Last week my column addressed Short-Term Planning for 2009-10, because manufacturers of all sizes expect a tough year in 2009 and should use the time to plan effectively for 2010, when the economy is predicted to grow again.
One of the most immediate tactics that manufacturers can take to develop their two-year plan is to Diversify Markets and Customers. The current situation with many firms, particularly in Ohio and Michigan is that they have had an over-reliance on a small group of customers in a single market segment. Automotive Suppliers are the most obvious example of this situation, that I call Single Customer Syndrome.
It’s obvious to any company what the negative results can be of an over-reliance on a few large customers in a single market segment, like Automotive Parts. To put it bluntly, When your customer sneezes, your company usually catches the flu.
In many cases, particularly small & medium size manufacturers that find themselves in this situation have no real outwardly focused Sales, Marketing & Business Development functions. This is largely because they have received P.O.s from their major customers regularly and never had to worry too much about the sales process. Many automotive suppliers have had to jump through plenty of hoops to retain their business: Cost Downs, ISO 9000, QS, TS, ISO 14000, Lean, etc. These methodologies have undoubtedly helped improve the operational side of the business, primarily to the benefit of the customer in terms of costs, but have not done much for the Sales Growth side.
Today it is imperative that forward looking manufacturers consider diversifying markets and customers in order to sustain their businesses long-term and minimize the risks of Single Customer Syndrome.
Take This Test
Take this simple test to determine your current condition:
- Are your sales reliant on three or less customers?
- Are they all in the same or similar industrial market segments?
- Are these market segments related to the US domestic automotive industry, or are the primary segments you serve trending down in terms of growth?
- Is your sales team largely “inside sales” and mostly responsible for the care and feeding of your main customers?
- Is your company’s history largely based on serving these customers and market segments?
Where to Start
- The first step is acknowledge your current condition and the weaknesses you have internally in terms of markets, customers, products, services, marketing, sales and processes.
- Sit down with your management team and ask yourself the questions above and list the weaknesses you have as a business that inhibit your ability to find and develop new customers in new markets.
- Now reverse the process and ask your team what strengths you have that can potentially be leveraged to help find new customers. If you are an automotive supplier, you are in better condition than you might think compared to potential competitors because you probably have an ISO 9000-2000 certification, have begun implementing some of the elements of Lean to take waste out of your processes and use other procedures that you have been required to adopt.
- List all of your customers and scrutinize the smaller ones that are in different market segments than your main customers. Are any of them very profitable or appear to represent new growth potential? Does your company appear to match-up particularly well with any of these customers? If the answers are positive, then you have the beginning of a market diversification strategy, i.e., to find more customers like these in specific market segments. If not, then you will need to do more analysis and research to find other potential market segments to go after.
- Take a hard look at your marketing and sales processes. If they are mostly internally focused and represent little experience in finding new markets and customers, then this is your first order of business to change.
- Do you have team members who excel at outside sales or have the potential to do so? These people deserve your attention, they should be developed and given new skills and support to become “sales hunters”. You need more of these people to diversify your business.
- You should also consider integrating your sales and marketing efforts, so they mesh to generate new sales opportunities. Sales needs support from marketing and vice versa. In particular sales team members need help with market research, understanding decision-making drivers from potential customers and other intelligence beyond websites and brochures. Marketing needs direction from sales in terms of what new opportunities are presenting themselves from first hand experience.