Creating value for the right customer

One notable thing about extremely large molders is that they tend to focus on one particular type of business or customer. This is especially true of automotive molders, whose entire business serves just one segment of the market. Additionally, many molders with smaller sales dollar volumes often serve wider market segments and more customers. One reason for this is that many of these companies grew by taking whatever came through the door, creating a business of "parts is parts" with little focus on what opportunities these parts offered for growth.

Focusing sales and marketing strategies on those customers that offer optimum growth opportunities through maximizing resources and minimizing manufacturing costs is key to profitable growth. Doing more business with the right customers and less business with the wrong customers is a critical component. Two speakers at IMM's recent conference, "Winning Strategies for the 21st Century," addressed this issue.

Right and Wrong

How do you determine who's right and who's wrong for your business? Bill Flint, Jr., president and COO of Flambeau Corp., says it's a constant struggle to make this determination. In addition to molded parts, the value that a company provides is also what sells, says Flint. For Flambeau, which has operated in Baraboo, WI for 52 years, this value is reflected by a corporate infrastructure that caters to customers with specific requirements. For example, it's difficult for the company to be competitive on shoot-and-ship parts because the value that Flambeau brings involves design engineering and development and value-added operations.

Based on this, Flambeau established a set of criteria for doing business with new companies. A marketing group focuses solely on 50 key accounts targeted as fit for Flambeau. Each of these targeted accounts then goes through a screening process based on this criteria. Once they've been through this filter and are deemed a good fit, the sales department works to turn them from prospects to customers.

"In today's world, people aren't actively looking for suppliers; therefore, the selection of new customers we target tend to be those who are very hard to get into to sell," says Flint. "We know that these are the ones where the competition will not persevere."

The goal is to match the value that Flambeau provides with the requirements of a specific type of customer. Why? "Create too much value for the wrong customer and you'll go out of business," says Flint. "Create too little value for the right customer and you'll lose him. Picking the right customer is crucial to growing your business."

Current Customers

What about your current customer base? John Bonham, vp and general manager of the Thermotech Div. of Menasha Corp. (Hopkins, MN), notes that his company has cut its customer base from 1000 accounts to 250 the last several years. Bonham is quick to point out that this reduction in customer base was not a strategy in and of itself, but rather part of an overall strategic plan for growth and profitability.

"When you look incrementally at the very small customers, you have to ask yourself what's the potential to grow with them or what's the value we provide other than molded parts," says Bonham. "Where there's not a fit or long-term opportunity for growth, our business model says we don't do business with them." Rather than continue to commit resources to customers that no longer fit the company's strategic direction, Thermotech helps them exit as a customer. However, this can be a sticky situation. Bonham stresses that it's still important to service these customers as long as they have an account with your company: "You've made a commitment. Regardless of their size, that business is important."

To ease the transition, Thermotech approaches these customers and explains that based on their volume requirements and prospects for future growth, there's not a long-term fit. "We give them the opportunity to put in a last production order and then help them source the tool if they need help with that," adds Bonham.

Discipline and Focus

Bonham explains that the benefit of strategically choosing customers is that it creates focus. "No strategy can be successful unless you're disciplined," he says. "It's very easy to get de-focused and lose your way. A lot of opportunities come up; trying to understand where you want to be and walk away from work is a challenge."

Molders face the challenge of being lured away from their planned direction by a golden carrot on a daily basis. In fact, one longtime plastics industry expert says that a molder's greatest enemy comes in his mailbox every day in the form of an RFQ that promises to be the optimum golden carrot. However, Bonham notes, "If you chase too many golden carrots you'll end up in a place you don't want to be, so discipline is extremely important."

To make the strategy work, sales and marketing people must be trained to a new discipline, says Flambeau's Flint. "Sales is too often a numbers game, knocking on doors and bringing in RFQs," he says. "The key is to really pick and choose those top targeted accounts that offer a good strategic fit. Do everything you can to create value for that customer or prospect." In fact, the compensation and incentives for Flambeau's sales people are structured to encourage them to work on the good, viable prospects long-term without fear of losing their job if they don't land a program immediately.

Focus = Value

Once you've acquired your strategic focus, you can begin to add value for those customers that identify with your value and are willing to pay for it. Flint says that Flambeau knows it does certain things well. To create added value for its Japanese customers, the company recently hired a sales engineer in Japan.

"The Japanese transplants still do a lot of design and decision-making in Japan," says Flint. "Our sales engineer is able to work with accounts from the Japanese side. It's amazing the respect they show for someone working for an American company."

Becoming strategically focused is crucial to growth and profitability. "If you try to serve too many of the wrong customers, it can get in the way of those customers you want to serve," Flint says. "It affects quality." Bonham agrees. "We're all expected to do more, and you just can't do that for everybody anymore," he says. "You have to be selective about where you'll apply your resources to provide the best long-term value for you and them."