Editor's Note: The continuous decline in offline foot traffic is an indisputable fact. However, this does not mean that offline channels are no longer important, or that attention and investment should be reduced. Compared to embracing the endless stream of new retail formats, holding the ground of offline channels is more critical in the current volatile market environment. How to hold it? Only through meticulous cultivation and professional management to increase volume and efficiency.
To this end, New Distribution, in collaboration with Mr. Cao Yang, former General Manager of Key Account Management Group Channel at Coca-Cola China, has launched the "Key Account (KA) Management Practice" series, hoping to provide frontline channel managers with a complete methodology for managing offline key accounts in a "chaotic market." This series consists of about 20 issues in total; this is the third issue, as follows.
Whenever customer managers are asked how they interact with customers, everyone says they need to understand customer needs.
But if you continue to ask: What specific needs do you need to understand? The answers vary.
There is a common misconception about understanding customer needs
Many people believe that building a good relationship with the procurement manager is crucial, and understanding the procurement's personal needs is equivalent to understanding the customer's needs.
If you focus your main energy on building relationships with professional modern trade customers (hypermarkets, supermarkets, convenience stores), there is a big problem.
Have you ever thought about how the procurement manager views you?
As buyers for a professional retailer, they categorize brand customer managers into professional and unprofessional types. This is an unwritten rule but a real phenomenon.
If you only focus on building personal relationships with the customer's procurement manager, using gray means or under-the-table operations, you are likely to be classified as unprofessional.
1. Procurement managers have already categorized customer managers
As a KA buyer, managing hundreds or thousands of suppliers, they have "seen countless suppliers." From a professional standpoint, they divide suppliers into professional and unprofessional categories, and they treat them differently.
Let me give two examples.
Back in the day, when Carrefour was still managed by the French, it was the No.1 retailer in China. Carrefour's headquarters would select one supplier in each category as the category captain to carry out category management cooperation. Prominent suppliers included Coca-Cola and Procter & Gamble, among others.
Carrefour would hold regular high-level meetings, business reviews, and discuss annual business plans with these important suppliers.
The category captain would share category management analysis results and consumer behavior insights with Carrefour. The annual plan was also developed with multi-departmental and multi-dimensional participation. The procurement department highly valued these professional meetings, inviting colleagues from marketing, category management, and store operations to attend.
In private exchanges, the buyer would say: "We don't hold this form of meeting with all suppliers; we only do it when we think it's valuable to the business."
The buyer continued: "If a supplier doesn't have data and insights that help the business, and doesn't have a multi-departmental cooperation plan, there's no practical meaning in inviting them to meetings. For some suppliers in categories like roasted seeds and nuts, a simple approach is sufficient; I can handle their annual plan alone."
Buyers are human too. Although the company requires them to respect suppliers and treat them equally, the treatment of suppliers with different professionalism levels is different.
When a buyer makes a professional annual plan with a supplier, it involves many departments and many indicators, making the operation relatively complex.
But for unprofessional suppliers, it's just "ask for money, ask for volume," using a simple (rough) approach. This is not to belittle procurement managers; you need to know how busy they are every day. They simplify whenever possible; it's human nature.
The above is an example from a customer headquarters; below is an example from a store.
A well-known chain retail customer, the store supervisor was once very popular, with suppliers of all sizes queuing up to "invite for meals." They would often finish work in the morning, have lunch with small suppliers, get foot massages, and then have meetings with professional large suppliers in the afternoon to discuss business.
Some customer managers look down on the form of meetings where you present PPT to customers. Little do they know that the buyer also thinks you are not qualified or necessary to use PPT for meetings; they just want you to give a rock-bottom price, pay for displays, and specify how much to stock, and that's it.
The above two examples illustrate how buyers treat suppliers differently based on professionalism.
2. Why understanding customer needs is not just about building relationships?
1) First, we must admit that building relationships is important. Maintaining customer relationships is indispensable, but remember, it is not the whole of business. The more professional the customer, the weaker the power of relationship-building.
