Becoming the Preferred Supplier

There is a lot of conversation at the moment in relation to preferred supplier benefits and sales and together with this several schools of thought in relation to what is best practice from an agency perspective. The reality is really that it needs to be looked at from two key perspectives; firstly that of customer satisfaction and secondly from the financial implications on the business.

The Customer Perspective

There is a sound argument that in order to engender customer loyalty and achieve high levels of customer satisfaction, consultants must aim to meet (or exceed, if you listen to the guru’s) customer expectations and therefore it is rational to assume that the more definitive the expectation, the less choice there is of appropriate products to meet this expectation. The simple example is if the customer wants a blue seat with bells on then a red seat without bells will not be an option that is likely to bring the customer back to you or indeed keep them satisfied, however, if a customer just wants a seat then red or blue, with or without bells will do.

The key words here are expectations and options. For consultants the key skill is ascertaining just exactly what the customer expectations are and then determining the most appropriate options.

The Financial Perspective

The impact on financial benefit to the business by the use of preferred suppliers can be significant with incentive revenues, sponsored training and education and productivity gains through streamlined processes, product familiarity and dedicated support functions.

As a conservative view of an additional financial benefit of just 2%, the impact for an average agency (Turnover $4.0m) would be circa $80,000 in revenue and assuming all other operational factors are equal then this could be taken as additional net profit – Our research through our benchmarking of the industry shows that this figure could well be the difference between profit and loss for most businesses.

Understanding this, it is imperative for most agencies to adhere to some form of preferred supplier programme for without it existence would be difficult. Understanding the Kickers Most preferred supplier agreements have “tiers” that will increase the level of incentive payments relative to sales growth and most of these are paid retrospectively back to dollar one. Unfortunately the management of these tiers is somewhat sporadic within the industry and it is not uncommon for agencies to miss out on achieving additional incentive revenues. From a revenue basis this can again be significant, a 0.5% kicker on a $250,000 sales base is only $1,250 but if you apply this across 10 different products then suddenly the impact is $12,500. So we are left with the age old conundrum of service (meeting expectations) and profit (reason for existence) and as with most service based businesses the focus turns to those delivering the service – consultants. It is at this point in the sales process that directional selling or positioning of product can be achieved and a skilled consultant can not only meet the expectations of the customer but also influence the use of a preferred supplier product assuming that the expectation and available options match.

As a final note for you as a member of a major chains. There is significant evidence that continued support of group supplier products ultimately leads to greater benefits. This is sometimes a little bit contentious as non preferred suppliers will try various forms of incentive to entice agencies to step outside of the group guidelines and this does make individual buying decisions tempting. However, from a group perspective, greater benefits (either financial, productivity or educational) can be driven if the group can truly evidence support from the member base. That is, suppliers will be more inclined to maintain and increase benefits if groups can demonstrate the ability of their members to influence product selection. Just as importantly existing preferred suppliers will want to protect this market share and wannabe suppliers will pay a premium to be included in the programme if there is evidence of an ability to shift product selection. One does need to take a view for the greater good and for the longer term with this understanding, certainly worth considering when looking at your agency practices.

The real questions to be asking about your agency practices are:

• Do you fully understand the financial implications of your current preferred supplier arrangements?

• At any point of time are you cognisant of how you are tracking against preferred supplier targets both for your agency and your group?

• Are your non-preferred sales really being driven by client demand or is it just easier to give the client what they initially ask for without consulting?

• Are your staff aware of the implications of any preferred supplier arrangements?

• What is the cost of not conforming to a preferred supplier programme?

• What is the benefit of selling non-preferred suppliers?

In summary, from a financial performance perspective the preferred supplier route is a proven approach to increased income at both gross and net levels. From a customer perspective, if the client is not definitive about expectations use your skills to influence, if they are definitive find the best match and give the client the choice. The Resurg ‘Preferred Sales Manager Dashboard’ enables you to accurately monitor preferred sales by consultant. With this tool, you will know what product choices consultants are making at the point of sale.