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In a customer stratification model, what can be done about the "service drain" customers who are also a target account for one or more stategic suppliers? (Webinar Attendee Question)

This question was asked by an attendee during the Proformative webinar "Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits" held on October 9, 2012.  You can view a video of the webinar and access the presentation here: https://www.proformative.com/resources/webinar-video-using-customer-stratification-cost

Answers

Topic Expert
John Kogan
Title: CEO/CFO
Company: Proformative, Inc.
(CEO/CFO, Proformative, Inc.) |

Great question. Service drain customers are essential to the supplier. The cost to serve and gross margin axes both address compensation. If the service drain customer goes beyond the compensation, the distributor is subsidizing the supplier's business. This could be a negotiation point on rebates or other supplier incentives or it may be a relationship expectation from a supplier that thinks this is already covered by exclusivity or doesn't want to pay for perceived distributor inefficiencies. The distributor need to do its homework and be very specific about the true customer profitability and the supplier's benefits. Then its time for a talk.

Answer provided by Dr. Barry Lawrence, Program Director, Industrial Distribution Program, Texas A&M, speaker on a recent Proformative webinar on the subject of customer stratification.

John Mansfield
Title: Vice President Business Development
Company: Graybar
(Vice President Business Development, Graybar) |

I think it is great for a Service Drain customer to also be a target for one of your strategic suppliers. The difference will be in the type of conversation that you have with the customer and the supplier.

A Service Drain customer is usually not only a drain on you, but on themselves as well. By using the Customer Stratification data, you have the chance to have a very different type of conversation with the customer. And the supplier. How do we change behaviors to reduce cost-to-serve factors that are draining (like too many small orders)? How can your strategic supplier help attack these issues with you to move the customer to Core and create a moat around the customer?

The hard part is getting the supplier to think about the customer's business and not about features and benefits of their products or services. But the Customer Stratification data is a powerful tool in developing creative solutions to customer pain points.

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