Distribution Best Practices to Grow Customer Share
- Research from the Customer Service Excellence Report shows that the Best-in-Class Wholesale Distributors and Consumer Packaged Goods (CPG) companies outperformed all others by adopting a subset of programs that accelerated customer revenue growth. The research cited three distribution best practices to increase customer share and company growth were customer affinity, strategic account management and customer lifetime value.
- Customer affinity turns first time buyers into repeat customers and repeat customers into customer advocates. And that makes customer affinity a valuable and durable asset and a proven program to increase customer share.
- Strategic Account Management programs shift selling to existing customers from reactive to proactive, and from random purchases initiated by customers to intentional sales pursuits led by salespeople.
- Customer Lifetime Value is a leading indicator of revenue growth. It's an efficient and highly effective measure of the company's relationship with its customers and indicative of future revenues and profits. Customer lifetime value is influential because even small increases multiplied by the number of customers creates large revenue growth.
Wholesale Distributor and Consumer Packaged Goods (CPG) company revenue is sourced from recurring customer purchases much more so than new customer acquisitions. That makes growing customer share is critical success factor.
But many times, customer engagement programs are born from interesting ideas or inquisitive explorations. Unfortunately, unsupported methods most often lead to trial-and-error pursuits that squander investments and delay results.
A smarter approach is to replicate the customer programs that have been proven most effective by top distributors. Distribution best practices are born from research findings that show what the Best-in-Class leaders (i.e., the top 15%) did to outperform all others.
They are prescriptive recommendations that increase focus, save time, lower risk and show the most direct route to improving customer share.
CPG and Distribution Best Practices to Grow Customer Share
There is no one-size-fits-all method to grow customer share, customer lifetime value and customer revenues. But there are CPG and distribution best practices that share valuable lessons of what works, what doesn't and how to prioritize time and investments for the biggest revenue impact. Here are three of those methods.
Start with Customer Affinity
Customer relationships are extremely influential in growing customer share. However, when the mission of growing these relationships is left to informal methods, the results are inconsistent. To grow customer relationships systemically and at scale requires a customer strategy.
The overarching goal of a customer strategy is to create customer affinity. Customer affinity is important because strong customer relationships are a leading indicator of increased customer purchases, referrals, customer share and retention; all factors that drive significant and sustained distribution company growth.
Customer affinity also delivers lower cost of sales, word of mouth referrals and customer advocacy. Even better, it creates a protective barrier against competitors offering similar products and services.
But achieving customer affinity doesn't occur by happenstance. It's built pursuant to a well-executed plan. The below diagram illustrates the 6 components to achieve this competitive advantage and its downstream revenue and profit benefits.
Despite the benefits, customer affinity research published in the Business Growth Report found that most distributors and CPG companies do not have an active customer strategy. However, those who did increased customer share far more than those who did not.
The research also found the four most used customer strategy frameworks are Customer Relationship Management (CRM), Customer Experience Management (CXM), customer engagement and customer loyalty programs. Each of these customer strategies has overlap with the others but is unique and delivers unique benefits.
Customer affinity is one of only four sustainable competitive advantages and a differentiator that is not easily duplicated by competitors or displaced by new technologies. In fact, achieving customer affinity creates a connection that can withstand disruptive technologies, competitor encroachment and the erosion of other competitive advantages.
Expand Customer Share with Strategic Account Management
Selling to existing customers achieves a much lower cost of sale and higher margin revenue growth.
Research shows the highest growth distribution companies apply Strategic Account Management programs to systemically grow customer share. In fact, the Sales Excellence Report found that distributors with active Strategic Account Management programs achieved 22% higher existing customer sales than those without.
Consider that for a moment. A single business development program that grows existing customer revenues by 22%. That should cause any distribution company sales leader seeking high margin revenue growth to take note.
But the research also found account management programs are easier said than done.
Strategic Account Management (SAM) was most often informal and inconsistent because of a lack of process and supporting technology.
That’s why SAM processes must be solidified in strategic account plans. These plans are long-term sale opportunity roadmaps that provide prescriptive actions to align company solutions with customer growth aspirations over an extended horizon. This brings measurability to land and expand sales strategies.
Applying technology automation can be challenging as few distribution CRM systems support SAM and account plans. However, some CRM applications offer ecosystems of third-party products for this purpose. Or alternatively, something we do frequently with distribution clients is create a SAM page using a new CRM object with a subset of the opportunity object fields. In either case, the CRM system manages the data to feed the strategic account plan and makes highly relevant recommendations for up-sell, cross-sale and bundles.
