
someone to pay attention to me. He didn't
know the actual chip speed, so my son
helped by pointing to it on the box. I
told him exactly what we wanted, and asked
a question about compatibility with existing
peripherals. A stumper. I asked about
the cost of upgraded RAM. He pointed to
the service department across the store.
I went over and asked. They told me they
didn't have the chip I wanted, but they
could give me a smaller one. They also
wanted $40 to plug it in. To end the pain,
I agreed. Service paged the Mac department
to come and take the order.
After ten minutes of pleasant conversation,
with no response to the page, I walked
out of the store. (It was almost time
for Nash Bridges.) We drove home, and
I called MacWarehouse. They knew me, and
how much I had bought through the years.
(I'd spent as much at the store, but they
treated me like I was in Witness Protection.)
Because MacWarehouse knew my value, they
also knew to waive the RAM install charge.
"We'll do it for free." Done
deal. Slapped plastic. Picked, packed,
on the truck. And I'm a hero to my kids,
and still watched Don Johnson.
And the channel hasn't just blown a deal,
they've lost a customer. With a big mouth.
You know they say if you make someone
happy, he'll tell three friends. But if
you burn him, he'll tell everyone. Here
I am.
Being Direct, Beating Direct
What do we do? My heart is with the channel,
even if my brain still has problems. What
can we learn? How can we win in the age
of Michael Dell?
I feel a little like the fox in charge
of hen house security. Because, you see,
I'm actually a database marketer. Have
been for twenty years. We used to call
disintermediation "mail order."
Same thing. I'm also incoming President
of the Chicago Association of Direct Marketing,
and I teach direct to grad students at
Northwestern University.
And I'm here to breach security and to
tell you how direct marketers think, what
the channel's new advantages are, and
how to beat direct.
Seven Customer Winning Strategies
In Northwestern's Integrated Marketing
Program, the mantra is "customer
centric, data driven." That's a formula
that the channel should use.
Sun Tzu wrote in The Art of War that
winning is about choosing the circumstances
of battle. There are places where the
channel won't win today. We need to recognize
that, and not play there. But we can also
deal with the new reality, learn some
new tricks, and pick fights we can win.
Here's how direct marketers win, and
what we can do about it:
1. Choose Your Customer. Good direct
marketers constantly analyze their customer
base to understand the characteristics
of a winning relationship. It could be
company size, location, platform, application,
or industry. And it's pretty tightly defined,
better than "businesses on earth."
Then, they turn this understanding into
action. They allocate sales and marketing
resources heavily to these potential best
customers. They know that they are far
better off reaching one company effectively,
than 100 companies ineffectively. They
know that unless they break through the
clutter, all their efforts are wasted.
So they choose their target customers
carefully. Then, they develop coordinated
product offerings and communications programs
to turn that choice into reality.
Certainly, we can do that, too. Choose
your customers, and win them.
2. Know Your Customer. Direct marketers
know every time I'm in their "store."
They know when they've reached out to
me, and when I've responded. And the data
is organized so the people who touch the
customer can understand the whole relationship.
That way, when I call I'm not treated
like I'm in Witness Protection. I like
that.
What can we learn, given the channel's
different structure? It's part business
practice, part IS infrastructure, and
part operating philosophy.
First, it requires asking a lot of intelligent
questions. What business are you in? How
many people do you have? What are your
plans? How can we help? People will give
you information if they think it's in
their best interest. You can ask politely,
reward them for answering, and make clear
that the more you know, the better you
can serve them.
Second, it requires an overall system
of data capture and management so the
knowledge of the customer can be accessed
by everyone who needs it. It's not just
out in the field on Palm Pilots. It's
at the fingertips of the people who can
make your customers happy.
Finally, and fundamentally, everyone
in the organization needs to know that
the customer is at the center of the organization
chart. Despite individual specialties,
if everyone isn't in the business of winning
and keeping customers, some day no one
will be. It's that brutal. That's what
your direct marketing competition does,
and your customers have a lot of choices.
