Archive for April, 2007
Anybody can gain brand awareness. It’s easy. Ever hear about streaking - the short-lived fad in the 70’s? That was someone’s 15-minute brand awareness, or longer if jail time was involved.
Brand awareness is like a paper wall. You can’t see through to the other side - until you break through it. Then you realize “Whoa, I’m here and everyone’s looking at me. Now what do I do?”
Seth Godin’s post about the brand formula describes brand as “..the product of two things: [Prediction of what to expect] times [emotional power of that expectation].
His advice is to “..keep awareness close to zero among the people you’re not ready for yet, and build the most predictable, emotional experience you can among those that care about you.”
For service contractors that means first revealing your business bedrock, your customer-experience promise.
Then creating tools that employees use to keep that promise.
There’s always pressure to raise brand awareness. However, this thinking doesn’t include the follow-on question of “Why should I (customer) care about you (contractor)?”
It’s more important and difficult to know who you are, what you stand for, and why customers should care about you. That’s why this work is rarely done.
~~~~~~
Chris Arlen
President, Service Performance
Technorati: brand awareness, customer experience, service contracts
April 24th, 2007
A local tree service made me think about the lifetime value of customers.
High winds and shallow-root hemlocks don’t go well together. After this winter’s storms we ended up with half a dozen 100-foot hemlocks lying around like matchsticks. Another six are tilting at crazy, dangerous angles. They needed to come down too.
There isn’t a shortage of tree services up here. Anyone with chainsaws and rented equipment are in business. Sounds like the service contracting business, doesn’t it?
So in comes John and his tree service. He was recommended by our builder. John doesn’t have a web site, or a brochure. He wears jeans and work boots. Exactly what you want from someone who’s going to cut, drag and chip tons of wood.
But John did a remarkable thing. He made a lifetime customer out of me. And I didn’t even feel it happening.
I wonder if he figured out the lifetime value (LTV) of my business. If he did, it would be the present value of all the profit he’d earn from me over a specified length of time. Would he then figure out how nice to be to me?
I don’t know if he was aware that keeping my business long-term is more profitable because he’s not spending money to get new business.
I don’t know what he thought. But here’s how I became a lifetime customer.
You Knew What He Wanted By His Attitude
From the first time we spoke, I could tell he wanted to do all our tree work. But he never came out and said it. Never.
You could just tell he wanted the work. All of it. Not just this one time. But the next, and the next. For years to come.
And these jobs don’t come up often. Only once, maybe twice a year at best. But John made it clear he wanted to be the one doing them for me.
To me, that means he didn’t see it just as a single transaction. He saw it for the long-term, as a relationship. To John, business is personal.
Honestly, what a concept! One that’s seemingly lost the bigger the spend. The more self-important we feel.
A Fair Deal for Both
One of the things he did say, and several times, was he wanted us both to get what we wanted. A fair deal for both. He made it clear he understood exactly what I wanted and reassured me I’d get it. And I believed him.
Listening
John listened to what we wanted. Spoke to me as if I have a brain (I do). Recommended what he thought should be done. Then did what I wanted.
Well isn’t that what all sellers are supposed to do? Listen to customers. But how well do we do it?
Doing a Little Extra
John did some extra backhoe work and didn’t bill me - nice. But it was less than an hour’s worth. So, he paid a little of his time. But it wasn’t a lot.
I don’t think this by itself made me into a lifetime customer. But how much did it contribute?
Nice Guy
Yes, John’s a nice, personable guy. You like him the first time you meet him. But I’ve met lot’s of personable business people. And I don’t give all my business they can do to them. So why with John?
This is what John didn’t do
- He didn’t throw discount pricing at me
- He didn’t offer a referral fee for sending new customers his way
- He never asked me to be his “alliance partner”
There wasn’t any formal selling or marketing. It was business to consumer selling. Still, there wasn’t any contrived negotiations or offerings. It was what it was.
The simplicity and straightforwardness of it made me wish more buying situations were like this. I’d happily create more long-term relationships with others if it would be like this.
How Did I Become a Lifetime Customer?
I’m still trying to figure out how John did it.
The only thing that stands out in my mind was his recognition, right from the beginning, that this was a long-term relationship. Everything he said and did was as if he knew he’d be working with me forever.
How Do You Make Lifetime Customers?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: customer, lifetime value, service contracts
April 23rd, 2007
Winning facility service contracts involves two cycles: the buying cycle and the selling cycle.