The highest growth distributors do one more thing.
They monitor their customers to predict and prevent customer churn.
Customer churn prediction and prevention is a game changer for companies that seek improved customer retention. The capability to improve customer retention delivers significant and sustained revenue growth. So, to aid that goal you can use your CRM system to calculate customer health scores and apply AI algorithms to identify customers at risk.
Even better, knowing why customers churn allows the company to fix the causes of attrition and prevent it before it happens.
Grow Customer Lifetime Value
There is no single measure that defines a customer's value, but customer lifetime value comes close.
Most distributors measure customer profit, but that's a historical metric. Customer Lifetime Value (CLV) is a predictive analytic that forecasts future value.
CLV is the present value of the future cash flows earned over the course of the customer relationship. Some present CLV as a revenue figure. Others deduct customer related expenses, such as customer acquisition costs and costs to serve, and present CLV as a profit figure. We typically recommend the later. But either way, this metric is a projection that shows the financial value of each customer to the company.
Many distributors don't act on CLV because they don't calculate it. That's in part because their CRM system doesn't calculate it in the aggregate, by customer segment or for each customer. They are simply without this important information.
Fortunately, adding a CLV measure to each customer record is not a difficult task. However, it should be done pursuant to defining what actions to take based on the value. Here are some guidelines to get the most action from a CLV value.
- Before you can grow customer lifetime value, you need calculate CLV by customer segment and for each customer. Then you can insert this metric to the customer record so it is available for information reporting and workflow processing; and so it can be acted upon. Display this value in the CRM application at the account record.
- Advancing from static to dynamic customer segmentation will result in more accurate CLV calculations. This will also facilitate more precise, timely and contextual marketing promotions, selling recommendations and support services.
- CLV scores will prescribe actions to improve customer value. But these actions require time and investments. Before you invest to increase customer value, apply industry benchmarks to objectively forecast the revenue uplift. This will prioritize investments by ROI and show which investments deliver the most payback. The example below shows how changes in Customer Satisfaction impact CLV and revenue.
- To grow customer value, you should know what customers want and are willing to pay for. Customer intelligence provides the insights to understand customer behaviors, top priorities, decision criteria and what it takes to increase customer share.
In the above diagram, customer intelligence is componentized so it can be easily applied to many use cases. It also feeds the Account Plan for Strategic Account Management.
Customer intelligence can be acquired by harvesting digital footprints and online behaviors. The data can be used to create customer segments, personas and a 360-degree customer view in the CRM system.
It can also be acquired with a voice of the customer program. This type of effort uses mostly digital tools such as surveys to ask customers what they want and records those answers in the customer record. Other sources of data include customer input from social networks, community dialogues, omnichannel engagement and case resolutions.
- Increasing customer share and value at scale is aided with performance metrics that precede or align with customer share. Most customer metrics are stagnant, historical and do not provide the insights to improve customer share and CLV. However, a short list of KPIs frequently leads to the biggest changes.
These leading indicators vary somewhat but generally include Account Engagement Score (AES), Net Promoter Score (NPS), Customer Satisfaction (CSAT) score, customer health score, purchase history (RFM), and online advocacy.
We have also found a few metrics, such as increasing trends in RMAs, A/R aging and Days Sales Outstanding (DSO), that are indicative of future declining customer share. Recognizing these measures early enables preventative actions or swift course corrections.
The bottom line is that Customer Lifetime Value can be used to systemically and predictably grow customer share at scale. It is also effective in recognizing customer relationships as assets, realigning customer focus from short-term profits to long-term lifetime relationship value, and complimenting other customer-centric measures such as customer satisfaction or NPS.
Customer affinity, strategic account management and customer lifetime value are three high impact methods to grow customer share and company revenues.
Other methods include improving customer satisfaction, dynamic segmentation, customer service benchmarking, proactive customer service, customer self-service, customer experience programs, sustainable supply chain, customer analytics and reducing costs to serve to name only a few.
The most helpful methods for any given distributor will depend upon the company's baseline performance and target objectives. These goals should be forecasted and validated with a predictive analytics model.
The takeaway point is that CPG and distribution best practices show how to grow customer share most effectively. They provide prescriptive guidance to forecasted results and share lessons that save time, reduce investment and minimize risk.
If you are looking for ways to increase customer revenues and customer share, we have some options to help.