The average company spends 5 percent of its revenue on research and development (R&D), according to a report published by Strategy& (a global consulting organization).
Innovative companies spend closer to 20 percent (Google spends 16.6 percent, Amazon spends 27.7 percent and pharma companies spend well into the high 20s). While these tech organizations spend big on new and groundbreaking products, nearly every other company invests at least a portion of its revenues on the future.
Many believe that R&D involves white-smocked scientists working in some secret skunkworks laboratory deep underground. Arguably, distributors sell products developed in this kind of technologybased research setting. But, R&D involves more than just products. Some R&D develops intellectual property centered on trends, consumer behaviors, buying habits and disruptive forces in the market. Sadly, all but a few electrical distributors skip over this important process.
This drives two questions. Are distributors somehow exempt from the need to research the world around them? And, more importantly, is there value in focusing research on customers?
Distributors boast of customer intimacy. Decades of point-of-sale (POS) discussions have revealed electrical wholesalers value their customer relationships above all else; even to the point of creating friction with top supply partners by withholding POS data. Throughout many of these discussions, two phrases were repeated: “Customer intimacy is our biggest piece of intellectual property” and “Manufacturers just have no idea how much time and effort go into understanding our customers.” When contemplating these comments one might conclude distributors are open to learning more about their customers.
The truth is, as a group, electrical wholesalers have intense familiarity with regular and recurring customer contacts. The problem is, based on exploration of hundreds of distributors, this “regular and recurring” group only accounts for 10-20 percent of their total possible connections. Furthermore, questions about true customer understanding continue to surface. Let’s explore one of these.
A few years ago, I received an emergency call from a client. One of his top customers had given a 30-day notice that all future purchases would be channeled to a competitor. Based on the other guy’s ability to facilitate a “commodity supply contract,” the business was over, done, gone.
Reportedly, with teary-eyes, the distributor’s most important contact delivered the bad news and indicated the decision came from well above him and was irreversible.
Later research showed the customer had been contemplating the move for nearly a year. Since the move would affect jobs in the purchasing department and maintenance storeroom, management withheld the information from this group of customer contacts. Weekly sales calls with maintenance mechanics, plant engineers and others (mostly lower-level groups) only uncovered a few clues to the move. Yet exploration after the fact revealed that everyone in management knew the supply contract process was coming as a tool to drive down transaction costs.
With distributors heralding customer intimacy, how was such a move missed? Pushing further, wouldn’t this have been something worthy of research or at least inquiry? But this isn’t the only topic distributors should be thinking about. Today, distributors need to invest in understanding how any of the following might impact their customer relationships:
- Internet-based purchasing
- Locating and training new employees
- Changes in the way customers prefer to be contacted
- Value of services provided
- Importance of local inventory
- Customer processes, which might be automated in the future
- Shifts in customer operations, i.e., outsourcing, expansion and other needs
Customer surveys are solid R&D tools for distributors
Why not gather, review and benchmark the views of your customers? After conducting dozens of customer-focused surveys, we have yet to see one that did not provide insight into customer direction, including overall customers in general, breakdowns in different customer segments and specific individual customers. While reviewing the survey data, it’s common for distributor managers and salespeople alike to have eureka moments. Many discoveries lead to instant process improvement. Things like phone hours, invoice layout and auto-generated acknowledgments are low hanging fruit. Other findings, due to their implementation time, go on to become part of a strategic initiative to position for the future.
The concept of listening to the voice of customer surveys is old. Thinking back some three decades ago, my first “distributor management” class included information on using surveys to better understand customers. In 1992, I shelled out $24,000 to have one done. My company learned a lot from the survey, but the cost convinced us to repeat the process sometime, just not any time soon. A lot has changed over the years. In the old days, surveys were conducted by old-fashioned mail.
Follow-ups made by phone added to the cost. Even more expensive, data was manually entered and sorted by hand. Trends were difficult to spot and the process took months. Today, internet tools and applications for sorting and analyzing data are relatively inexpensive and, arguably, easy to use. The point is surveys were probably affordable back then (even though the price was high) and cheap enough for anyone today.
Best practices for developing customer surveys
Whether you decide to go forward on your own or use a third party, there is an undeniable need for gaining the competitive advantage of a sound understanding of your customer point of view. Further, the ever-escalating rate of change in our world calls for a certain amount of urgency in your collection of data.
With these thoughts in mind, the following are best practices in building a survey:
- Surveys need to be well thought out and worded properly. Customers willing to provide the gift of feedback should not be required to wade through poorly worded questions or information that doesn’t apply to their position in the company.
- Surveys should require less than 10 minutes to complete. Let’s face it, customers are bombarded with requests for their time. A survey that runs longer than a few minutes rarely produces measurable results because the customer simply gives up part way through the effort.
- Benchmarking is important. We recommend distributors conduct a survey of their very best and most established customers first. This creates a standard allowing for further comparison of some of the “lesser known” customers. You can discover differences in perception, potential unmet needs and a wide variety of information.
- Forward-looking surveys provide the best information. While getting a snapshot of the past is important, the real meat comes by way of the customer’s vision of the future.
- Understanding how you measure up against competitors is a critical piece of the survey. Unfortunately, many distributors dwell on the local competition versus the non-traditional competitors, i.e. Amazon, of the future.
We recommend using a third party for conducting the survey. While this may sound self-serving coming from a guy who is out conducting surveys for clients, there are good reasons for insulating the customer from your organization:
- Customers are more likely to share the good, bad and the ugly with an outside party. Being nice folks, they are hesitant to tell you if they think your service stinks.
- A third party can do post-survey interviews to clarify points made during the initial survey. Since the third party is not tied to your organization, it can engage in conversations without preconceived notions of the customer. A third party can ask what someone within the organization might consider to be a “dumb question” without offending the customer.
Finally, an outside surveying organization gives the impression your company is both scientific in its process and serious about gathering customers’ thoughts. However, I believe understanding customers is so important that I want you to do something, anything, to better understand your customers. If not through an outside survey, then via your own survey mechanism; companies like SurveyMonkey provide short, limited-reach surveys for free.
Begin the process by asking yourself...
I believe developing a survey is a questioning process; not questioning customers but questioning your own thoughts and beliefs. The first question is, what do you know about your customers? Checking your ego at the door, how do you know? If you are a salesperson, you’ve heard many comments from customers with personal perceptions. Think about our earlier example, some of these may not be correct. If you are a distributor leader, you may have gotten your views from interaction with your sellers. Sales is an emotional sport. What can you do to verify their opinions?
According to some of the best economists serving the distribution market, we are riding out one of the longest periods of economic growth in years. Times are pretty good. However, the same folks are predicting a downturn in 2018 (sorry to break the news if you hadn’t heard). Here is the final question. What would you like to find out about your customers before the downturn?
If you are a manufacturer or agency rep firm reading this, you may have found yourself nodding along and thinking, “You bet, those darn distributors need to get busy and survey their customers.” When was the last time you reached out to your distributors? Send me an email and I will provide you with some thoughts on distributor surveys.