The key to exceptional service delivery is to develop a clear understanding of your customers. Andrew Shaw, managing director of consulting firm Business Services Growth (BSG), describes what service providers need to do to better understand their clients’ needs, improve service quality and secure long-term, ‘trusted advisor’ client relationships.
Why is it so important for service providers to understand their customers’ needs? While this might seem a strange question to ask, it is an important one to explore. The answer is that understanding the customer enables service providers to achieve their basic goal – profitable growth. If your business is going to survive and grow, objectives such as having happy customers; looking after the environment; valuing people; giving something back to the community; or demonstrating a passion for food might all be important, but they all come second to the goal of achieving profitable growth.
As any service provider knows, there are three fundamentals needed for making money: 1) win contracts, 2) make money from those contracts and 3) retain those contracts. These three fundamentals all rely on the supplier’s ability to understand what is important to the customer and to then respond accordingly.
The benefits of listening to your customer
Most sales people understand the importance of listening to the customer during the sales process. If they are good at it, they will win more business. A good example of a facilities management (FM) business putting this into practice recently is the foodservice company, Catermasters, which won a competitive bid at Yorkshire Building Society. The building society was impressed with how well Catermasters listened to what it was asking for and responded to this brief and this ultimately clinched the deal for them.
Furthermore, as Catermasters will know, listening to your customers once you have won a contract will also help you to run it more profitably. We are currently working with a large multi-service FM provider to help it understand its clients’ needs better and turn single service contracts into integrated FM contracts. The result will be a significant increase in its average client gross profit.
By understanding customers’ needs, service providers can make a real difference between retaining a contract and losing it. The first challenge, though, is to understand why contracts are really lost. When working with a previous client, we analysed their lost contracts and we found that just over 40% of the contracts had been lost at re-tender, on account of price, a third were lost due to service quality and about 20% due to relationship issues (see chart below).
However, deeper analysis revealed that many of these losses could have been avoided altogether if the client had managed the customer better. Re-tenders could have been avoided in some instances and even when a re-tender was enforced, we found examples of bids that were lost as a result of teams not listening properly to the customer. This shows how a better understanding of customers has a significant impact on contract retention rates.
The importance of listening to the customer during the sales process is well recognised, yet it is not uncommon to see bid responses that ‘miss’ the client brief. Similarly, as we have seen, many customers cite relationship issues and service quality as a reason for switching providers. Why, then, is it seemingly so difficult to understand and respond to customers’ priorities?
There are five main challenges that stand out in the FM industry. These are:
1. Evolving customer needs. The FM market is changing rapidly and customers’ needs are changing as a result. Factors such as changing procurement practices; the linkage of FM to higher level issues such as the environment; the increased demand for bundled services; and the demand for greater accountability are all combining to drive changes in customers’ needs. Many service providers struggle to identify and respond to these changes.
2. Margin pressure. When faced with the need to deliver cost savings, some FM service providers have responded by reducing their investment in ‘overlay’ account managers and/or area managers. While increasing profits in the short term, these kinds of changes make it harder to manage customers and can be harmful in the longer term.
3. Immature processes. The FM industry is behind other sectors in its customer management practices. Industries such as IT (software, hardware and services) have more sophisticated processes in place for understanding and responding to their clients’ needs. For instance, they will often bring in specialist techniques such as Customer Relationship Management (CRM) systems.
4. Inadequate client management skills. Often, it seems that the skills and capabilities of people responsible for managing clients in the FM industry are below par. A research study commissioned by a major FM provider showed a direct correlation between a client’s likelihood of renewing their contract and their view of the performance of their contract manager. A common failing we have also seen is that many contract and area managers in the FM industry do not have sufficient experience to manage their clients well.
5. Poor loyalty measurement systems. Our experience is that many FM service providers do not have effective processes and systems in place to measure client loyalty. Furthermore, where they do exist, they are often based on consumer customer satisfaction survey techniques that do not translate well to the business-to-business (B2B) environment.
The good news, however, is that each of these challenges can be overcome by implementing some basic best practices in customer management.
Building trusted partner relationships
Given the compelling benefits of developing strong customer relationships, we’ve compiled the following tips that could help suppliers improve relationships with their clients and subsequently aid contract retention:
1. Measure client loyalty. Set up a client loyalty measurement system. B2B relationships are too complex to evaluate with ‘single question’ systems; for instance, Net Promoter. Therefore, make sure you use a system that is well suited to the B2B environment. The solution we provide for our clients, called INSIGHT, is designed specifically to assess the strength of B2B relationships.
2. Manage your customer data. Establish a customer database to provide you with easy access to core customer data. If analysed properly, this will help track actions, forecast losses and gains, and identify trends in customer requirements.
3. Establish a client review process. Create a formal process for understanding what is important to every client and why, as well as how they rate your performance against those priorities and what needs to be done to ensure that you are exceeding their expectations. The output of this should be recorded in a system or at least documented formally.
4. Train client managers. Implement a customer management training programme to establish the processes described here and develop customer management skills.
5. Track progress. Set up a tracking system to monitor leading metrics, such as the completion of client reviews and the completion of actions arising, as well as outputs such as contract retention rates, loyalty ratings and new business win rates.
6. Don’t let favours go unnoticed. Ensure that your extra efforts to please customers are communicated to, and recognised by, the client. If you go the extra mile – let them know. Your excellent service can help to buy commitment from your client.
7. Don’t over-promise. The best way to increase customer satisfaction is to manage customer expectations. Be honest about what you can achieve and, if you have good relationships, your clients will respect your honesty.
8. Invest in ‘lock-in’ services. Identify services, systems or processes that will both provide real benefit to your clients while also making it more costly for them to switch suppliers. These ideas will help to cement the relationship and create partnership.
9. Establish senior relationships. Arrange senior-level meetings between your company and the client to review their procurement strategy and discuss your service offering. These strategic conversations will help to create the bond between supplier and client, while also ensuring that you are not out-maneuvered by competition.
10. Innovate with the client. Ensure that you are being seen to bring new ideas into the service and involve your client in service improvement workshops to make certain that they are supportive of your efforts to try new methods, systems and services.
For some organisations, this advice may represent significant change, while others might have some of the foundations in place already. Either way, our experience has shown us that it is important to establish a clear vision of how you wish to manage clients, together with a ‘roadmap’ that can be used to explain the change needed.
Reaping the benefits
There is a powerful economic case for investing in understanding your clients’ needs. The basic steps outlined here will help suppliers to understand and satisfy their clients’ expectations better. By managing client relationships well, service providers will reap the benefits of increased customer loyalty and establish a foundation for organic growth. Once these strategies have been implemented, your sales force can use service delivery success stories to help win new contracts – what better plans could you have for the New Year?
Extract FMJ January 2013