Selectively Pursuing More of Your Customer’s Business

As suppliers in business markets search for profitable growth, it is natural for them to seek more business with the customers they presently serve. After all, it appears to be conventional wisdom that it is easier and less costly to gain incremental sales from present customers than from new customers. Yet, most suppliers lack sufficient knowledge about customers to devise or implement anything but the most sales-oriented growth strategies and tactics. Simply put, most suppliers plan to sell customers more of what they have been selling them, plus other products thought to have the highest margins based on knowledge of manufacturing cost. As a result, senior managers at many suppliers are finding that although their firms are achieving sales growth as planned, the accompanying growth in profits falls disappointingly below expectations.

To gauge their knowledge of their company’s current customers, managers should ask themselves a few questions: What percentage of each customer’s total purchase requirements is their firm providing; that is, what is the company’s share of each customer’s business? How does that share of each customer’s business vary across product offerings sold and across the different locations each customer has? For each customer, which of the company’s product offerings delivers the greatest value relative to competitors’ offerings and which ones deliver the least? What is the total cost to serve each customer — including the costs of providing supplementary services, programs and systems — and, therefore, what is the true profitability of each customer?1

Many suppliers pursue growth despite lacking accurate answers to these questions. At a leading business network-communications- systems provider, for instance, marketing and sales managers use “share of wallet” (i.e., share of customer business) primarily as a “strategic directive” concerning customer accounts. Drawing from a reserve of well-worn platitudes (e.g., “It costs five times more to find a new customer than to sell more to an existing customer”), management annually admonishes salespeople and key account managers to “sell more to each customer.”2 Other than a crude estimate of sales potential per customer based on number of employees and telephone lines per site, marketing managers have no rigorous metrics of share of customer business with which to set objectives, plan strategy, measure performance or reward account managers for superior results. Salespeople use these crude sales potential estimates largely to prioritize accounts.

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References

1. For more on assessing the worth of market offerings and building customer value models, see J.C. Anderson and J.A. Narus, “Business Marketing: Understand What Customers Value,”

Acknowledgments

The field research for this article was done while James C. Anderson was a visiting research professor at the Department of Technology Management, Eindhoven University of Technology, the Netherlands. The authors also gratefully acknowledge the financial support of the Institute for the Study of Business Markets at the Smeal College of Business Administration, Pennsylvania State University.