Incumbent always wins


– or do they?

This is a commonly held belief, especially in B2B sales, and in some cases there may be justification.  However, if you view each new potential opportunity from the perspective that the incumbent is going to win you will behave like a loser in waiting and, guess what; you will probably lose.  Optimists and pessimists tend to have one thing in common; they are both right most of the time – anticipating failure increases the odds that this will be the outcome.

Far from incumbents getting an easy ride, from my own observations, I think customers may actually be more flighty today but, in many cases, suppliers often fail to recognise the signs.  Both incumbent suppliers and hopeful new suppliers may be behaving in such a way that increases their chances of losing as a result of subtle signals they send to the customer.

If suppliers assume, while prospecting for new customers or bidding for new work, that the customer will favour the incumbent it conditions behaviour towards a loser’s frame of mind which in turn increases the chances of actually losing.  There is nothing more likely to lead to a lost sale than a lack of self-belief from the supplier’s sales people.  This is compounded if management fail to put their full weight behind bidding for an opportunity resulting in the effort put into the proposal lacking commitment; the prospect will spot this very easily.  If the opportunity met the qualification criteria management should back it and if it didn’t qualify out. This is a binary decision; either pull it or support it fully!

On the other hand an incumbent that takes the customer for granted is simply moving themselves closer to the exit door.  A common engagement model involves customers being moved from the new business team to the account management team once the relationship has been established and the first piece of business has been secured.  While it is good to move to managing an account with a ‘customer service’ mentality what is not good is to move from a hunter to a farmer or, worse still, a browser/gatherer mentality.  An important fact never to lose sight of is that the incumbent’s farmer will be competing with the hopeful new supplier’s hunter which may not be a fair fight.

The key questions that I address here are; why might a customer consider changing suppliers, why might a customer be reluctant to change suppliers, what can incumbents do to keep their customers and what can hopeful new suppliers do to win the customer over?  This assumes the customer still wants to buy that type of product or use that type of service so having a supplier is of strategic or tactical importance to the business.

Why might a customer consider changing supplier?

There will be a variety of reasons but they basically boil down to the customer becoming less satisfied by what the existing supplier is doing.  This can be an expression of an absolute position or it may be a relative position compared to what competitors may now be offering.  It is also the case that public bodies are driven by procedure to put work out to tender at certain time intervals and some large corporates have similar habits.

For the incumbent it is very important that the relationship management approach never slips into a casual, maintenance frame of mind.  Existing customer relationships must be managed proactively including regular formal account reviews that look at the performance of the relationship as well as the products and services being supplied.

It is the responsibility of the supplier to explore and probe to look for areas where the customer’s expectations might have changed and therefore where there are opportunities to do things differently.  Failure to do this, enabling small changes to be made along the way, will often result in the customer suddenly declaring that they are no longer satisfied; the feeling that may have been growing over time could by now be entrenched.  This is bad for the supplier as the customer will have built up the impression that the supplier did not care enough to find out how the customer was feeling.

Cases where customers like the product but no longer like the supplier are a common trigger for change.  If a disaffected customer decides to look for a new supplier the incumbent will have to work hard to keep the customer as overcoming a loss of faith or trust is a tough ask.

Why might customers be reluctant to change suppliers?

There are many reasons but they tend to fall into two main groupings:

  • Fear of change based on the disruption it might cause and the risk that things might be worse. A common and perfectly reasonable concern to have and the same feelings probably existed when the customer entered into the relationship with the incumbent. As in all sales situations a key activity for the supplier (incumbent and potential new) is to recognise the fear, uncertainty and doubt that naturally exists as a part of decision making and work to address it as a part of convincing the customer that they can be trusted.
  • Loyalty; if the customer feels the supplier has done a lot of good work in the past they may feel the incumbent deserves another chance to fix the things that are no longer working. From a customer perspective this is a sensible approach as they have also invested time and effort in the relationship so it makes sense that the first action is to try to repair rather than replace the relationship.

What can incumbents do to keep customers?

