If you’re an incumbent supplier for a large service contract, you know the deck is stacked against you.
Experienced suppliers, those who’ve been around for more than one iPhone release, should be aware of many factors that influence and determine contract retention.
And the truth is the last factor on that list is the incumbent’s service history.Service failure can lose a contract but an incumbent's perfect service doesn't assure contract retention either. Click To Tweet
Perfect service is the ante into the game of large dollar contracts. Though not a literal expectation, customers do not expect suppliers they contract to fail. They expect they’re buying perfect, or near perfect service delivery.
The reality is that all incumbent suppliers work hard to retain their contracts. They’re all striving for:
- World-class customer service
- Best-practice operational excellence
- 110% Contract compliance
- Account management perfection
While incumbents may not attain these goals it’s what they’re working towards. And should they ever achieve perfect service it wouldn’t matter because other realities get in the way.
For example, these common scenarios often occur, and as a result incumbents lose contracts through no fault of their own. Consider:
The “Dynamic Market” Scenario
Where market conditions change dramatically prompting the customer’s company into a….
…C-suite shakeup, and those new leaders respond with….
…Drastic new strategic initiatives, which require…
…Wholesale swapping out of the existing supplier base, saying goodbye to most incumbents, or…
The “Customers are Only Human” Scenario
Where new contract managers come in as tenured managers jump or are pushed out, which leads to…
…Power plays among individual managers within the contract department, and/or…
…Turf warfare where Procurement takes over in the vacuum caused by changes, or…
…New customer management cleans house to make a name for themselves, which means they…
Bring in their own (new) team of suppliers, pushing incumbents out in rebids.
The “Time for a Change” Scenario
And sometimes long-term incumbents just find themselves on the wrong side of Father Time…
…Sometimes customers feel that long-term incumbents have gained too much power and call too many shots within the customer’s organization — and they are after all the customer, or…
…Sometimes the contract is outsourced to 3rd party management firms, whose raison d’etre is to rebid all contracts and grind out cost reductions, regardless of incumbents’ flawless tenure, or…
…Sometimes customers just want a change — it happens.
Large Contract Retention is Different Work
Incumbent suppliers must deliver more than perfect service; they must forge professional and personal relationships with influential customer contacts. And then build high exit barriers that closely connect their organization with their customers.’Incumbent suppliers must be more than perfect; they need customer relationships that forge high exit barriers. Click To Tweet
Both forged relationships and exit barriers are complex challenges, larger than this post can address. However, it’s worth thinking about them, and so here are a few areas to start with.
Work the Intangibles
Forged relationships are ones with ties that bind. Where reliability, responsiveness, and integrity create business reciprocity between customer and incumbent.
To gain that strength, incumbents must work the intangibles of customer relationships; shaping customers’ perceptions in the incumbent’s favor.
More than just highlighting value contributions, incumbents must help customers see the pain they’ll suffer with a new supplier — before they make that mistake and change.
Forged relationships provide incumbents with insights into customer confidential initiatives, strategy changes, and enable back channel communications when services go wrong. All these are valuable benefits for incumbents that outside suppliers can’t get.
And for service suppliers, creating real exit barriers presents challenges. While most suppliers see themselves as black-and-white different from their competitors, most customers see suppliers in shades of grey with very little difference among them.
That makes building exit barriers difficult, but not impossible.
An extreme example is seen in a few large European suppliers who selectively finance and build a customer’s facility to secure its long-term service contract. That’s an enormous exit barrier for customers to consider breaking when their contractor has developed their facility.
Most exit barriers are creative configurations of existing programs and/or components. They’re highly customized in ways that aren’t easily replicable, without the incumbent’s deep inside knowledge.
Work the TimelinesIncumbent suppliers have only two advantages; time and insight. Waste the first and the second is useless. Click To Tweet
Retention efforts must occur regularly over time, starting from the first day of service. This work must be frequent enough to impact customers’ perceptions; like advertising where the message (and value) is absorbed through repetition.
That activity is ongoing until the moment the contract is put out for bid. Then all retention activities must stop, or they may look like pandering, or worse, bribery.
The incumbent’s ongoing state is for multiple events spread evenly over time and through multiple channels; either monthly for smaller events, or quarterly for larger ones.
Retention efforts must be delivered across multiple channels and reach both direct and indirect customer contacts. These efforts are designed in multiples to:
- Work across multiple communication channels
- Publish value contributions on multiple levels to many contacts
- Involve direct contacts & influence indirect contacts
Direct contacts manage or oversee the contracted service. Indirect contacts are those who are influential in the customer’s firm and who may end up as an evaluator in the contract’s rebid (think Safety, Legal, Finance or HR departmental contacts).
Summary of Contract Retention
Incumbents’ efforts to retain their large service contracts are complex systems that take additional commitment and management. This planning and coordinating must support the incumbents site-based operations to deliver perfect, contract-compliant service.
Contract retention efforts must recognize:
- Perfect service is never enough to retain the contract
- Work Intangibles — forge customer relationships to build high exit barriers
- Work Timelines — exploit timelines to capitalize on customer insights (use it or lose it)
- Work Multiples — multiple events across multiple channels to multiple audiences
Title image: She Had Perfect Teeth by Robert Couse-Baker