3. Value Your Customer. Your inventory
isn't an asset, it's a cost center. The
same is true for everything else you can
touch.
Your only real asset is your customer,
and their continued investment in you.
Direct marketers know that getting customers
costs money. Keeping customers makes money.
Which customers are worth the investment?
Because the entire customer relationship
is tracked, they can track the "lifetime
value" of the customer. Not just
expenditures, but also the profitability
of the relationship. This allows them
to make intelligent projections of future
profits.
If we allocate all our costs properly,
we find that most business make all their
profits on a small proportion of their
customers. The rest break even, or cost
them money. No surprise, it's the 20/80
rule.
Cataloguers use an analytical tool called
"R/F/M," for Recency of purchases,
Frequency of purchases, and Monetary value
of purchases. They analyze these three
factors to drive their marketing strategies,
and establish benchmarks for pricing concessions
and upgrades.
That's why Mac Warehouse knew to give
me the free RAM upgrade, and the retailer
didn't.
This knowledge helps them allocate resources
better than you can. Less waste means
lower costs for the buyer, but still higher
profits for seller. And you're in trouble.
What can we learn? A by-product of the
structure to know your customer is the
data to evaluate the present and future
value of your customers. Figure it out.
You don't need to be exact, but four or
five customer value segments would be
a great start.
Your future depends on your ability to
identify the profitable 20%, and making
sure that the other people who are after
them don't get them. Make it happen, or
lose money.
A random thought: How would we treat
our customers if they way they felt about
us showed up on our P&L? If we could
track whether their potential value to
us was increasing or decreasing? Because
that's the whole game. If our customers
walk, we can close the doors.
4. Serve the Whole Customer. Direct marketers
know that previous purchases are clues
to future needs. Lands' End knows when
I buy a dress shirt, they should offer
me a tie. It's the mail order equivalent
of, "Would you like fries with that?"
at McDonald's. And the upsell is where
the serious profits are.
But the vulnerability of most "manufacturer
direct marketers" is that while they
may have "shirts" they don't
have "ties." That is, they don't
have the full range of products and services
I need. Michael Dell can never meet my
datacom, ISP or in-house training needs.
We all know that value-added services
is where the action is. You can't make
money on hardware alone. But what customers
really want are solutions Ñ which
are generally combined product and services
offerings. The channel is best positioned
to meet that need.
System integration, on site support,
supplies and other consumables, consolidated
billing, and eliminating other customer
hassles are all places to win. Dell can't
do it. You can. But you can only do it
if you focus on the whole range of customer
needs, rather that pushing products out
the door.
5. Communicate With Your Customer. Direct
marketers determine the frequency and
intensity of communications based on my
potential value to them. If they think
I'm worth a lot, I'll hear from them a
lot. And they'll want to hear from me
a lot.
A good direct marketer will leverage
his knowledge of the relationship to try
to offer me the right products and services
at the right time, at a good price. And
they'll use communications that are far
less costly than a field sales force Ñ
mail, phone, and (increasingly) e-mail.
And I may hear from him ten times as often
as I hear from you.
What can we learn from this, and how
can we win?
We can certainly use the tools of direct
marketing without switching to the direct
business model. New technologies allow
us to develop personalized communications
at a fraction of the previous cost.
You can outsource customer care calling,
license e-newsletters to send to your
clients, give customers Web pages showing
approved product configurations (like
Dell does), and use digital printing to
send high quality messages, personalized
on a individual basis.
And it doesn't need to be a straight
sales message, just something to keep
the relationship vital. Your goal is to
be the "go to guy" for your
customer's needs.
What should we say? First, do what your
mother suggested. Say, "Thank you."
Second, say that we care about you, and
we want to help you solve your problems
and grow your business. Third, offer help.
Give them a tip or tell them something
they need to know. Finally, ask for feedback.
What's working? What's not? How are we
doing? What else would you buy from us
if we could deliver it well?
