by: Frank V. Cespedes and Leon Poblete
This article was originally published in Harvard Business Review on June 3rd, 2019
Most research and training in sales focuses on acquiring customers, but, as ecosystems become increasingly dynamic and discontinuous, it’s also important to focus on winning back customers you’ve lost.
Reacquisition is especially important for B2B companies. Because of current trends— increase in the number and size of mergers, the variety of choice in global markets, and uncertainty about trade wars—customers are constantly re-evaluating their relationship with suppliers and making changes. Losing these customers is increasingly costly. As recently as 2014, for example, “the average publicly traded manufacturing firm received over 25% of its revenue from large buyers, up from 10% in the early 1980s.”
The process for reacquiring a customer requires a different approach than acquiring new ones. For one thing, your previous customers will have prior experience, knowledge, and long-held assumptions about your people and capabilities. Conversely, you have a basis for judging if that customer is worth pursuing.
In our study of 26 broken customer-supplier relationships, we found that companies that had successfully won back a customer followed a similar pattern. They identified the reasons for the initial dissolution, applied the right cost-benefit analysis, conducted an honest conversation with the customer, and accommodated their specific requirements.
To illustrate the process, we’ll use two companies, which we’ve disguised: Brex Tech and RILF. In 2009, Brex Tech, who supplied RILF with electronic components for its optical devices, lost RILF as a customer, but managed to win them back in 2012. Here’s how they did it.
Reasons for dissolution. The first step in the reacquisition process is to identify the reason why the relationship ended. Some buyer-supplier relationships have contractual end-points (e.g., projects scheduled for a specified period). Others may simply fade away due to a lack of attention. Pricing pressures, alteration of product specifications, or changes in ownership are also factors.
Your analysis needs to include who or what was responsible for the decision. It also needs to be ruthlessly descriptive, not prescriptive, focusing on what happened, not what should have happened.
In Brex Tech’s case, it had restructured, increased its prices, and laid-off key staff members. The CEO at RILF noted that “When their prices were raised by roughly 30%, we informed them about our concerns but they kept the increased price.” What started as a pricing issue then led to disputes and loss of trust between executives from both firms, which in turn generated more problems, and RILF lost interest in continuing to work with Brex Tech.
Cost-benefit analysis. All customers are not equal and not all relationships are worth re-establishing. Therefore, before you re-connect with a previous customer, weigh the costs of winning them back against the benefits.
Brex Tech did this in a few ways. After gleaning information from its previous transactions with RILF, including revenues, margins, and investments, Brex Tech’s CEO said that “RILF had accounted for more than 15% of turnover and we now had idle equipment in our plant that had been customized to manufacture products for RILF.”
Next, Brex Tech looked at both the economic and organizational requirements for re-establishing mutual trust and reliability. Brex Tech had a few things going in its favor. Since manufacturing and delivering high-quality products on time had never been an issue in their past relationship with RILF, Brex Tech managers believed they had a good case to make to RILF. After the break up and as part of its restructuring, moreover, Brex Tech was eventually able to increase factory productivity, which allowed it to decrease its prices without compromising quality or delivery times. The production head at Brex Tech noted: “We knew RILF was interested in three parameters: delivery reliability, quality, and price. If we could excel within these parameters, we could re-establish the relationship and make them switch back.”
Brex Tech knew it could offer RILF price reductions, better technical assistance than its current supplier in the relevant product categories, order-size flexibility, and other areas where the customer could quantify the benefits of a reactivated relationship.
Interactive dialogue. Though your business case may look good on paper, people are the ultimate deciders.
When Brex Tech re-initiated contact with RILF in 2012, the key players were different at both firms. This led to a time-consuming process. A Brex Tech executive noted, “The discussions with RILF started at the operational level, then meetings with middle management to move on with the process, and finally— because of the strategic importance of the products involved—with top management.” Similarly, a sales manager recalled, “We went through a period in which we met at least weekly with the customer.
Management representatives were present but also engineers and technicians of the two companies.”
Knowing who does what, where, how and at what levels—the necessary rules of engagement–is imperative for successful reacquisition. For example, Brex Tech had discussions with employees that had been involved with RILF and with personnel not familiar with the account. While top management at both companies had been unable to reach an agreement, production personnel at both firms shared positive relations and unique know-how about products that RILF required. This was a key to reacquiring the account and underscores a repeated finding in management research and practice: people do business with people.
Accommodate specific requirements. When you are a supplier, the status-quo bias works in your favor. But when you seek to reacquire a customer, you must offer a better deal than the current supplier to motivate change.
RILF made it clear that Brex Tech would need to modify elements of its production processes, administrative routines, and IT systems—and provide special product designs while lowering price. But the information collected during the reactivation process also allowed Brex Tech to adjust and optimize its activities in these areas.
The resulting agreement justified the effort. Brex Tech’s sales and net profit from the re-established relationship with RILF were soon higher than in 2009. As Brex Tech’s CEO noted, “the fact that RILF purchases higher volumes compared to the past indicates the mutual value.” Moreover, the reacquisition helped to initiate positive word-of-mouth among other buyers in this market. Brex Tech gained two new customers as RILF recommended them to other companies. For RILF, meanwhile, more flexible and customized orders with Brex Tech increased its ability to sell and service in new segments.
In personal interactions, we often fear that others will judge us harshly and irrevocably if we make a mistake in pursuing a goal. But research indicates that, in many circumstances, correcting a past mistake generates a more positive impression (if the mistake is not repeated) than never making a mistake in the first place. The same is true in account relations.