Most client plans I see are tactical, short-term and myopic. They are really sales pipeline documents with coffee catch-ups tacked on. There’s often very little about intended client strategy. By client strategy I mean a game plan to win – a big picture view as to how to respond to and potentially shape the client’s needs and buying patterns over time. A clear articulation of how to run faster and smarter than major competitors.
In my view, client strategies can be categorised into five areas. These categories provide a useful checklist in stress testing your key account plans.
#1 Price, risk and cost
Price and risk-sharing is a strategic arena that provides a wealth of competitive opportunity. Firms can leapfrog rivals by offering alternative pricing and risk-sharing models that go beyond convention and better address fundamental client needs. A recent case study on Bendigo and Adelaide Bank is a good illustration of this.
A number of professional service firms are creating an edge, not by race-to-the-bottom discounting, but by negotiating long-term incentivised retainers to deliver positive outcomes to both the client and the provider. I think there’s rich pickings for firms that can truly understand the nature and scope of client risk and identify options to de-risk the client’s business.
Another strategy in this category is to reengineer the firm’s processes to significantly reduce cost-to-serve and to enable the firm to have greater price-setting discretion. Similarly, exploring new ways to measure and enhance perceived value can drive client commitment.
#2 People and relationships
Many clients plans concentrate on relationship mapping and connecting. This is great, but cherrypicking is a client strategy often not considered with any rigour. Cherrypicking starts by asking, “if we had to hire three people that would fundamentally advantage us with this client, who would they be?”. These new hires might be in a competing firm, in the client organisation or in an adjacent provider. A quick business case analysis of the options can be extremely revealing.
I recently heard of an accounting firm that captured the lion’s share of a major client’s spend by headhunting a senior manager from a rival firm. Client feedback revealed this manager had become the ‘go to’ adviser and was far more important to the client than the figurehead client relationship partner.
#3 Data and technology
Information and communications technology is increasingly being used improve client connectedness and service. A great illustration of this is a leading Australian law firm that provides each client end-user a tailored smartphone app that features:
- contact details and specialisations of service providers
- seamless integration with Skype for videoconferencing
- real-time project status updates
- billing data and analysis
- relevant legislation, case law and industry updates
- on-demand and live professional development modules
- upcoming events and service improvements
- a feedback and suggestion space
- FAQs
- discussion forums.
Big data is going to be one of the next frontiers of client strategy. At the moment, most firms and clients operate with islands of data that are not linked in any meaningful way e.g. procurement, matter management, time recording, document management, billing, HR, client satisfaction, etc.. There’s much opportunity to integrate and analyse all this data and offer both the client and the firm deeper insights into how to run more effective and efficient projects.
#4 Delivery, capacity and coverage
At the heart of the Big 4’s multidisciplinary strategy is a compelling value proposition: our capacity, coverage and consistent service delivery allows you, Mr/Ms Key Client, to lower your transactions costs, leverage your scale, make you look good, de-risk innovation, facilitate new market entry and improve compliance across ALL of your operations. Did I mention ‘make you look good!’?
Benchstrength or depth of expertise in a particular area important to the client can be at the heart of a firm’s client strategy. It’s not that the expertise itself is superior but rather it’s the critical mass of high quality talent and a strong team approach that builds trust and creates preference in the client’s mind.
#5 Knowledge and expertise
The fifth area of client strategy relates to the firm’s knowledge – both [1] technical discipline expertise, and [2] understanding of the client’s business and industry. The key here is the firm’s ability to contextualise advice and make it relevant to the client’s specific needs. A firm may have a wizz-bang CRM, but it’s useless if they can’t use this knowledge to pre-empt competitors, bring fresh ideas to the client or simply make the advice more cost-effective and valuable.
In my experience many firms over-estimate the distinctiveness and durability of their knowledge. Consequently, if you’re number 2 or 3 on the client’s pecking order i.e. the challenger brand, investment in deepening client knowledge and its application can be at heart of your client strategy.
Another related client strategy in this category is “flanking”. This is about avoiding direct head-to-head competition with a strong incumbent and instead picking up work around the edges in new expertise areas and/or locations. Once a foothold is created a direct assault on the incumbent can then be launched.
In conclusion
In stress-testing client plans it’s important not to get too hung up on the client plan document itself. A plan is not a document. A plan is the outcomes you’re seeking and your intended actions to achieve those outcomes. What’s critical is that there clear evidence of robust strategic thinking and discussion around how to compete, where to invest and, the hardest bit, deciding what not to do.
Check out Barolsky Advisors’ Profit Growth Now! to make a step-improvement in your firm’s critical client relationships.