“The Revenue Monkey & Sales Stages” outlines the sales cycle, but there’s another side of the story, the buying cycle.
Both the buying and selling cycles are about exchanging value and money.
Customers want results in exchange for their money. Contractors, money for their service results.
Contemporary sales training focuses on the buying cycle. The logic goes something like this: “Customers want to buy, they need to buy - so help them buy and get out of their way”.
Traditional sales training focuses on the selling cycle. The rationale is that contractors “have to take action to create sales - So, what are we doing?”
Which to Follow: The Buying or Selling Cycle?
Both. And that’s where it may get a little confusing. So here’s an easy analogy, it’s a piece of cake.
Actually, that’s the analogy, it’s a cake. A two layer cake, with a top and bottom. Cycles are layers and they align, but not exactly, and not everywhere all the time. Just like the buying and selling cycles.
Contractors are operational creatures of habit. While they must work a process to generate sales, success depends on serving customers in their buying cycle. It’s walking and chewing gum.
In case you were wondering, the frosting holding the cake layers together is information, understanding and creativity.
The Customer’s Buying Cycle
Here’s my take on the facility service customer’s buying cycle. It’s about customers’ awareness and motivation to/from problems and goals.
1) Oblivious Stage
In this stage customers aren’t aware of any problems. Or goals they want to achieve.
It’s as if they say “Pebble in my shoe? What pebble? What shoe?”
They’re clueless, or inexperienced, or way too busy to be tuned in to the facility service they’re supposed to be managing.
2) Aware Stage
Customers in this stage have become aware of a problem, a real pain. Or recognize they’re not achieving the goals they want, or should achieve.
But right now it’s not worth their effort to change. It’s just not a high enough priority.
They know they have a pebble in their shoe but aren’t doing anything about it.
3) Motivated Stage
Now customers know they have a pebble in their shoe and are doing something about it. And in the facility service industry, they’re doing one of two things:
a) They’re working with their current contractor to problem solve or achieve the goal
-or-
b) They’re in some stage of going out to bid (RFP preparation, pre-qualifying vendors, or in RFI/RFQ/RFP)
Sales Stages of The Revenue Monkey
Contractors must stack the customer’s buying stages on top of its selling stages. Like a layer cake. Sales stages described in “The Revenue Monkey & Sales Stages” include:
1) Pre-Approach
2) Initial Contact
3) Follow Up Campaign
4) Bid Opportunity
5) Bid Submittal
The layered cake looks like this.
What It All Means
Do the work required by the selling stages, but (and there’s always a “but”) do it focusing on the customers’ behavior and motivation - based on their stage of the buying cycle.
Easily said, not done. And the devil’s in the details.
How are You Working the Buying & Selling Cycles?
~~~~~~
Chris Arlen
President, Service Performance
http://www.serviceperformance.com/
Technorati tags: buying, selling, service contracts
April 16th, 2007
You know what a reverse auction is. Leaving the light, moving into the darkness, and finally oblivion. From a contractor’s perspective anyway.
I don’t like reverse auctions. They’ve been called zero-sum, power-based bargaining. Meaning customers have all the power, and through coercion, extract savings from contractors’ profits. Not my idea of a partnership.
Did You Know?
Reverse Auction Defined
Wikipedia defines reverse auction as a b2b procurement tool where “…sellers compete to obtain business.”
Reverse auction is found 407,000 times on Google. And a lot of those are about sellers’ (contractors) bad experiences. Here’s what I’ve learned from you and Google .
At one time reverse auctions were thought to cover 10-50% of corporate purchases. However, over the years that’s shrunk down to 1-5% of total spend, because reverse auctions didn’t live up to the hype.
My guess is reverse auctions are held for about 1-2% of facility service contracts (security, janitorial, grounds, etc).
Reverse auctions seem to be used on large volume, facility service contracts rather than small ones. Probably because of the reverse auctions’ expense.
Also, reverse auctions are held primarily by customers who produce products. Maybe it’s their “economies of scale” mindset. They know it works for tangible things - they think it should work equally well for services. Bid out a large dollar contract and they’ll get huge savings, right?
No one’s told them the larger the contract - the smaller the contractor margin.
Sad Story Both Ways
One facility contractor told me he was in a reverse auction against only one other bidder. He suspected it was the customer using the reverse auction to drive down his incumbent price.
