Managing big customers is difficult. But its massively important to the success of our brands. Those retailers typically stand between us and the shopper, after all. We have great ideas, and a great plan, but to make it happen in-stores we need to convince retailers that its in their interests to support us. Most key account managers know how to sell (and if you don’t, give us a call!) and at the heart of selling is understanding customer needs. But what happens when your customer starts doing something which seems, on the surface at least, to be irrational? Later in this post we’ll share the simplest way to better understand changing customer needs and a simple free tool to help. But first, here is a simple case from Tesco Thailand which illustrates that if you don’t understand what your customer is doing, perhaps you don’t understand your customer enough!
Understanding changing customer needs – Tesco Thailand
When we run a workshop on retail customer management, we’ll cover, at some stage, the mantra that retailers are in business to make profit (in that they are the same as manufacturers). But that what differentiates them is the strategies they use to make profit.
But in Thailand Tesco began taking decisions which didn’t seem to be achieving that at all. They radically cut prices on major lines down to wafer thin margins. They didn’t (in many cases) ask the manufacturer to support. Why would Tesco cut margins on key lines? They were already price competitive, indeed often cheaper than the market, so it wasn’t about price positioning. Arguably they were unlikely to bring many more shoppers in, as they were already cheap. To many brand owners, it didn’t make any sense.
Understanding changing customer needs – What were Tesco trying to do?
It took a connection between two separate pieces of information for me to formulate a hypothesis.
Firstly, I read in the press that Tesco globally had very high debt, and because of some of the profit difficulties they have had over the last year or two, the cost of that debt was going up. I thought nothing of it, until I had a conversation with a friend who works in the industry, and is a supplier to Tesco.
When I spoke to a client about Tesco’s pricing policy, he complained. I asked why. Surely, if Tesco were funding the discounts, what was the problem? My client replied that the problem was that Tesco were now cheaper than the wholesalers. Small retailers were switching to Tesco stores rather than buying from wholesalers. This was a problem, because selling via wholesalers was significantly more profitable for manufacturers.
And then it all fell into place. Tesco Thailand weren’t trying to make a profit here, at least not in the conventional way. Perhaps they were simply delivering CASH. Massive turnover (all those retailers buying as well as shoppers), without a significant increase in capital employed or working capital, will produce cash. For a business with a rising cost of debt, it wasn’t hard to see that this might become a priority, higher possibly than operating margin.
If your customers’ actions don’t seem to make sense, you don’t have the full picture
It’s impossible to sell effectively if you don’t understand your customer. Armed with new knowledge about what Tesco’s motives and needs are, a different engagement approach might be envisaged. Strategies which support Tesco’s cash drive (but don’t mess with the wholesale channel) could be proposed. Without that knowledge, however, we are left guessing, and without any practical ideas.
How to better understand customer needs?
There are myriad sources of customer information: here I’ll suggest a few that are practical and accessible for pretty much any retailer anywhere.
Ask -The simplest way to understand what a retailer wants is to ask them. Now, they might not always be straight with you, but in my experience, you’ll get mostly the truth. To be clear, in writing this case I don’t actually know what Tesco’s motives were. But armed with a hypothesis a key account manager could ask the right questions to prove or disprove this.
Read -What surprised me was how few people in the consumer goods industry had really registered what was going on in Tesco at a corporate level. Some were aware, but most didn’t really think it was relevant to them. In this day and age, it is simple to set up an account with sites such as Feedly to deliver everything you need to know about your customer in one place. There really is no excuse for not knowing what is written about your customer. It almost goes without saying that annual reports are a must-read too.
Network – In any market, a major retailer has tens of thousands of suppliers. I’m not suggesting collusion here: but chatting about what you know, what you see, what you’ve learned is often high value. Use that time in the waiting room (yes, we’ve all been there!) to connect with some of your peers. They might not know anything, but just having the conversation might get your thoughts moving (as they did for me in this case).
Go to stores – If you want to understand a retailer, go to a store. Go to lots of stores. Look beyond your category, and when you see something (or even when you see an absence of something). Ask yourself why. Then ask your network why. Then ask the buyer why!
Customer understanding is fundamental to sales success, yet as sales managers’ and key account managers’ time gets compressed by meetings, reports, and running more and more promotions and activities, perhaps it isn’t getting the attention it deserves. Download our simple, free checklist of key facts every sales manager or key account manager should know about their account. You can use it to assess your current customer understanding, and build a plan to enhance it over time.