There is an interesting engagement philosophy that might be worth considering called ‘partnership sourcing’.  During the early 1990s a company called Partnership Sourcing Ltd (PSL) was set up by the joint action of the DTI, CBI and a number of large corporates which if I recall correctly included BA.  The basic principle was to foster an environment that would lead to the creation of mutually beneficial trading relationships between customer and supplier.  This was a reaction to the ‘master-slave’ approach that was common at the time and especially where the supplier was a minnow compared to the customer whale.

An excellent example of a PSL type approach can be found in Just-in-Time relationships where although the customer and the supplier are separate businesses they function as one unit with a common aim.  A key PSL principle is ‘no blame’; if something goes wrong the customer and supplier sit down on the same side of the table to address the problem.  Terms such as “the customer is always right” and “it’s my way or the highway” do not exist in PSL thinking.

PSL led to the creation of BS 11000 Collaborative Business Relationships, continuing the principles of customer and supplier working together to a mutually beneficial outcome; just as important now as they were 25 years ago.  Customers and suppliers should regularly sit down together in a no blame environment to discuss the relationship openly, sharing issues and concerns.

In trust-based relationships the supplier should be invited to attend part of the customer’s periodic business review to be informed what the customer needs to achieve in the next period enabling the supplier to plan whatever changes are required to continue to meet service levels.

If the supplier can convince the customer to include their budget when putting projects out to tender, effectively saying “we need this and our business case says we can spend £x; can you deliver what we need for the budget and if not how much can you deliver?”, this avoids the supplier guessing what the budget might be, thus offering solutions to match a perceived budget rather than a business specification.

Suppliers should manage customer relationship pro-actively through positive account management.  If the only time the supplier contacts the customer is to; renew a contract, sell them something new or ask a favour such as acting as a reference, the customer may justifiably begin to feel taken for granted.  Similarly, if the only time a customer contacts the supplier is to chase an order or complain about something the feeling will progressively turn negative.

It is very important that the supplier’s account manager has the responsibility to manage the relationship above and beyond the basic task of supplying products and services.  Account review meetings should be held between the parties at regular intervals and whilst part of the agenda will focus on product or service performance the bulk should focus on the performance of the relationship. Mutual discussion of future plans permits development of joint plans thus enabling both parties to prepare.  In the spirit of partnership sourcing conversations should be frank and fair.

The account manager should also be equipped to share war stories about other customers and projects; this is commonly done by new business sales people but all too often as soon as the customer becomes established no one from the supplier bothers to update them.  I have seen many situations where a customer buys from a competitor because they didn’t know the existing supplier made such a product or provided such a service.

What can a hopeful new supplier do to replace an incumbent?

Perhaps the first thing to say is that this is a very common scenario.  Established business will have relationships with various suppliers for a wide range of things; accounting services, office cleaning, photocopiers, IT, vending machines, building security and the list goes on.  So, in a majority of cases hopeful new suppliers will be working to replace an incumbent.  The two main scenarios where this might not be the case are; with start-up or young companies and where the product or service is genuinely new.  Recent examples of new might be cloud computing five years ago and more recently big data.

So, the starting point for thinking about this is to recognise that most new business effectively involves the hopeful supplier taking business away from an incumbent.  It is also worth recognising that some or all of the following factors will be present:

  • The customer may genuinely be happy with the relationship, products and services they get from the incumbent
  • The customer may think they’re happy but they do not know what better alternatives exist
  • The customer may say they are happy as a defence mechanism against being sold to – a classic rebuttal to fend off a sales call
  • The customer may not realise they have or will have a particular issue or that it is creating a problem or they may know they have a problem but not that a solution exists

It is important for potential new suppliers to have a sales engagement process that approaches all potential prospects with an open mind.  Don’t assume anything about the current position; use a process of structured questions to explore the current situation, problems they may wish to address, problems they may not have thought of, their desire to solve the problems and willingness to pay for a solution.  This process of discovery will of course include exploration of existing suppliers enabling the hopeful supplier to differentiate between situations when an incumbent is truly embedded or when the customer will be open to considering a change.  This needs to be achieved early in the sales engagement process otherwise selling effort may be wasted.

 

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