Don’t laugh. It happens. Here’s a few other areas where customers get sideways with reverse auctions:
- Not intending to switch contractors, just checking market pricing
- Intentionally including unqualified contractors to drive pricing down
- Providing incomplete or inaccurate specifications
Don’t get me wrong. There are unethical contractors out there too. And they’ll do dumb or ignorant things in reverse auctions, such as:
- Bidding without intending to honor their pricing
- Knowing they can’t meet contract terms & conditions, but bidding anyway
- Buying business at low pricing, then charging high prices for “extras” and/or renegotiating scope after the auction
Over the years, unethical, and illegal, behavior has happened so often that voluntary guidelines and codes of conduct have been developed. For customers (buyers) and contractors (sellers). In industries such as the U.S. auto industry, Canadian general contractors, and British aerospace companies.
However, voluntary codes are ineffective and reverse auction abuse remains common.
Success Stories Sell
You’ll come across stories from reverse auction providers touting millions they’ve saved customers, see Ariba. That’s what sells their next job.
Customers also praise reverse auctions, see U.S. State Department.
It’s understandable. Customers have already spent money on the reverse auction’s pilot program. Their professional credibility is on the line and it must be protected. Kind of like “I chose this; therefore I’ll find the short-term evidence to prove I’m right. I’ll ignore long-term results because they don’t support my position”.
Why Net Savings are Misleading
Net savings are held up at the end of an auction as proof of success.
The formal measurement is Purchase Price Variation (PPV). For facility service contracts it’s the difference between the customer’s last purchased price and the lowest, winning bid price.
Why Gross Savings aren’t Shown
What’s not shown in net savings are costs associated with delivery, quality or implementation.
Why? Because those costs aren’t available at the end of the auction. Only when customers take delivery.
And for facility service contracts, implementation happens over months and years.
Even when it occurs, it’s difficult to quantify facility services’ impact on most customers’ businesses.
Does anyone measure customers’ productivity when employees work in a dirty office? Or how much free overtime customers lose when employees don’t feel safe working after hours?
It’s easier with manufacturing and production lines. The line stops. It costs the customer. That’s the performance penalty the facility service contractor may have to pay. Same in a cleanroom environment. Contaminated product, contractors pay.
Those are the implementation costs that affect gross savings. But they don’t show up in net savings at the end of the auction.
Why Reverse Auctions Don’t Work for Facility Service Contracts
- Focus is on price - not reducing cost, problem solving, or service delivery
- Damages supplier (contractor) relationships
- May encourage imprudent bidding (not you of course)
- Focuses people on short-term, instead of long-term results
- Promotes customers’ zero-sum, power-based bargaining
- Difficult to define service intangibles in specifications
- Supplier relationship crucial to delivery of service value
What Can You Do About Reverse Auctions?
1) Work to Avoid Reverse Auctions
>>> Educate Customers
- Help them understand why reverse auctions don’t work for facility services
- Send them a link to this blog posting & see links at end of this post
- Try this pre-auction decision analysis tool, it’s a downloadable Excel file from Lee S. Crane. a buyer with the U.S. Postal Service
>>> Build Stronger Relationships
- First, understand how your service impacts customers’ businesses
- Then strengthen what you do to better serve customers’ business needs
>>> Continually Increase Value
- Bake more value into your basic offering
- Not as an add-on service - but as an integrated solution so customers can’t deconstruct it
- You’ll be increasing your service above perceived commodity status
2) Boycott Reverse Auctions
Why not? The Cabletelevision Advertising Bureau is boycotting online auctions.
They say selling advertising is not a commodity. They’re putting together custom packages and providing added-value.
So instead of selling price alone in an online auction, their members are boycotting the eBay developed auction.
3) Participate in Reverse Auctions
Your choice. There’s a lot of research and info on games theory. Couple of interesting things were:
- Winner’s Curse - which says the winning bidder will tend to overpay for actual value - for reverse auctions it means contractors have to figure out how to deliver service at their winning bid pricing. Yikes!