2) If you are classified as an unprofessional supplier, you will be treated in a simple and direct way.
Customer relationships are important, but once you put your main energy into building relationships, giving gifts, or giving small money, you have already been categorized by the customer.
Even if the buyer sometimes appreciates your "approach," they cannot treat you with professional methods. The reason is the last point.
3) The less professional the customer manager, the more they need to build relationships.
In fact, some customer managers, precisely because they don't understand the customer's business and don't know professional operations, can only use relationship-building and other means to maintain business dealings.
4) Customer internal supervision is very strict, and procurement managers have high turnover; using relationship-building is inefficient.
Professional customers have strict internal management systems and use various ways to remind suppliers not to bribe or violate company requirements. Moreover, procurement managers have high turnover rates, often changing jobs or positions. You just build a good relationship, and before you can use it for long, the buyer leaves, and you have to rebuild the relationship with the new buyer...
5) Procurement managers survive mainly on performance.
Professional retailers use KPIs to manage the business. Not only procurement managers, but anyone who wants to keep their position and develop personally must rely on performance. From the supplier conferences held by retailers, the information conveyed to suppliers is performance-oriented, hoping that suppliers and retailers will work together to create high performance.
Small suggestion: Key enterprise leaders should find opportunities to attend supplier conferences, especially those of well-known retailers, as it is very helpful for understanding the retailer's thoughts (needs)!
If you spend your energy on maintaining relationships, your contribution to the buyer's performance is limited.
I need to emphasize that for professional modern trade customers, you need to use a professional + relationship approach, not mainly relationship-building.
Winning the customer's respect mainly depends on performance!
Help customers achieve their targets; understand customer needs by first understanding the customer's KPIs!
To understand customer needs, you must understand the customer's KPIs
1. Procurement managers' needs have three levels from low to high
1) The first level of procurement needs is safety. They don't want problems in cooperation with you that affect the boss's evaluation of them. For example, holding a brand roadshow or a large consumer lottery has certain risks. If the event fails, the buyer cannot explain to the boss.
2) The second level of procurement needs is peace of mind. The procurement department is always understaffed! Procurement managers have many things to do every day. You need to help them improve efficiency or reduce costs, which saves them worry. For example, providing merchandisers to do on-site restocking, so the buyer doesn't have to pay labor costs and can keep the displays neat.
3) The third level of procurement needs is performance. Without performance, there is no procurement. Achieving performance means achieving various assessment indicators (KPIs).
It is not difficult to see that among the three levels, the first and second levels are relatively easy to achieve, and they are also where relationship-building can help the buyer.
But helping the buyer achieve performance requires helping the buyer achieve KPIs.
2. What are the customer's KPIs?
For retailers, the most important indicator is profit; customers open companies to make money.
To achieve profit targets, they need to increase sales, improve profit margins, and reduce costs. The factors driving these indicators include foot traffic, average transaction value, customer loyalty, efficiency, etc.
Customers break down these indicators into result indicators and process indicators, split into monthly, weekly, and daily targets, and gradually achieve annual goals. Professional buyers will pull up various indicators for analysis before meeting suppliers. When a supplier proposes a promotion plan, the procurement manager will compare it against KPI indicators to determine which parts are beneficial for indicator improvement and which need modification.
3. Many business problems, after in-depth analysis,
can be directly or indirectly related to customer KPIs
I have come into contact with many KA managers who have raised many operational issues that cause confusion in their work. Here are three typical problems:
Our company has a low share of the customer's business, with a large gap compared to competitors. We are not taken seriously. What should we do?
We negotiated contract terms with the customer's headquarters, but after the headquarters issued them, the stores received different information or did not execute. How can we improve the execution of contract terms?
The buyer is aggressive, only asking for resources and fees, not focusing on output. What to do when the input-output ratio is not proportional?
