Keeping Up With Agile Custom

Dec. 21, 2004
Tactics you can put to work to retain buyers that are here today and gone tomorrow.

Today's customer will be gone tomorrow. Get used to it. And act on it. That's what smart companies are doing. Accelerating technology and shifting demographics are factors behind growing customer independence. So is the fact that, in the U.S., many people in business aren't staying in positions long enough to become loyal customers, a situation that promises to become even more volatile. This year's college graduates, for example, are expected to hold as many as 12 different jobs and switch careers two or three times. To survive, sales forces will need to establish new relationships with the replacements for recently departed purchasing agents, plant managers, COOs, and CEOs. What's more, the life cycle of large companies is moving just as fast, as firms are born and others disappear. Small manufacturers are vanishing, too. U.S. hosiery producers, for example, will number only five or six by the year 2004, compared with a dozen today, believes Alan Brumbaugh, president and CEO of Chipman-Union Inc., Union Point, Ga. Refusing to watch and wait as customers appear and disappear, smart organizations are implementing classic strategies tailored to suit the changing sales environment. They're reacting quickly to competitors and finding ways to penetrate uninviting, commodity-filled markets. They're challenging convention. They're not only tracking emerging trends, but also figuring out how to capitalize on them. No. 8: Put creativity to work in crowded markets Losing customers is not Wei Rong Chen's concern. Finding enough of them in China is. So the 40-year-old CEO is leading his company, Konka Group Co. Ltd., a 20-year-old consumer-electronics manufacturer, into the U.S., one of the world's largest and toughest markets. Promising low prices and innovation, Chen shows as much gumption as did Akio Morita, the legendary founder of Sony Corp. The son of farmers from a village in southern China, Chen never expected to go into business, much less run a $1 billion manufacturer. He dreamed of teaching when he entered South China University in 1978, but ended up studying engineering. Upon graduation in 1982, he took a job as a technician with a fledging contract manufacturer named Konka in Shenzhen. A year later, Chen says, the company lined up contracts to make TVs for General Electric Co. and Emerson Radio Corp. and named him head of the production line. By 1987 he was running the whole factory. A few years in that position led Chen to conclude Konka could not continue making products for other manufacturers. "We had nothing to show for it. It was like sewing a wedding dress for someone else's wedding," he says. "We decided to brand Konka in China, although we knew it would be very difficult." In 1993 the company rolled out Konka-branded television sets. But Chinese consumers, who pay as much as three years' salary for a TV, preferred foreign, especially Japanese, brands. Retail outlets refused to carry Konka products. "Our salesmen had to carry models on their backs into stores and beg managers to show them," recalls Chen. To persuade dealers to display its TVs, Konka offered healthy margins and promoted its high quality and commitment to service. By keeping prices low, Konka undersold other brands. By 1996 it had captured 17% of China's TV market. By 1998 Konka had become one of China's 100 largest industrial enterprises with revenues of $1 billion and $52 million in profits. Last year the company held 25% of China's TV market, produced 4.5 million color sets, and turned out a host of other products including DVDs, video recorders, and home appliances. Not content to languish in success at home, Konka exported TVs to Australia, South Africa, and the Middle East before trying to woo large American retailers. "If you want to be a global player, you have to sell to the U.S.," insists Chen. Competition in the $6.1 billion U.S. TV market, already crowded by well-known brands such as Sony and Sharp, will be fierce. Margins are slim, but Konka is committed to an ambitious goal: By 2001 it would like to export 1 million TVs to the U.S.Konka first set up a research-and-development facility and sales office in San Jose. Then last October it began selling sets. By February of this year it had introduced its "Art TV," with cabinets of royal blue, plum, and other bright colors, a kind of i-Mac TV design. Konka has established relationships with regional dealers in Florida, California, and New England. During this year's first six months, Konka sold 250,000 TV sets in the U.S. And while Amway Corp. and the Home Shopping Network stock Konka, the Chinese upstart is struggling to win over traditional national dealers. "We know what they want to promote our brand: profit margins. It's the same thing in China," relates Chen. Innovation also is an important element in Konka's marketing approach. Following the Sony model, Konka is devoting an increasing percentage of sales to research, with 3% of sales going to R&D in 1998. Chen estimates the figure will jump to 5% this year-and to 8% in the new millennium. Innovation factors significantly into Konka's plans for the coming U.S. Christmas season. The company intends to introduce its high-definition digital TV in December, a move that Marjorie Costello, editor and publisher of Consumer Electronics Online News, believes is its best bet for succeeding in this market. "Digital electronics is a new ball game," she observes. Konka plans to compete by offering its high-definition set for $3,000, half the price of competitors' models. No. 9: Turn to old customers for new ones Like Konka, Herman Miller Inc. is testing a new market: small-business owners and home-office workers. The American work-space has come full circle. At the turn of the 20th century, Americans toiled from home on farms or in shops just down the stairs from where they slept. As the new millennium approaches, people are returning home to work. Herman Miller wants to be there -- even though serving entrepreneurs and home-office workers is a new market for the Zeeland, Mich., manufacturer. The 76-year-old, $1.7 billion furniture maker grew to prominence selling office equipment to large companies. Much of its sales go through its 240 contract furniture dealers and 300-person sales force. In the early 1990s the company realized that workplaces were changing. To help staff think about the shift from the traditional office to just about anywhere with a phone and a computer, Herman Miller came up with a poster charting the evolution of work. The year 2000 portrayed the "nomad worker." Nomad workers entered the mainstream more quickly than the poster portrayed, and only recently Herman Miller hit on a strategy to sell to them. Accustomed to orders of $100,000 and more, its dealers and sales force were unprepared to sell a chair or two. Ironically, an idea for a way to fulfill small orders came from corporate customers. "We had clients saying, 'You need to start today to engage with us through Web-based technology,'" recalls Dave Knibbe, executive vice president of sales and distribution. First the company launched an informational Web site,, featuring its hallmarks: an Eames lounge chair and ottoman, a Noguchi coffee table, and cubicles. Then in June 1998 it introduced an e-commerce element, and that's when it realized an unexpected benefit: The Web could offer a customized sell to home-office workers and entrepreneurs. The company added staff to handle business it expected from the Web. It invested in training on credit-card protocols and 24/7 servicing, and built technology infrastructure. Browsers can design a home office online with an interactive room planner or e-mail questions to the "designer on call." To reach nomad workers, executives again relied on established connections. As more employees working for its largest customers wanted furniture for home offices, Herman Miller figured they would buy the same comfortable chairs and desks that had served them at work, especially if offered a good deal. For example, the furniture company had installed thousands of workstations in Hewlett-Packard Co. offices, and it wanted a way to sell HP nomads some of the same furniture. The solution: a hotlink connection on an HP Web site directing employees to No. 10: Be prepared for the info-age generation To manage hotlink connections and other customer-friendly elements of e-commerce in the next century, companies will turn to people who negotiate the Internet with ease. Bentley College in suburban Boston offers a peek at what high-tech managers of tomorrow are learning today. Its first class of Information Age M.B.A.s enrolled this month and will graduate in 2001. Companies that expect to sell to these future managers must understand their high-tech world and the techniques they'll be using on the job. Joseph Morone has seen the future and, to his mind, it's accountants with a strategy -- business managers who can talk information technology and technologists trained in traditional business disciplines. President of Bentley for the last two years, Morone has reinvented the small New England school's M.B.A. program to differentiate it from the roughly 800 other programs in the U.S. In doing so he also faces a challenge common to many administrators: how to make traditional courses useful in an Internet- and information-driven economy whose overnight high-tech millionaires are rendering tradition obsolete. Morone has eliminated undersubscribed and redundant courses. Resources have been redirected and money raised to fund a $20 million technology center for business-information tools and an SAP enterprise-resource-planning system designed for student use. New information-age professors have been hired. The curriculum has been redesigned to teach students to use existing technology to enhance business. "We'll teach a different mind-set," promises Rajendra S. Sisodia, one of three new professors. Sisodia intends to instruct using examples of information age leaders, such as He'll highlight others he thinks are flunking when it comes to adapting to change, including companies that continue to invest in marginal brands, which he describes as "stranded assets." No. 11: Buy customers Marginal brands aren't the only stranded assets held by companies. Factories, too, are failing to pay off for some traditional manufacturers. A growing number are selling bricks and mortar to firms in the burgeoning contract manufacturing industry. The acquisition can prove profitable for both parties. The seller obtains a large amount of cash, and the buyer gains additional assets: a well-trained workforce, a customer in the form of the original equipment manufacturer, and often that customer's customers. "The OEM decides it should outsource, and then, in many cases, it has bricks and mortar and people that it doesn't know what to do with," observes Olin B. King, chairman of $6.8 billion SCI Systems Inc., Huntsville, Ala. SCI has acquired 10 such manufacturing operations including HP's VeriFone Inc. plant in Kunshan, China. Similarly, in five years Manufacturers' Services Ltd., Concord, Mass., has mushroomed into an $838 million company -- the world's eighth largest contract manufacturer -- in part by acquiring four factories and then selling output back to the original owners. When it bought a plant in Singapore from Connett Technology Pte., it also retained that factory's customers, including Thomson Multimedia and Asahi Electronics Sdn Bhd. Buying factories enables a supplier to broaden its range of services. "Now we can offer one-stop shopping from product design to aftermarket repair, and we can do it in different geographic locations," points out Kevin Melia, CEO of Manufacturers' Services.

