To identify, capture, and rank the crit- ical differences in a distributor’s vari- able customer core, developing de- tailed profiles based on the intrinsic values of each customer can prove to be invaluable. In the Harvard Business Review article “Business Marketing: Under- stand What Customers Value,” James Anderson and James Narus contend that the amount a customer is willing to pay for the benefits a vendor offers has two basic characteristics: value and price. Inherent in their proposi- tion, however, is that “raising or low- ering the price of a market offering does not change the value that such an offering provides to a customer. Rather, it changes the customer’s incentive to purchase that market offering.” Additionally, they point out, “there is always a competitive alternative.” The inducement to pur- chase the products and services that the distributor offers must be greater than the customer’s next-best value option, but there is no universal defin- ition for value.
Customer Value Models Just as end-users must determine the value of the products and services offered by an electrical distributor, the distributor must also place a value on each customer. Although it seems logical for a distributor to identify and satisfy each of its customers’ “value” components, it would be impractical to attempt such a task for every ac- count. Rather, it would be more prac- tical to build a few value models that represent major customer seg- ments (contractors, manufacturers, commercial building management firms, etc.). Formulating such models initially requires defining prevailing wants, needs, and characteristics of typical players in each category. For that rea- son, it is generally more useful to start with a segment best understood by the distributor. In the beginning, knowledgeable
teams within the distributorship— employees who have constructive insight of the sector that is under review—consisting of anyone who comes into meaningful contact with the specific targeted segments (e.g., contractors, hospitals) should be con- sulted. To properly identify and define all relevant client characteristics, sev- eral current customers in each sector may need to be initially defined and evaluated. When satisfied that all important value components have been identi- fied, the team must then estimate the monetary worth to the distributor of each targeted account, including what assumptions were made for their calculations. Continual assess- ments of the model’s validity must be conducted with several customers, new and old, and potential custom- ers, if possible. Refinements to the model should be planned and periodi- cally reviewed. Once patterned and applied to all targeted customers, distributors will gain a more profound understanding of each customer segment’s value structure: • Appreciation for what drives a typical customer in the sector • Insight into what’s needed to more effectively sustain existing cus- tomer relationships • Awareness of where costs can be reduced and where investments should be allocated • Knowledge of which value com- ponents will most likely appeal to prospects in the same sector An essential and extremely benefi- cial byproduct of effective modeling will be its use in prioritizing where and how to assign strategic resources. John Cain, president of Wiseway Supply in Florence, Ky., pointed to customer relationships as an intangi- ble but indispensable source for cus- tomer evaluation. “Our key customers have primary relationships with our outside sales reps, but they also have solid relationships with other mem- bers of our team,” he said. Cain added that, although Wiseway services a variety of business groups, most of the sales and profits are gen- erated by a limited number of tightly defined sectors. “Customers that share attributes are our most prof- itable customers,” noted Cain, adding that while formal modeling is not part of Wiseway’s business practice, key accounts’ characteristics, attributes, and trends are closely monitored, gauged, and shared. Documenting the habits and traits of every customer segment may not be a requirement for all electrical dis- tributors, particularly for small to medium-sized firms that serve tradi- tional, highly visible industries, such as contractors. Nonetheless, identifying and un- derstanding the distinctive, unique, and specialized needs of a broad and diverse customer base seems manda- tory by regional and national chains that cover highly diversified indus- tries. Developing metric-driven busi- ness models to aid in appraising and
SPECIAL REPOR T /
Source: Q2 2017 Baird Electrical Distribution Survey,
in partnership with “tED” magazine. Respondent profile:
75 respondents, $10+ billion aggregate annual revenue.
“DOES YOUR COMPANY STRATEGIZE
AND SEGMENT YOUR CUSTOMERS
BASED ON SIZE, PROFITABILITY, SALES
72 the ELEC TRICAL DIS TRIBUTOR • Sep. 17