- Entrapment Game - really interesting exercise showing illogical, but typical auction behavior
Information Links
- Dr. M.L. “Bob” Emiliani, website with numerous articles,
“REVERSE AUCTIONS, A Ten Year Research Project Investigating the
Effectiveness of B2B Reverse Auctions“
- AGC of America: Reverse Auctions Resource Center white paper
- US Army Corp of Engineers on Reverse Auctions
- Mohanbir Sawhney, “Reverse Auctions Cutting Costs“, June 01,
2003, CIO.com
- Karen Prema, “SRM + E-AUCTIONS: Tools in the toolbox“,
Purchasing, April 6, 2006
- David Hubler, “Reverse auctions become a diplomatic tool:
State Department stretches its budget with online buys“, Federal
Computer Week, Aug. 14, 2006
- Ariba success stories on their web site
How Are You Handling Reverse Auctions?
~~~~~~
Chris Arlen
President & Senior Consultant / Service Performance
http://www.serviceperformance.com/
Technorati tags: reverse auctions, pricing, facility services
April 10th, 2007
You’d think annual wage increases for employees would be a no-brainer. However, there’s a difference when it comes to whose employees get an automatic cost-of-living raise. Customers or contractors.
Customers’ employees expect their annual wage increase. Something for the increased cost-of-living. Plus a little (or big) something for performance.
In Bad Times, Really Bad Times
Customers’ employees don’t receive cost-of-living increases when they’re shutting down plants and laying off 1,000s of their own. Contractors should expect the same. Not a justification, but understandable, a fact of life.
In Moderate to Good Times
However, when customers’ businesses are clickling along - customers’ employees are getting cost-of-living raises.
Customers give increases to retain their own employees. Wouldn’t it be logical for contractors’ site-based employees to receive the same?
Both customers and contractors want to:
- Avoid turnover costs
- Receive consistent value
- Eliminate lagtime between learning work & becoming proficient
Contracts Have Language For Increases, But…
Contract language often covers increases for city, state and federal taxes. But increases for benefits, workers comp, and wages - that’s another story.
Even unions and some public agencies have to fight for wage increases. With a higher degree of public accountability and visibility, compared to the private sector, wage increases are still hard to come by.
Funny Thing About Financial Forecasting
I’m not a financial analyst. However, I know today’s dollars are more valuable than tomorrow’s. Because of inflation.
When employees are paid the same amount this year as they were last, they’ve received a pay cut. Inflation makes things cost more, but employees have the same amount to spend. A pay cut.
Same’s true for customers’ employees.
Who Should Pay for Cost-of-Living Increases?
>>> CUSTOMERS believe Contractors Should Pay
Customers have the power of payment - when & how much. And they can use this power to pushback requests for cost-of-living raises.
I’m not saying all customers refuse to give cost-of-living increases. But in the private sector, contractors have a tough road.
Here are some reasons customers may be against cost-of-living increases.
1) Customers believe contractors keep some or all of the increases for profit
2) Customers believe contractors have high margins - raises should come out of their profits
3) Customers struggle with budgeting. Who hasn’t had to reverse-engineer a budget to meet a boss’ number? If not budgeted for, wage increases require customers to ask their boss for more money. And how many customers have the guts to do that?
Customers who do ask their boss for cost-of-living increases for contractor employees:
- See value in retaining employees
- Recognize costs associated with turnover & lower level workers
>>> CONTRACTORS Believe Customers Should Pay
Contractors almost always have skinny margins. There’s never enough profit. They bid to win work, not necessarily guarantee automatic wage increases the next year.
If customers’ contracts include automatic increases - so much the better. Follow its terms and the contractors’ employees get annual raises.
However, if customers don’t include automatic cost-of-living raises - contractors have to make choices, sometimes tough ones.
A) Ask customers for full increase (gutsy)
B) Split increase with customers (take the hit on margins)
C) Ask, don’t ask, or split increases AND then try & offset raises with efficiencies (tough when low hanging fruit is gone)
D) Don’t ask customers AND give raises (margin evaporates)
E) Don’t ask customers AND don’t give raises (suffer turnover costs: lower margins & risk contract)
How Much Is A Cost-Of-Living Raise?
Wikipedia defines Consumer Price Index (CPI) as “a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and considered by some a cost-of-living index”
So, the ideal is a service contract with explicit language stating:
- Automatic, annual increase to contractors’ employees wages
- Based on the CPI
- From customers who see value in retaining employees
What could be easier? But you know it isn’t.
How Do You Get Cost-Of-Living Raises for Your Site-Based Employees?
~~~~~~
Chris Arlen
President & Senior Consultant / Service Performance
http://www.serviceperformance.com/
Technorati tags: contracts, cost-of-living, raise
April 6th, 2007
