Relationship Hierarchy

How Accounts View Dealerships

By Walter J. McDonald

In our previous article on A/B Account Contact Frequency* we discussed the importance of building relationships with those top accounts that provide 80% of your business. An insightful way to measure progress in building those relationships is to determine how these A/B (and some C accounts) view your dealership. Are we seen as a valuable external asset by helping solve problems, or as just a commodity vendor selling on price. What are their perceptions? Where do they put you on the Relationship Hierarchy?

* Contact me if you’d like a copy: walt@mcdonaldgroupinc.com.

Five Possible Levels of Business Relationships

In our experience, the Relationship Hierarchy model can help equipment sales professionals build more lasting business relationships. This pivotal relationship interaction must be understood. And, to be effective, Account Managers must move up the Relationship Hierarchy.

The Customer Relationship Hierarchy

The Relationship Hierarchy

Having an A/B Account sales responsibility means you must build a relationship with each of the influential people in the account. The relational model of the hierarchy above illustrates ascending levels of strategic importance you can be to the customer. The hierarchy is a visual image of your position with the account. Knowing where you stand is an indispensable aspect of account information and management. Your relationship can be strong or it can be weak.

It’s not you but your customer who decides at what level you’re positioned. We highly recommend you work your way up the relationship hierarchy, but it’s your customer who decides how successfully you do this. Levels of the hierarchy should be understood not as discrete steps or plateaus, but as positions along a continuum.

Your customer will have a good sense of where you are positioned, but it may not be quantifiable. And, it may not be where you think. No magic signal will inform you that you are now at level 3. One very important consideration is that as you move up in position on the Customer Relationship Hierarchy, three very positive things happen:

• there is less competition,
• less price sensitivity,
• and less importance of product features.

Level 1:  COMMODITY SUPPLIER

At Level 1, you are seen as the supplier of a commodity. It’s easy to get positioned at this level. But there’s no leverage here for establishing long-term relationships. Why? A good example is the global futures market. In the global futures markets, commodities are traded in bulk: sugar, crude oil, pork bellies, lumber, and gypsum, with no regard for special features of added value. These very different products have one thing in common. They must meet minimum standards, but there’s virtually no competition with regard to quality beyond those standards.

One supplier’s raw sugar is pretty much the same as the next supplier’s. Availability and (most importantly) Price are the only differences among suppliers of such commodities. When a customer sees you as supplying commodities, you have virtually no control over what happens in the account and almost no chance of growing a long-term relationship.

Why? Because commodity trading has very simple rules: “Buy cheap, sell dear.” If your customer thinks what you sell is almost indistinguishable from what competitors have to offer, then your only bargaining chips are availability and price. Not a very secure position. You can be outbid at any time by anyone selling a similar commodity.

Level 2:   EMPHASIS ON PRODUCT FEATURES/TECHNOLOGY

At Level 2 on the Relationship Hierarchy, you’re seen as a supplier of “good” products that incorporate technological leadership or that meet technical specifications. These products are backed up by service and support offers. This is an improvement, but it is still a shaky position. Reason: competition.

You can establish a competitive position with bells and whistles and faster service or other add-ons but you can’t maintain this position for long. Eventually, a competition not only catches up but leapfrogs over you and you are back to selling commodity-style again. (Over the past decades most manufacturers have achieved parity in required product features.)

“Distinctive” features and services are now part of everybody’s arsenal. This happens all the time in the equipment industry.

Major manufacturers of heavy trucks, forklifts, and forestry and construction equipment all provide quality products. The parity between manufacturers’ quality of products has greatly increased. If you want to play in this league, you have to give more and better service on top of quality products that meet specs.

LEVEL 3:  EXCELLENT PRODUCT SUPPORT

At Level 3 on the Relationship Hierarchy, your customer sees you as providing not just good products, but as part of the deal, your dealership is providing outstanding, excellent after-sale service and support. Your dealership provides service quickly, and professionally, with no excuses. Level 3 means going the extra mile. More and more businesses today are differentiated based on how they treat their customers, not just what they sell them. Excellent service and product support are fast replacing features and benefits as the determining factor. This increases the “minimum acceptable” level of performance up another big notch.

Consequently, at Level 3 the importance of service support replaces product features and benefits. Suppliers who are unwilling or unable to provide such extras as dynamite aftermarket product support are increasingly being squeezed out.

This means that excellent off-shelf parts fill rate and high-quality field service are now absolutely essential to be a serious player.

Today, excellence in Product Support is just the ticket to play!

