ARTICLE
STATE OF FLUX
2014 GLOBAL SRM RESEARCH REPORT
70
THE JOURNEY TO CUSTOMER OF CHOICE – THERE ARE NO SHORT CUTS
One thing that customer of choice isn’t, is creating a contractual obligation to be treated as most favoured customer by your supplier. We have recently seen an increase in contracts containing a 'most favoured customer' clause. These clauses seek to ensure the price the organisation is charged is ‘at least as favourable as the price any third party pays for similar services’. They also normally require the company to reduce their charges if the supplier offers lower prices to a third party. Our concerns about the increasing use of this type of clause are twofold. We don’t think these clauses add anything to the contract, as it will be almost impossible to ensure they are being adhered to. Are you really going to know if a supplier is offering a cheaper price to other customers? How are you going to know if your pricing is as favourable as other customers where specification, usage, terms of supply and operating environment could be different? Specifically, we believe that having a most favourable customer clause in your contracts suggests there is a short cut to achieving customer of choice status, which bypasses the trust, collaboration and relationship development that is needed. This causes the following challenges: ö ö It suggests you believe you have the right to be a customer of choice purely as a consequence of your buying power. ö ö It can be seen as lazy in that it will not drive the buyer to understand pricing and commercial structures in a way that will enable them to work with the supplier to reduce cost. ö ö It looks at the supplier relationship very one dimensionally and fails to recognise other value the supplier might bring. ö ö It potentially displays ignorance, or at best a lack of interest in how the supplier runs their business, including what you need to do to be a customer of choice.
It is a bit like demanding that someone be your best friend. It’s not something you would normally do. Earning customer of choice status takes hard work, consistently displaying the right behaviours and trust. It is not something you can enforce. It might be argued that supplier segmentation indicates we can have differing treatment strategies for different types of suppliers, and there might be a place for a ‘quick fix’ contract clause for so called ‘tactical’ suppliers. However, given the difficulties in checking compliance and the negative impact on how you are perceived as a customer, we would still not recommend it. Time would be better spent making the transactional relationship less painful. We think a pain-free transactional relationship is a big step towards achieving customer of choice status with many suppliers. Becoming a customer of choice for your suppliers is not easy. Your time and resources are constrained, and occasionally you will need to have hard conversations. But we don’t believe these are reasons to not put effort into creating an environment in which suppliers feel valued, trusted and an extension of your organisation – in other words, an asset rather than a risk.
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