Canadian Association of Movers L'Association canadienne des déménageurs

Maintaining Profits:
Sometimes Highest-Quality Customer Service Is a Mistake

David L. Sparkman, Editor, Direction magazine, The American Moving and Storage Association Robert Langdon You should deliver only the highest quality service you are capable of at all times to all customers, right? You couldn’t be more wrong, according to one expert. In reality, in most cases, less than one fifth of your customers supply 80% of your profit, and it is these customers who should get the lion’s share of your attention, says Robert A. Langdon, a Certified Public Accountant and business consultant who authored the book, Managing Your Business for Profit. He led a two-part session on improving profitability at the 2001 American Moving and Storage Association Management Conference and Trade Show in Tucson, Ariz. Unlike many consultants, Langdon has actually worked with clients in the moving industry and took the time to visit some AMSA members before assembling his presentation. As a result, he knows the world movers operate in and the characteristics of the market that make this industry different from any other in North America. "There are only three ways to increase profits in any business, whether you are a van line or an agent," he asserts. They are reducing expenses, increasing sales and increasing your profit margins. Reducing expenses is the route to profitability that you have the most control over, but you can quickly reach the point of diminishing returns. In most situations, if you have been in business for a while, increasing sales is the route you have the least control over because of natural limits on the size of the market, the labour pool and your ability to manage substantially increased business. That leaves finding new ways to improve your profit margins and you should begin by re-examining your marketing strategy to discover when your customers will be willing to pay more for your services. This boils down to people making purchase decisions based on either "need" – it is a necessity they must have – or "want" – they want something, but they don’t really need it. "When they want something, emotion is involved," he observes. "Price is still involved in the purchase decision; however, when you want something, price is less important." Selling on Emotion But how can you sell on emotion, not price, when moving furniture is the service you offer? "One key factor to understand is that most buyers begin as price buyers," he points out, and it is up to your salespeople to shift the conversation to emotional issues. Langdon told the story of what happened the last time he and his family were making the choice of a mover. He called three companies. The first two sent out salespeople who gave him estimates. When the third salesperson arrived, Langdon told him what those price quotes were, but that salesman deflected the discussion away from price at the outset by assuring Langdon that his company’s price would be competitive with the other two – without putting forward an actual dollar figure. "Always say early in any sales presentation that your price will be competitive," Langdon explains. "If you quote a price initially, you will spend the rest of your time defending it." The third salesperson made Langdon an emotional buyer by asking a series of questions about the anticipated move, including whether family heirlooms were involved. The process of asking questions also drew Langdon out of his position as a price buyer and into the sales presentation without his realizing it. "If you want to control the conversation early on, you want to be able to the one who is asking the questions," he notes. "The person asking the questions controls the conversation. It also helps you differentiate yourself from your competitors." After the questioning, the third salesman then launched into a careful and detailed explanation of the services his company offered that matched the emotional-buying-decision issues that had been raised. At the end – and only at the end – did he broach the subject of the estimate, which turned out to be slightly higher than those of his two competitors. Guess which moving company Langdon selected? "The bid from the third mover was only $50 more than the others, but I chose that mover, and the salesperson ended up adding 5% to his company’s profit margin for that move." Differentiating Your Service But how do you explain to a prospective customer how your firm is different from your competitors’? Langdon suggests making a list of what you believe are your company’s marketing advantages using input from your employees. "Make sure that you do not include generic features – such as ‘superior quality’ and ‘excellent service’ – and do not include price." When you are done, make a similar list applicable to your primary competitor. Then delete the items that are on both lists (such as years in business or the fact that both firms are locally owned). Now comes the hard part: identifying and selling to the upscale, service-driven customer. The first thing you should do is to identify where most of your profit comes from. Langdon says research has shown that 80% of your profit most likely comes from just 17% of your customers, and 110% of your profit comes from 27% of your customers. In most cases, however, 80% of your time is dedicated to your lowest-margin, price-driven customers. When shaping a marketing strategy, you should focus your efforts where they are most likely to pay off. Research has also shown that the chances of making a sale are 14% when trying to sell to a new prospect, 25% when selling to a former customer and 50% when selling to a current customer. Here’s a difficult task: identifying the least-profitable customers so that you can shift your customer service efforts away from them and toward those who are the most profitable to you. In some cases, the least-profitable may be the customers you currently believe are your most valuable – large corporate national accounts that look impressive on a client list but which don’t pay for the intensive services they require and allow you to make a profit, too. The least-profitable customers, for example, are ones who tie up your toll-free 800-number phone lines so that the more-profitable ones can’t get through. "Consider establishing a separate 800 number for your 17 percenters, answered by your best customer-service people or a manager empowered to make decisions to satisfy this important customer group," Langdon suggests. But what about those folks who fall in the 80% group, such as less-profitable national accounts? Won’t they bolt? It’s not likely, he says, because they are solely driven by price. "Price buyers will accept abuse precisely because they are buying on price." And if some of them leave, you are likely better off, Langdon adds. "Instead of market share, you should think customer share of your own best customers by making sure your most-profitable customers want to do business with you again. The quicker you realize this, the better off you will be." Based in Denver, Robert A. Langdon will do presentations on improving profitability this spring for United Van Lines Canada, the American Moving and Storage Association Management Conference and Trade Show in Orlando, Florida, and the California Moving and Storage Association in Reno, Nevada. Should you or your company want additional information concerning sponsoring one of Mr. Langdon’s programs or his Managing Your Business for Profit books, audiotapes and computer programs, please contact him at 303.377.3131 or via e-mail at ralangdon@aol.com. Reprinted with permission from the May 2001 issue of Direction, published by The American Moving and Storage Association

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Posted April 18, 2002