LEVEL 4:  QUANTUM LEAP TO BUSINESS ISSUES, INFORMAL PARTNER, ADVISORY ROLE

At the first three Relationship Hierarchy levels of business relationships, the number of players remains high. So does your customer’s sensitivity to product price. Both of those things change dramatically when you make the quantum leap to Level 4. At this level, you have become an Informal Partner in their business.

At Level 4, customers perceive your company as providing not just good products and excellence in product support, but also providing help in the actual improvement of their businesses. When you are positioned here, you understand each account’s business problems and objectives.

You present practical, creative ideas that address not just customers’ day-to-day operational needs but also their ongoing profitability concerns. You sell products and services that help remove those concerns.

Customers who see you saving them money are going to seek you out beyond this bid and quote period: They’ll want your business as much as you want theirs. They’ll want it even if it cost them a little more. As you become positioned toward the top of the Relationship Hierarchy, you can charge a premium price for your products and services because you’re providing much more than mere products and services.

This has nothing to do with the customer becoming your friend. It’s a matter of enlightened self-interest. “Help me lower my costs, increase productivity, reduce my cost, increase my revenue, boost my profit and you can be sure I am going to work with you and your company. And we will pay a premium for this service level with a smile.” That’s what value-added business is all about.

Your goal is to help customers lower overall cost, increase sales, boost profits, and improve productivity. This is your Profit Zone!

LEVEL 5:  CONSULTANT– ASSISTING THE CUSTOMER’S ORGANIZATION

In many businesses today, efficiency and profit are being hindered by internal bureaucracy, confusion and organizational turf fights. This offers the perceptive sales professional a great opportunity. If you can help reduce the logjams in your customer’s “internal affairs”—if you can help their ships sail smoother, day to day—they will consider you to be an external asset.

For example, they may have conflicts between project engineering and operations because of poor equipment maintenance procedures. You can help fix that.

This happens on Level 5 of the Relationship Hierarchy. In the best of all business relationships with your customers, you go beyond providing them with good products, and extra service and help with their bottom-line concerns. You become an informal consultant to their organizations by contributing to their efficiency as an organization.

It is difficult to contribute consistently to your accounts’ organizational issues. It’s even more difficult to be perceived as doing so. Yet, even still, there may be opportunities to work at this level if you look for them.

Doing so is almost always worth the effort because the potential differentiation from your competitors at the top of the Relationship Hierarchy is extremely valuable to you and your dealership.

It is important to note that as you move up the Relationship Hierarchy there is less emphasis on price, and product features, and less competition.

ADVANTAGES OF WORKING UP THE RELATIONSHIP HIERARCHY

1. As you move up the Relationship Hierarchy, competition decreases. This is simply because so few machinery dealerships know how to best present themselves when addressing their Key Accounts’ organization and business concerns. Perhaps their territory account managers are not conducting adequate problem-identification diagnostic interviews.

Every business in the world pushes its products, a small number are in the business of providing buyers real solutions to their problems.

2. Less price sensitivity. If you not only offer excellent products and world-class aftermarket support but also provide true added value to the account’s business, you are under less price pressure. Customers are often willing to pay a premium if you can provide excellent after-sale parts and service support that help them become more profitable.

3. The importance of product features decreases. The contributions you are seen making to the clients’ business outweighs the significance of technical characteristics of your equipment. Many years ago, Caterpillar or IBM often did not have the very best products. But, they won more often because they were perceived to have the very best after-sales support.

The Relationship Hierarchy approach to account management means providing solutions or improving results. Both are defined from an account’s point of view. You have to aim for solutions to each customer’s specific, bottom-line problems.

If you employ proper diagnostic questions, you can more easily identify those specific issues or needs.

HOW TO DETERMINE YOUR RELATIONSHIP HIERARCHY POSITION

Here is a real-life example: A Sales Manager in my recent Executive Sales Management Workshop explained the Relationship Hierarchy levels in meetings with his A/B Accounts. He asked each customer to position him on the Hierarchy. Customers obliged but the Sales Manager was shocked to learn that he often greatly overestimated his position on the Hierarchy. These honest assessments gave him insights as to what he needed to do to improve his position and become more competitive in each account.

SUMMARY

As you work up the Relationship Hierarchy, it is essential to monitor your “competitive position.” A semi-annual SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is recommended. Also monitor Market Share, Share-of-Mind, and Share-of-Wallet. Does the Key Account see you as a full-service/support informal Partner or just a product/application-focused vendor? Or, even worse, does he only see you as a low-price vendor?

You add value by helping customers avoid costs or decrease costs. To add value, you need to know and understand the account’s business operations better than they do. You want to help your Key Accounts develop a competitive edge. This positions you as a trusted business advisor.

Looking forward to discussing any aspect of this article with you:

walt@mcdonaldgroupinc.com