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Posted: March 01, 2010

From caution to strategic action: part II

How one company grew despite the recession

AJ Steger

As we see signs of recovery, some companies aren't satisfied with maintaining sales. They want to grow and you should too.

In its simplest form, growth can come from four areas:
1) Sell more of the same to your existing customers,
2) Sell new products/services to your existing customers,
3) Sell existing products/services to new customers, or
4) Sell new products/services to new customers.

Most companies first try option 1), and if they're proactive in their marketing, they design plans to pursue option 2) or 3). Option 4) represents significant risk and is therefore avoided because both the product you are selling and the customer you are selling to, are unfamiliar to you. This is one reason why start-ups carry so much risk since everything is new. Here's the story about one company that decided to pursue option 2), growing by selling more/new product to existing customers, with a little creative approach to finding out how about their opportunity with option 1).

$50-million apparel distributor
The company was a regional wholesaler of specialty apparel with sales of $50 million, warehouses in 12 states and a widely diversified customer base, with no single customer accounting for more than 1 percent of sales. Like everyone, it was affected by the recession and while business wasn't declining anymore, it wasn't growing either.

The leadership had already decided that it wanted to focus first on its existing customer base, but couldn't decide what additional products to stock. As we discussed how to determine which products made the most sense, we learned that they felt out of touch with their customers' needs. Perhaps instead of trying to guess what they wanted, we should just ask?

We decided that a broadly distributed customer survey was needed to capture as many customer ideas as possible. We didn't want the sales force to administer the survey because of potential bias so we used Web surveys sent to a very good email list of customers who were already used to doing business with the company electronically. Studies show that body language and tone make up 93 percent of our communication, so in order to capture this aspect we also conducted a number of interviews in person and by phone.

The key questions were, "What could you buy from us that you buy from others?" Another was, "Out of every $100 you spend on apparel, how much is spent on us?" Almost 1,000 customers were happy to answer the questions, and from this information, the distributor learned a goldmine of information. Although the responses were anonymous, a series of demographic questions gave the company insight into what their customers truly thought by customer size, type, tenure, and geography.

Results guide the growth plan
Never overestimate your ability to know what your customers want. Asking them in an unbiased way can reveal a wealth of great ideas and opportunities, and it's a lot faster than discussing it in months of management meetings.

In this case, say a customer purchased $250,000 worth of apparel each year, but only $100,000 was from our client. Our "share of the customer's wallet" was 40 percent, leaving us $150,000 of potential sales. When we aggregated all of the data, management was able to identify what geographies offered the largest opportunity, and furthermore, what areas needed more sales effort and/or talent. By asking what products the customers were buying from other distributors, they not only learned which ones they should start stocking, but they also learned that products that were attractive in Wisconsin were not desired in New Mexico. This information fed the marketing and sales efforts.

Since the study, management has acquired warehouse space and rolled out new product lines. So far it's been a success and the company is very excited by the expansion. Employee morale picked up because it showed them that management was back "in the game" and customers appreciated that they were asked their opinions. Management took the opportunity to also learn about customer service, website functionality and shipping issues.

There is no substitution for frequent and direct communication with your customers and even if many of your customers are small, they add up to something pretty big. If the only communication with these customers lately has been an invoice, then maybe it's time to find an inexpensive way to get in touch, tell them that you value their business and ask what they're thinking.

And you might just find out where your next wave of growth is going to come from.

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AJ Steger is a principal with EKS&H Business Consulting, providing management consulting services in the areas of business strategy and financial performance improvement. He can be reached at asteger@eksh.com  or by calling 303.740.9400.

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