Photo source: http://picrutes786.blogspot.com.au
account planning, Audit, business, business development, change management, client relationships, culture, growth, innovation, internal collaboration, key account management, marketing, pricing, strategy management
Transitioning your low-profit clients, aka saying 4Q to the Q4s
In Articles, Commentary on 11 May 2018 at 1:21 pm“Manage customers for profit, not just sales”, recommended Harvard’s Benson Shapiro in his famous HBR article way back in 1997. Three decades later, many law and accounting firms still haven’t got the message. Yes, revenue growth is really important in firms with high fixed-costs, but paying lip-service to client profitability is a major missed opportunity.
The Client Profit Matrix
Shapiro and his friends offered a useful tool to map your firm’s client portfolio. On the vertical dimension is relative price and on the horizontal is relative cost-to-serve, as illustrated below.
The Q1 Hi Price Hi Cost segment has those clients purchasing new-to-the-world offerings which require senior practitioner input and bespoke processes. It also includes those clients requesting full-service ‘turnkey’ solutions.
The Q2 Hi Price Low Cost segment includes those clients that think the best of you and that really value your services. Q2 also includes uninformed purchasers and unchallenging price-takers.
The Q3 Low Price and Low Cost segment are the bargain-hunters, no-frills and commodity buyers.
Q4 Low Price High Cost include those high-revenue (often labelled “strategic”) clients who leverage their bargaining power and demand value-adds, special services and reporting. It also includes the soul-destroying clients that require an inordinate amount of handholding. The third group, the ‘tail’, are very small clients that barely cover the costs of account establishment and maintenance.
The Power Axis and the Value Axis
Over time, Q4 clients are not sustainable. A special effort needs to made to move these clients closer to the value axis, the blue line in the chart where value is shared roughly equally in the exchange between the firm and the client.
The red line in the matrix is called the power axis. The part of the line in Q2 is where the firm has relative power over its client and bottom right Q4 where the client has more power than the firm.
Transitioning Q4 Clients
There are five broad strategies dealing with Q4 clients:
1. Reduce cost-to-serve – offer similar client benefits but deliver them at a much lower cost. This approach might include a combination of redesigning delivery processes, switching to lower cost resources, automation and cost-transfer i.e. get the client to do more. The banks’ strategy of shifting basic transactional banking services from retail branches to the web and smartphones is a brilliant example of this.
2. Service augmentation – create new higher value products and services and charge more for them. Part of this approach is to develop a deep understanding of which specific elements of value are important and tailor the offer accordingly (see this post for more). Branded technology companies are particularly adept at charging their customers premium prices for new models and inventions.
3. Unbundling – demarcating different product-markets along the value axis and negotiating different prices for each. The Big 4 accounting and consulting firms are quite adept at charging eye-watering hourly rates for their top corporate tax advisors while charging the same clients low fixed fees for commoditised compliance services.
4. Renegotiating – approaching the client with an open-book and requesting the relationship to be reset with a pricing and cost structure that’s fairer and more sustainable. There are many examples where new ‘co-created’ solutions yield better outcomes for both client and firm, but also strong incentives for long-term efficiency gains and innovation. The Perkins Cole-Adobe model is one recent example of this.
5. Say goodbye – if all else fails saying, “4Q” to Q4 clients is the best option. Retaining a value-destroying client over time is clearly not in the firm’s interest and walking away is the bravest and smartest thing to do. Gifting soul-destroying clients to your competitors can make you stronger and them weaker. There may be opportunities to transfer Tail clients to other providers better suited to meet their needs, in return for ‘right’ client referrals.
Client life cycles and migration paths
The Client Profit Matrix can also be a useful analytical tool to track client migration paths over time. One theory is that a typical client relationship will go from Q1 ==> Q2 ==> Q3 ==> Q4. At the early stages of a relationship, costs and price are higher as the parties get to know each other. As the relationship matures and other firms start to contest the client’s spend, prices start to drop. Over time, cost-to-serve rises as more bells and whistles are added.
Clearly, service innovation and better value communication are essential in slowing down this maturation cycle and keeping clients in the top-left of the matrix for longer.
The underlying intent of a ‘loss-leader’ strategy is to go quickly from Q3 ==> Q2 or Q1. It is interesting to track how many of the clients, in fact, make that move and what facilitates this migration. One recent example of this comes from Allens-Linklaters who acquired Canva via its low-cost, low-price online Accelerate platform. They recently reported helping Canva to grow to a $1 Billion market valuation.
Doing a longitudinal heat map of the Client Profit Matrix can be a very useful tool to track your firm’s overall strategic health. In the graphic below, one can clearly see the firm is losing ground and becoming weaker over time.
Call to action
Have a go at mapping your firm’s client portfolio. It will reveal your entrenched Q4s and force an honest strategic discussion as to which of the five transitioning strategies to pursue.
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