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Sunday, 22 February 2015

"The Customer is Always Right". Always? Really?

The old adage that the customer is always right is generally true from the customer's perspective but is it always the same case for the supplier?

I had a member of my Vistage CEO peer group who was importing finished and packed foods mainly from Europe and selling to wholesalers and large retailers.

He sold to a total of around 250 wholesale outlets and had perhaps 10 major retailers on the books.  He decided to do a Pareto analysis (80:20 rule) of the customer list and it changed his life and the life of the business.

As might be expected approximately 20% of the customers generated 80% of the turnover as well as gross profit.

In addition he found that a high, too high, proportion of his staff were involved daily dealing with the orders from the smaller customers.

What was more, the number of complaints, returns, arguments about price and very slow payments meant that most of the people were engaged in the wholesale sector and the important group of customers was not being given the attention it deserved.

Accordingly he took a major decision, a very brave one, and wrote to virtually all his wholesale customers telling them that he would no longer be supplying them from three months hence.

He also negotiated a deal with a major food service company to take on the 250 wholesale customers and the job was done.

In fact their new ability to devote more time and effort to the major retailers resulted in enhanced relationships with the result that his turnover and net profit almost doubled within a year.

In another case the group member was in thrall to a major national outlet with in excess of 50% of his output (about £3million) going to the one customer.

Reading the values statement of the retailer would normally lead one to believe that they loved their suppliers, that their relationship was all-important and they desired mutual satisfaction and success.

Really?  They could have fooled the world at large that they were a lovely company to deal with, but certainly not my member. He came to a Vistage meeting one day and announced that he was stopping supplying the retailer and would give them 3 months.

Another brave decision. In fact he replaced the lost business within six months at better prices and then took the major retailer back (at their request) on very enhanced terms.

What it says, of course, is that we need to look as carefully at customers as we do our suppliers. For example how often have we heard sales people complain that we can't chase an unpaid account too hard for fear of "losing a good customer"? For my money a good customer is one who pays on time with a cheque that doesn't bounce.

If we really analyse the true cost of a slow payer we would be surprised. For example how about all the telephone calls to their accounts department plus the cost of the hours taken up? Add to that the fact that the customer is using you as a bank and ask yourself do the prices charged really reflect the costs incurred?

Start with a Pareto analysis and take a good look at the 80% of customers to see which ones are good to deal with and are profitable. There will be some. Then check on those that take up an inordinate amount of time and effort compared to their level of profitability.

Derive a list of dodgy customers and tell them that there will be an immediate price increase in order to bring them to a level at which it is worthwhile trading with them

If they decide to go elsewhere congratulate yourself that they are now diminishing your competitor's profits, and then search out the good ones on your sales ledger.

If a customer can’t deal with you on an adult and commercially viable basis then it is time for the sailor’s farewell. On the other hand identify the good ones and remember that great service leads to great relationships and great customers.


Tidy up your customer list and make sure that, as far as possible, you are optimising the returns from your efforts.  The results can be startling.

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