Market share falling? Research into high growth companies shows they go the extra mile to protect their customer base from competitive erosion. Here’s how. By TOM McKASKILL
By Tom McKaskill
What becomes dramatically obvious from the research into high growth companies is that they go the extra mile to protect their customer base from competitive erosion.
They recognise that a solid base of recurring business from their existing customers provides resilience to their revenue streams, reduces their overall marketing spend per transaction, decreases lead times and improves their profitability.
They achieve this state by building barriers to their competitors right across their supply chain.
We have been encouraged for many years to treat our current customers as our most valuable asset, and yet few follow this wisdom. But when you look at high growth companies you will see that they do exactly that.
They have higher account penetration with more frequent usage but also greater cross-selling of complementary products. The level of referrals are significantly higher and customers are used widely for case studies and industry articles.
If you want to move to this model, what is the path you should take?
You can of course develop protection through the normal regulated advantages – patents, trademarks, brands, copyright and licenses – but these forms of protection are not available in all markets.
However you can build stronger relationships with your customers, which can form a defence against competitor attack. The supplier who builds a close relationship with the customer, understanding their business, tailoring their offering and working closely with them to resolve their problems, becomes a strategic partner that is valued above just the products or services they supply.
As you build up contacts within the customer organisation, as you understand their requirement better and make it easier for them to do business with you, you entangle your business with theirs, making the task of them switching to another supplier stressful.
If you offer special cumulative discounts, agree to put aside manufacturing or service capacity, or build special features into your product or service to make usage easier, you are creating a higher switching cost for the customer.
This can, of course, be highly desirable for the customer who gets a better, more effective solution with greater reliability of supply. Your advantage is that you get a longer term revenue source.
You can also protect yourself from competitors by gaining greater control over the customer point of purchase or by locking in an essential ingredient, component or knowledge content required to solve the customer problem.
Your objective should be to build as many impediments to competitive attack as possible.
Every element of protection should be designed to slow down the competitor and buy time, so that even a better resourced or more innovative competitor cannot gain easy access to your customers. This additional time then allows you the freedom to work on your own product and service offering to bring them back up to a leadership position.
Your customer’s business is not yours by right; you have to earn it. Nor can you rely on that position being sacrosanct; you have to continuously prove that you deserve the business.
You do this at the customer interface by making sure you serve them better than anyone else and, internally, to ensure you develop innovative products that keep you as the preferred supplier over time.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
