First thing this morning, Tom needed a box of Romex. He called to get quotes from the local builders supply and three electrical wholesalers and ended up buying the Romex from the wholesaler with the lowest price. Tom saved $5.67 based on the highest quoted price. Randy also needed a box of Romex this morning. He went straight to his favorite electrical supply house and bought it. He paid $3.92 more than Tom.
Transactional customers
As the transactional customer, Tom is interested only in today's purchase. His loyalty lasts until he finds a cheaper price. He researches the products he buys so he won't have to rely on service personnel to provide information. Tom considers himself an expert on most of the tools of his trade and sees no value in so-called knowledgeable salespeople behind the counter. He takes pleasure in negotiation and comparison pricing — in fact, he considers the quest for the lowest price a gratifying part of the purchasing process. The suppliers who believe that Tom will pay more for a popular brand obviously don't know Jack - er, Tom. For example, if Tom needs to buy a pair of side-cutters and the distributor stocks only the industry preferred “Acme” tool line, he'll wait until he's at the builders supply to buy the generic brand.
The relational customer
On the other hand, Randy, the relational customer, doesn't like price shopping or negotiating at all. He considers it a waste of valuable time. Randy believes the popularity of a name brand is due to the product's superior quality. For instance, let's say Randy wants to buy a pair of side-cutters, and industry preferred Acme hand tools are the electrician's brand of choice. If the distributor has the item on the shelf a sale will likely follow. As a relational customer, he is interested in finding a supplier with whom he can entrust most of his business. Randy wants to find an expert he can depend on to provide information and keep him informed of any changes that occur within the industry.
Same day, different mode
Most customers fall into one of these two buying models, relational or transactional. However, it's possible for a customer to be in a relational mode when purchasing certain products, but in a transactional mode when buying others.
Think of your owning buying preferences. You might have a favorite trustworthy mechanic and you wouldn't take your car anywhere else for repair. “You get what you pay for,” you say wisely. That's the relational mode of buying. But when it's time to refuel that same car you might research online to see who's got the cheapest fuel in town. “Gas is gas,” you say knowingly. That's the transactional mode of buying.
Ready, fire, aim
Either knowingly or unwittingly, most distributors tend to cater to the transactional customer. Yet the relational customer represents higher closing ratios and higher margins. Do businesses focus on the transactional customer because there are more of them than relational customers? Not at all. Actually, it's about a 50/50 split. Transactional customers simply speak the loudest when arguing over a deal, while relational customers quietly hand over their money. The solution is to recognize the two types of buying modes.
It pays bigger dividends to cater to the relational buyer. Chances are that your company already has a base of relational customers. Recognize them. Thank them for their patronage. Then ask for specific reasons why they prefer your firm to your competitors. By interviewing 10 to 20 relational customers, a few common denominators will emerge about what they think makes your company special, or at least different. Spend all available resources promoting these special benefits to draw other relational customers. Spending more time focusing on the relational customer at the sales counter will build the company's image, add higher average sales — and increase profit margins.
The author is the founder of High Voltage Performance, a consulting firm that specializes in designing customer experiences for the industrial marketplace. Dandridge has 25 years of experience in electrical wholesale distribution and authored the book, Business Turnaround. He is available for speaking engagements and can be contacted by phone at (254) 624-6299 or by e-mail at [email protected]. Read more about his idea for “Customer Experience Architecture” at www.highvoltageperformance.com and check out his blog at www.businessturnaround.blogs.com.