Collaborate with Customers on Value Creation
The Challenge: Our clients annual sales volume and business is heavily concentrated with a small number of major customers. Given this concentration, our clients ongoing success requires that these major customer relationships remain profitable. In recent years, however, many of these relationships had become adversarial, with pricing battles becoming more of the major focus. In tandem, the margins that this client was earning from sales to these major customers were on a steady downward trend. In one situation, margins were getting close to the point at which the relationships value was being questioned.
Assessment: Based on a detailed assessment of the factors that contributed to pricing pressures, Blue Canyon concluded that these relationships were, in fact, operating in market environments that would allow both organizations to prosper. There was no external reason why the interactions between the two organizations should have shifted to battles over margin. The relationship between the two organizations had deteriorated, partly because of the customers overly aggressive approach to supply chain management, and in part because the supplier had implemented some cost-cutting measures during an economic down period which were continuing to have negative repercussions. The challenge was one of rebuilding trust between the two organizations, so that they could refocus on their external challenges rather than fighting for the last nickel left on the table between them.
Strategic Solution: Our team worked with this client to develop a new approach to relationships that was focused on value creation and targeted on opportunities of interest to each of the firms major customers. We helped this client communicate to each major customer how collaboration between the two firms could result in an improved bottom line for both. We also identified the activities that were required to ensure that these key customers would be receptive to a relationship focused on market opportunities in a climate of trust, replacing the present situation in which interactions were focused on issues between the firms and on pricing.
Results: Our client was able to reverse the recent deterioration in its key customer relationships, and has moved onto a path where there is greater stability and steady improvements in both volume and margin.