In fact, these problems seem very different on the surface, but they are all comprehensive issues, involving both the supplier's own reasons and the customer's reasons. But from a deep cause analysis, many are directly or indirectly related to the buyer's KPIs. Below we will briefly explain from the perspective of customer KPIs.
For the first problem, the buyer's attention to the supplier is directly related to the supplier's performance contribution to the buyer. If you contribute more to performance, the buyer will naturally pay attention to you. So you need to win the buyer's respect with performance.
The second problem reflects the inconsistency between the customer headquarters' KPIs and the stores' KPIs, which is objective. There are internal coordination issues within the customer, and at the same time, the customer manager also faces the issue of how to balance investment with customer KPIs.
The third problem: the buyer is aggressive towards the customer manager. Some buyers may indeed have a bad attitude, but all buyers must complete KPIs, including sales and fee targets. This is beyond doubt.
Fairly speaking, when the procurement manager has clear indicator requirements, but on the supplier side, not all customer managers and business owners are familiar with customer KPIs, and not all buyers have enough patience to explain clearly to customer managers, it is natural for the enterprise to feel that the customer is aggressive.
From a KPI perspective, the buyer must achieve sales targets and also fee targets. If the customer manager does not provide a professional activity plan, the buyer can only simply ask for fees.
4. The importance of being familiar with customer KPIs
1) Being familiar with customer KPIs allows the enterprise to leave enough profit space for the customer in the product value chain. Especially for new products, I suggest that when the marketing department designs the value chain for new products, they must pay attention to the customer's needs for front-end and back-end gross margins.
2) Being familiar with customer KPIs makes enterprise investment more targeted and effective. Some enterprises control the single expense amount for modern trade customers well because each expense goes through approval, but when combined, the expense rate is very high!
This indicates that the allocation in the value chain is unreasonable, and the enterprise spends a lot of unnecessary money. The main reason is the lack of targeted operations based on customer KPIs.
3) Reaching common goals with the buyer and continuously improving indicators can achieve mutually satisfactory results.
There are many successful cases where retailers and enterprises cooperate to set common goals to improve indicators. Here is a story about improving front-end gross margin.
Customer manager Xiao Zhang was recently "chased" by a buyer from a chain with 300 stores. Over the past six months, due to extensive consumer promotions, the customer's front-end gross margin was only 5-8%. Although Xiao Zhang's products had large sales volume and ranked first in the category, the front-end gross margin was poor. The buyer was under increasing pressure from the boss to improve the front-end gross margin.
So after a business review, the two discovered that although Xiao Zhang sold a lot, he also didn't make money and was warned by his company.
Through data analysis, they found that the reason for the sales increase was that low-price promotions accounted for 80% of total volume! Both sides made significant concessions, benefiting consumers, but both were losing money.
Immediately, the two made a plan to increase the front-end gross margin to 12%, while reducing the proportion of promotional sales to below 50%. Every month, they would analyze sales data in detail to determine which packaging promotions to run and which not to run.
They also broke down the goals, improving execution to increase sales in each store. When Xiao Zhang applied to his company for new product listing prices, he increased the new product listing gross margin to 18-25%, and also ensured a 9-10% gross margin during promotions.
After 18 months of joint efforts, the front-end gross margin gradually reached the 12% target, and the promotional sales ratio dropped to 45%.
In conclusion:
Understanding the customer's KPIs and skillfully applying them in your work, you will find that they are involved in all major modules of KA basic management, whether you are signing annual agreements, product supply, store execution, marketing activities, or joint business plans.
Professional practices can allow both parties to achieve their respective KPIs, and the profitability of the enterprise and the customer will gradually improve. Practice has proven that this is achievable; the key is having professional people and professional practices.
Finally, two suggestions for enterprise managers:
1. Evaluate the professionalism of customer managers by whether they skillfully use customer KPIs in their work to achieve common goals.
2. Increase opportunities to interact with customers, understand customer needs from a management perspective, such as attending high-level meetings and participating in supplier conferences held by retailers.