Overcoming Recession Reluctance

Is our economy in recession? Have we been, or will we? What’s a recession? Are these too many questions?

Even if you may not be seeing recession’s effects locally, customers are hearing the pronouncements in newspapers, radio and TV. We are, or will be, in recession.

How does recession affect customers and contractors?

Recession Makes Customers Reluctant

First, on a business level, customers worry if their customers will keep buying at expected rates and quantity. Second, on a personal level, they worry if their plants or offices will be closed and if they’ll lose their jobs.

The fear of the unknown may manifest itself as a CEO’s “freeze everything” memo, or individual decisions at departmental levels. However it shows up, the anxiety is present.

While these worries alone won’t stop customers buying contract services, it may alter when and how they buy.

Customers’ Altered Buying Behavior

Recession reluctance may cause customers to:

AGGRESSIVELY REDUCE COSTS

Some customers may go out to bid specifically to lower contract pricing. Even before their current contracts expire.

Do customers need a pretext to put a contract out to bid in the middle of its term? Nope.

With more price sensitive customers, value may not be as valuable as value once was. It may cause a 6 to 12 month downward spiral where lowest-cost, low-value contractors gain lots of new business. Only to lose it again when customers get fed up and fire them for poor service. And/or the economy looks rosy enough to rehire their preferred contractors.

Customers low price hunting may increase the number of contracts out to bid. However, contractors had better have a sharp pricing pencil to participate.

HAND OVER DECISIONS TO PURCHASING

Recessionary fears may drive executives to mandate cost savings immediately. These initiatives typically fall on the Purchasing (Procurement) department.

Even though Purchasing is involved in bidding service contracts, their role and authority in contractor selection has increased noticeably.

And the knowledgeable end-users (facility and property managers) aren’t as influential as they once were.

As a result of Purchasing’s greater impact, bids may start to skew more towards “lowest cost” rather than the more intelligent “lowest qualified cost”.

DECIDE NOT TO DECIDE

For customers with bids already in progress, they may choose not to pull the trigger to change contractors. The fear of a worsening economy may cause them to prefer the known situation. Again, it’s the Lucifer they’re familiar with.

This behavior frustrates contractors who have already invested in those bid processes – but causes incumbents to breathe easier.

STAY PUT

For customers who aren’t required to go out to bid, they may choose not to. Better the devil (or contractor) they know, rather than stirring up an already uncertain future. Incumbent contractors love this.

DELAY

For customers with upcoming contract expirations, they may choose to delay scheduled bids if possible.

Caution may drive them to see which way the wind blows with their own business first. They want their focus on the health of their core business before distractions from bidding out contracts.

Again, incumbent contractors love this.

The Secret to Overcoming Recession Reluctance

By the way, this secret works for “normal” economic times as well as recessions.

Here it is:

Show customers how their service issues directly impact their business.

Another way of saying it is: Connect the dots between customers’ service pains and poor business performance.

This shows customers that letting a janitorial or security issue continue can hurt their (fill in the blank):

  • Revenue
  • Profitability
  • Brand Reputation
  • Customer Retention and/or Acquisition
  • Safety
  • Regulatory Compliance
  • Etc. the list goes on

An Example

Customers may mention the service issue of “poor training” with contract employees (that’d be your competitors’ employees, right?). Recession reluctance may keep customers from doing something about this, like going to bid.

The secret is to let them know that:

1) Poor training may lead to –>

2) Contract employees interacting with customers inappropriately (did someone say obnoxiously?) that may lead to –>

3) Representing your customer to their customers in a poor light that leads to –>

4) Tearing down your customer’s brand reputation that leads to –>

5) Lower customer revenues and profits. End of story.

In this conversation, customers can no longer pretend poor training is acceptable. Not when it takes money off the bottom line, devalues their company’s worth, and generally stinks.

This “connect the dots between service issues and business impacts” is the real deal. It’s a great motivator for customer action.

Avoid the Appearance of Blame

There’s a caveat of course. No one likes having their “problems” jammed in their face. However, if the troubles aren’t discussed, nothing happens. So, contractors must exercise sensitivity. They must not blame customers for their failures, or discuss them in terms of failures. Because aren’t all failures really learning opportunities. Some larger than others.

True Differentiation

And here’s the best part. Other contractors aren’t making these connections. They’re busy explaining how they’ll reduce turnover or missed trashcans, or non-scheduled guard overtime. But they’re not making the connection between service issues and how it impacts customers’ business.

 

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