There's no magic formula, but you will
never find information that you're not
looking for. You have to ask. The feedback
is priceless.
You should also reach out to the whole
customer company. Remember the sociology
of corporate buying. There are many influencers
Ñ technical, financial and end-user.
You need to reinforce the value of your
relationship with each, in terms relevant
to each. Talk ROI to finance, compatibility
to technical specifiers, and ease of use
to end-users.
It's also cheap insurance. With the
turnover in Corporate America today, relationships
can be lost simply because the key contact
left, and the new guy didn't know you
were out there. Start planning for that
transition now.
Most of this is about a commitment to
listen, remember, understand, and act
on your customer's behalf. This can ensure
that your customers keep you "top
of mind," and that they know that
you want their business. You know these
things. Put them into action.
6. Delight your customer. It's terrible
that our service expectations are so low
that we're happy when someone just picks
up the phone. And actually pleased to
hear someone say "please" and
"thank you" and mean it. But
the acid real test is, "What can
you do for me that will surpass my expectations?
What will amaze me?" That turns me
from a customer into a fan.
L.L. Bean turned me into a fan when they
called back after my order to make sure
that I wanted a shirt with an extra long
tail, because the three previous times
I ordered the same shirt, it had a regular
tail.
Sadly, the ravages of time did necessitate
the long tail, but the very fact that
they noticed and cared knocked my socks
off.
These experiences aren't exclusive to
direct marketers (although I think they
pay more attention to it than others).
A guy at Home Depot walked me 12 aisles
to help me find a $2.00 container of hand
cleaner. I was so amazed, I felt obliged
to buy two. But it wasn't just the extra
two bucks, it's that now they've won me
for a customer. I always go there, and
I feel good about it.
And they inoculated themselves. They'd
have to seriously screw up to lose me.
How can we do this in our business? It
starts with an understanding of the customer.
It goes beyond that to challenge us to
be creative.
What would be unique, meaningful and
fun? What will help customers think what
we want them to think? What's a dramatic
demonstration of our value to them? Years
ago, FedEx sent customers five pound barbells
to spotlight their small package service.
I had one on my desk for years.
The goal of marketing is to be impregnable
and to be so strongly positioned that
a competitor's approach to your customer
is dismissed as silly. We want customers
to think, "Switching would be the
stupidest thing I could ever do. I've
already got my guy." Let's delight
them into thinking that.
7. Keep Your Customer. Accountants don't
know how to quantify customer loyalty.
Trust me, it's priceless.
Direct marketers knows that the "house
list" of loyal customers responds
20 times better than a prospect list.
They invest more to protect these relationships,
and they watch "customer evolution"
carefully. Is the customer buying more,
or less? The same product mix this year
as last? Did they renew the service contract?
Are they still getting supplies from us?
Is the relationship growing enough to
be healthy? When was the last time we
heard from him? What is our "share
of wallet?"
They also watch carefully for, "the
dog that didn't bark," things that
should have happened, but didn't. If the
customer always buys four times a year,
but not in the last six months, they'll
reach out.
They know it's far cheaper to win back
an old customer, even after he's defected,
than to acquire a new one. You'll see
evidence of that yourself if you've ever
switched long distance companies.
What can we learn from the direct marketers?
First, it's actually hard to invest too
much in customer loyalty. I'd rather risk
wasting marketing dollars in customer
loyalty, than under-investing and losing
customers. Second, I'd not only watch
individual customer transactions, but
also the pattern of transactions over
time. Third, if I don't hear from them,
I let them hear from me. If I've lost
them, I want to know why. And I want them
to know that I want them back.
Good direct marketers want to get and
keep profitable customers for life. To
accomplish this, they've overcome the
inherent disadvantage of distance by understanding
customers, and learning how to serve them
well and profitably, even if they're far
away.
The challenge for the channel is to build
upon their inherent advantage of customer
intimacy, and to integrate the thinking
and the tools of direct marketing to maintain
and increase their value to the customer.
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