Every Original Equipment Manufacturer (OEM) or contract manufacturer has a diverse portfolio of clients – some are large, high-volume accounts and others make smaller, less-frequent orders.
Despite this diversity, many OEMs believe that they should provide the same level of customer experience and service to all of their clients, but they’re wrong.
Prioritizing Your Customers According To The 80/20 Rule
Why? Remember the 80/20 Principle: 80% of an outcome results from 20% of its causes. So, if you’re an OEM or private label manufacturer, the 80/20 Principle translates into 80% of your company’s revenue coming from only 20% of your customers.
Such a major revenue disparity means that only a handful of your customers are powering most of your OEM business – and they deserve to be treated accordingly.
Case Study: The Airline Industry Vs. The Manufacturing Industry
As an OEM, it might be hard to visualize how the 80/20 rule applies to your portfolio of customers, so consider this comparison to the airline industry. How do most major airlines provide a better customer experience to the 20% of passengers that generate 80% of their revenue? The answer: frequent flyer programs.
Here’s a brief side-by-side comparison of a typical frequent flyer program – and how the same principles might be applied to your own manufacturing services:
Priority check-in and boarding: Your top-paying customers deserve to have the best lead time in the manufacturing industry, particularly if they order from you frequently.
Dedicated A-list member phone line: Just like frequent flyers earn preferred customer service, your best manufacturing clients have earned the right to quicker response times and more prioritized handling of concerns.
Discounted (or free) flights: Small, infrequent orders are unreliable in the contract manufacturing industry, so you need to incentivize customers to place orders that are more regular and reliable. Tiered or preferred pricing is one of the best incentives to encourage more of these high-volume orders.
First call for standby seating: When it comes to on-time delivery, your high-volume accounts should take precedence over smaller-order customers.
More flights = more perks: Many frequent flyer programs reward passengers for every single flight, and the same should apply to your customers with frequent orders. The more often your top customers order from you, the more they should feel rewarded and appreciated.
With priority delivery and preferred service, your top customers feel appreciated, which helps to reassure them that they made a solid decision in choosing you as their OEM. Also, customers that are part of an ongoing loyalty program are less likely to jump ship for your competition, even if offered a better price.
Your Less Frequent Flyers
So, if you’re providing your best customers with preferred service, what does that mean for your average and lower-revenue customers? Here are a few principles to keep in mind:
Be fair, but not equal: When it comes to customer prioritization, don’t let better customers bully smaller clients, but honestly communicate with smaller accounts why their work is not being prioritized.
Minimum orders: If a client doesn’t order frequently or in high volume, then be honest about what minimums you’re willing to accept to maintain a proper profit margin.
Longer lead times: Don’t let low-volume orders gum up your manufacturing flow or order schedule – especially with top-paying accounts at stake. Instead, establish longer lead times for your low-volume customers so that you have more time to work on their order.
Eliminate distractions: Sometimes infrequent, legacy customers or products just aren’t worth the time, floor space or opportunity cost. In that case, consider OEM outsourcing to a reliable contract manufacturer who specializes in legacy manufacturing.
Your OEM business has a range of customers, but it’s time to start putting your most valuable customers first and reminding them why they want to continue doing business with you. By appropriately prioritizing your company’s most “frequent flyers,” you’ll see your customer retention rates soar and your profits skyrocket.
Searching for a reliable contract manufacturer to take smaller customer accounts off of your hands? Need OEM outsourcing for your legacy products? Click below to download a tip sheet from Fusion OEM and discover what questions you should ask a private label manufacturer before you sign the final contract.
Want more information about outsourced OEM production? Call me, Craig Zoberis, at 630-948-4879.