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No More Mr. Nice Guy: Time to Get Tough on Customer Value

Posted by Roz Lawson on June 7, 2016



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So many medtech companies are treating all of their customers as if they have gold status: letting them skip queues, offering them free support and trouble-shooting, providing them with dedicated representatives—the list goes on. Frequent travelers only earn gold status because they are valuable, and our customers need to earn gold status based on their value to us: how much they buy and what margin this brings us once we’ve taken out the cost of serving them.

Recent blogs and articles have focused on the value that hospitals and GPOs expect from medtech companies, but we need to get tough on the value that we give away for free, even to our smallest, lowest-value customers. I’ve been on a field visit where the rep was driving to an important appointment at a hospital, and another customer called the rep because he needed a piece of a demo kit. The rep turned the car around and dropped off the kit, even though this was a “C” customer, and the hospital customer was kept waiting. Another client provides free next-day delivery to all of its customers, regardless of order size. Another provides best-in-class training for surgeons who are only ever going to do a handful of procedures a year. Almost every time we look at a simple segmentation based on sales and potential, we see over-investment in the bottom 20 to 40% of customers and under-investment at the top.

So why is it so hard to tier what we offer based on our customers’ value? First, we need to know who is valuable and who isn’t, and it’s easy to stall here due to a lack of perfect data. Perfect data doesn’t exist. Do a decent job of segmenting your customers, let the sales team reclassify a small proportion (5 to 10%) and then get on with it.

It’s hard to get tough with the genuinely low-value customers. Both companies and individual reps are customer-service-oriented and don’t like saying no. These smaller customers may also have been very loyal to us over the years, and we have long-established relationships with them. The problem is that we often think about the risk of changing how we serve these customers, but the real risk is in the opportunity that we miss by under-investing in our high-value customers.

One way to tier our offerings is to change the channel to an inside sales team, an online-service-only model, or a third-party or distributor. Other blog posts have discussed alternatives to a sales force and recognized that our industry is often stuck in an ’80s selling model. Think about the channel changes that have taken place in the banking industry in the last three decades: When did you last visit your bank manager? Do you even have a bank manager? Our selling model is uncomfortably like continuing to provide all of our banking services through multiple high-street bank branches when customers are doing everything online.


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Medtech manufacturer Smith & Nephew takes this to the extreme, working so hard to strip away services that the company actually created a separate orthopaedic brand, Syncera, for mid-tier business.
(There’s debate over whether this would be considered a proven success model.) A parallel example comes from the chemicals world: When Dow Corning saw increasing commoditization of its silicone business, it created a separate company called Xiameter to sell silicone with a web-enabled business model.

There are definitely lots of ways to manage a change of channel badly: Don’t align to the customer’s buying process, penalize customers for using “old” channels, don’t involve the sales force, don’t align your ordering and customer service processes, etc. However, you can migrate customers successfully if you think about each aspect of the buying process (clinical and technical product knowledge, training, purchasing, customer service, technical service, etc.), then involve the sales force in the handover and, ideally, reward customers in some way for using new channels. 

Beyond alternative channels, what if compensation was used as a mechanism to drive people to make choices? What if the costs of providing services are made obvious to reps and managers, and their compensation is adapted accordingly? If we look at supply distributors where reps are paid based on company margin, those reps know when particular products or services are tough on that margin. They make the best business choices that you can imagine, both in their own time and in the use of company resources.

We also need to find ways to make a customer’s status visible to him. This is completely acceptable for airline loyalty programs: You know what services you get if you have gold status, and what services you would get if you were platinum. It’s also very clear what you don’t get if you are silver. We need to have all of our customer-facing teams aligned on what a top customer gets and what a lower-value customer doesn’t get. As well as formalizing this in contracts, we need to equip sales teams with the right skills and the right language to make this transparent to their customers.

We spend so much time thinking about how to provide more value to our customers. If you recognize your company playing Mr. Nice Guy, isn’t it time to think about the value of customers to you, and start to get tough?

So many medtech companies are treating all of their customers as if they have gold status: letting them skip queues, offering them free support and trouble-shooting, providing them with dedicated representatives—the list goes on. Frequent travelers only earn gold status because they are valuable, and our customers need to earn gold status based on their value to us: how much they buy and what margin this brings us once we’ve taken out the cost of serving them.

Topics: Roz Lawson, medtech, gold status, get tough, mr. nice guy, customer service, customer support

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AUTHORS
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Brian Chapman
Principal,
ZS Associates
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Tobi Laczkowski
Principal,
ZS Associates
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Will Randall
Manager,
ZS Associates
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Matt Scheitlin
Associate Principal,
ZS Associates
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Andy Kach
Associate Principal,
ZS Associates
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Bhargav Mantha
Associate Principal,
ZS Associates
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