5 rules to increase customer loyalty even when COVID disrupts supply chains

The imminent interruption of supply due to COVID, along with tariffs and other factors, presents historic opportunities for companies to create or destroy goodwill.

A story of two companies

Consider the fate of two companies: Company A and Company B. Both are relatively successful and face a long interruption in supply.

Company A addresses shortcomings by trying to maintain its traditional customer management processes by reducing product availability. The VP of Sales is careful to be transparent, inform customers of stockouts, and ensure they are doing everything possible to ensure ever tighter allocations to suppliers.

It is not essentially a client management strategy and is a recipe for a persistent group of sick clients.

Company B, on the other hand, has a strategic supply scarcity priority plan that it developed as an essential part of its risk management process. When scarcity materializes and increases, the entire management team becomes a crisis management committee that systematically and strategically guides the company through the crisis.

Five Rules to Build Customer Loyalty

Much has been said and written about managing the COVID supply chain threat. The problem is that pretty much everything focuses on the threats of disruption to suppliers’ inbound supply chains. The equally important and enduring challenge is managing your customers during the recession to maximize their loyalty and long-term profitability.

Five rules are the foundation of an effective customer management program in times of supply disruption:

  • Prioritize your customers’ profitability.
  • Include your emerging channel strategies.
  • Align sales compensation with your priorities.
  • Develop product substitution groups.
  • Avoid excessive ordering.

Together, they will ensure that your company emerges from this difficult time in a much better position than when it started outperforming its competitors.

1. Prioritize your customers based on profitability

The key to prioritizing customers is profit segmentation – focus your resources on accelerating your relationships with your profitable customers, while using product scarcity to renegotiate your relationships with your corporate customers.

The current disruption of the supply chain due to tariffs, viruses, and other factors offers the opportunity to make long-term profits from the most profitable customers and to use the interruption as leverage to close relationships with the most important customers who are taking the profits.

The key is to use profit mapping to…

  • Profit peaks (large and profitable customers)
  • Profit drain (large customers lose money)
  • Profit deserts (small non-profit customers)

2. Integrate your emerging supply channel strategies

The current era is characterized by the emergence of critical digital channels and omnichannel management. Digital giants are gaining incredible market share, industry after industry, thanks to their web-based capabilities. Most companies quickly recover and risk their survival.

Therefore, it is crucial to involve the channel strategy when prioritizing customer acquisition. This ensures that your critical new strategic skills continue to develop and grow. It must be systematically integrated into the customer management strategy to ensure long-term profitability.

3. Align sales compensation with your priorities

There’s an old saying that a salesperson can understand your priorities and accept them, but they will (and should) do what you pay for them.

Another way to put it is that the basic rule of sale is “update your compensation plan.” If the payment plan is wrong, it is not the seller’s fault.

Sales fees (commissions, fees) should therefore be aligned with your priorities. The crux of the problem is that many companies fail to develop realistic priorities, as explained above; it leads to counterproductive competition from “first come, first served” products and processes that are so detrimental to short-term profitability and long-term customer loyalty.

4. Develop product substitution groups

Substitution groups are collections of products that perform the same function. It is important, in normal business operations, to allow salespeople to move customers to a more profitable product mix and ensure high fill rates when a product runs out (and the customer agrees to a specific replacement).

These groups are essential during periods of supply interruptions as they can ensure a stable supply, even when interruptions are frequent. However, this must be arranged in advance with customers.

5. Avoid overordering!

Overordering is a common problem in times of product shortages. It has two main strengths: client collection and replenishment algorithms for non-voice-enabled electronic data interchange (EDI).

  • Inventory is a natural response to shortages of supplies. The main reason is that purchasing departments try to seize the product when it is available to protect against further shortages. This leads to extreme problems for suppliers as they cannot predict actual customer demand. Instead, merchants struggle to obtain limited inventory to meet their customers’ accelerating demand, which leads merchants to sell to other customers, especially their large core customers with whom they normally manage stock tapes flow.
  • Custom EDI replenishment algorithms are the second cause of overorders. When products are assigned to customers, most integration systems will simply recognize the lack of product availability and continually order more. We’ve seen cases where supplement systems ask for the same product several times a day. The problem is that the supplier’s systems interpret this as increasing demand and allowing less inventory for the ordering customer.

The solution is to develop a series of agreements with customers to allocate products to historical demand unless the customer informs the supplier that the demand for the product has changed.

The key to success is to focus the management team on the relentless pursuit of a five-rule customer management strategic plan to increase customer loyalty. In so doing, he sets the stage for turning despair into lasting victory in a period of disruption of supply.