Turn-of-the-century customer retention Every once in a while that unusual person turns up, the loyal buyer. Smart companies use flexible pricing, services, golf, and other lures to keep their loyal customers happy. Here are a few tips on retention from marketing and manufacturing gurus:
  • Hold onto satisfied clients and encourage them to purchase more through brand coherence, advises Sohrab Vossoughi, founder of Ziba Design, a product-development firm in Portland, Oreg. "Come to the market with a total strategy covering not just the look and feel of a product, but the whole buying experience," he says. For example, Mercedes-Benz showrooms convey the same message of expensive, elegant aspiration as do the design of its cars. Its Manhattan showroom communicates this upscale image by displaying revolving exhibitions of contemporary art.
  • Companies find rich links of information in supply chains and turn those data into faster delivery, better prices, and tailored services. "Manufacturers are developing menus -- a customer can order a lot of service and have goods shipped right to the store's door or less service at a lower price," explains Joe Martha, vice president of manufacturing services for Mercer Management Consulting.
  • Pay close attention to the " model," suggests Philip Kotler, professor of international marketing at the Kellogg Graduate School of Management at Northwestern University and author of Kotler on Marketing (1999, Free Press). The Web-based company allows customers to propose the amount they want to pay for a product or service. "We call it 'reverse market' -- letting the customer tell the marketer what he wants," explains Kotler.
  • Envelope manufacturer and best-selling author Harvey Mackay expects 1999 will top off a six-year revenue record at Mackay Envelope Corp., Minneapolis, despite the fact that the company is selling a commodity. He says the Internet, one of the biggest threats facing manufacturers of commodities, has failed to dent his business. That's because he keeps customers happy. "We don't hire women or men unless they play golf. I believe firmly in entertainment; customers like being entertained, and that's not going to change in the next 50 years," predicts Mackay.
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