Current Challenges in B2B Wholesale
Between supplier price pressure, supply chain problems and customer anger: Why wholesalers win with value-based customer management.
Many wholesalers are currently struggling with sudden increases in purchasing and cost prices as well as unprecedented restrictions on their own ability to deliver. This has consequences. According to a recent survey by the IFO Institute, 62.4% of wholesalers see the need to significantly increase sales prices in the near future.
In a press release, the Central Association of German Electrical Engineering Trades (ZVEH) angrily complains that orders for almost all relevant products can no longer be processed due to worsening supply bottlenecks in the wholesale trade.
The Challenges Hit Wholesalers Unprepared – Systematic Solutions Are Needed.
This situation poses massive challenges for wholesale companies and raises questions:
How can you adjust your price calculation appropriately without damaging important customer relationships? Which customers can order quantities be reduced in view of the supply chain problems and which are better off not in the interests of the company itself?
Veritable price increases were rare in the past 20 years, mostly limited to a manageable part of the product range and thus ultimately acceptable to the company’s own customers without long-lasting resentment. Allocation problems on a larger scale have been virtually unknown since the balance of power in almost all sectors shifted away from the suppliers in favor of the demanders at the end of the 1960s. Thus, companies today simply lack experience with these phenomena. Ad hoc individual decisions resulting from this circumstance do not help; systematic approaches are needed to rule out expensive decision-making confusion in sales teams and business relationships.
Those Who Evaluate and Prioritize their Customers in a Structured Way Make Better Decisions.
It is now becoming clear how important it is to manage the customer structure in a value- and risk-oriented manner. Customers are not all the same. Neither in their needs or ordering behavior, nor in their importance for their own company. Companies that have a clear idea of which customers are valuable to them and why are now at an advantage. Those who evaluate can then also prioritize. In other words, they can put their customers in order of importance. Once customers have been sorted out in this way, it is much easier to make decisions. For example, about preferential delivery or the extent of price increases, these decisions can be made as part of a structured process.
The determination of customer value should be based on both monetary and non-monetary parameters. Current revenue and profit contribution are of course key value dimensions, as is monetary customer potential, i.e., the potential future revenue from a customer, which can also be expressed as customer lifetime value. But the finance perspective on customer value does not give the full picture by a long shot. Customers are valuable or not from many other perspectives. For example, strategic customer value can also be considered. This describes how well a customer and his future needs fit in within the company’s own strategy and the targeted development. The so-called customer reference value, which records how significant a customer and its appeal are for the company’s own marketing activities, is also an important non-monetary value parameter. A high reference value can, for example, be the market or innovation leaders of individual industries, whose acquisition is seen as a door opener and trailblazer to further customers in this industry.
Conversely, companies that practice value-based customer management also know which customers are of little or no value to them. Having this knowledge, also one to makes decisions easier. For example, the current situation can give companies the appropriate impetus to part with low-profit and low-value customers. These customers should currently no longer be supplied, at least not to the detriment of the more valuable customers.
Manage risks to the Customer Relationship in a Targeted Manner with “Micro-Strategies”
The sometimes sharp and sudden price increases in procurement usually have to be passed on to the company’s own customers and lead to price increases in its own product range. And here, too, value- and risk-oriented customer management helps to cope. Because if companies are aware of their customer values and their drivers, they can also better identify and manage risks. Every price increase for a customer is a risk for sales success and the customer relationship. So, it’s good to know what customer value I’m risking in each case and, even better, to know how price-sensitive the customer is. The latter means having a reliable idea of whether a customer is more likely to pay good prices or not. From this information, activity-based “micro-strategies” can be derived for customer groups to be determined based on value, which provide valuable orientation and target clarity for the sales department in its current operational work. For example, it may make sense to confront low-profit and dispensable customers with higher price increases in order to develop them in the direction of a better result with an acceptable risk of churn. For valuable customers who already accept reasonable prices and whom the company does not want to lose, relatively lower price increases are conceivable.
Why Wholesaling Wins with Value-based Customer Management – Conclusion.
As shown, systematic value- and risk-based customer management can make a strong contribution to overcoming the enormous current challenges faced by wholesalers. Pricing and supply decisions at the customer level can thus be made in a structured and systematic manner, and it is ensured that these decisions reflect the goals and economic interests of the company itself.
Those who already have a clear idea of this fundamental, individual value of their customers, and the relevant risks should incorporate these into their operational customer work in the short term.
And those who have not yet classified their customers at all, or have only classified them according to sales A-B-C, should not hesitate to quickly start building up a value- and risk-oriented management of the customer structure. It’s worth the effort, because this is how important customer relationships can be protected and safeguarded in these unusual times, despite the many challenges.