Using Outsourcing to Increase Your Customer Relationships
Small businesses often can get lost in the shuffle, especially in a business like the specialty chemical industry where the major players are involved in the buying and selling process. Since manufacturers are primarily concerned with catching the big fish, smaller customers fall into the sometimes unstable domain of independent distributors.
In this environment, small business customers often feel like discarded pennies on a convenience store parking lot. The industry-wide annual churn rate for these customers is an astounding 30 to 50 percent. Poor service leads to lost business for the manufacturer with a result not unlike a hole in a person’s pocket with change falling through unnoticed. Those “pennies” can really add up.
Any business loss is an issue for Nutrinova of Somerset, New Jersey, a leading international supplier of specialty ingredients for the food, beverage and pharmaceutical industries. Rudi Van Mol, Nutrinova vice president admits, “We had a similar churn rate with our small accounts year after year. We were taking orders but we were not serving the small accounts proactively.”
Van Mol recalls that Nutrinova worked hard to build its small business segment which had been growing strongly. Then, suddenly, it began to disappear. “We started to see that segment of our business actually decline,” he says.
Additionally, small businesses represent important dimensions of future opportunities for the manufacturer. Van Mol asserts, “The innovative products often come out of our small segment. Even though this segment is less than 10 percent of our business, this was not one that we could afford to see decline.”
The Way We Were
Traditionally, the industry focus has been on the large accounts, according to CRM analyst Joseph Outlaw, research director for Gartner Dataquest of Stamford, Connecticut. “The manufacturers deal with their large customers face to face in long-term relationships.” He says they treat their smaller customers more like consumers. “It is not relationship selling; they are not taking people out to golf.”
Outlaw adds, “The relationship with the smaller customers becomes less economic and not very profitable, so they tend either to not do it or look for ways to make money — like charging more.”
Anurag Roy, industry analyst, chemicals and materials practice, for Frost & Sullivan, an international market training and growth consulting firm based in San Antonio, Texas, points out small specialty chemical users have trouble finding a reliable supplier because of the marketing channels. “In specialty chemicals, most of the chemicals are distributed through independent eMarket place channels.” The dotcom boom at the end of the millennium followed by its bust in 2001 led to chaos, as “third-party dotcoms accounted for close to 78 percent of the eMarketplaces in 2000.”
Van Mol observes, “The initial approach in 1999 was through dotcoms and industry portals. We also evaluated traditional distributors. We could not arrive at a satisfactory arrangement.”
The pandemonium of the massive dotcom shake-up racked the independent distributors serving the chemical industry since they make up approximately 30 percent of their products sales, according to Roy. The discombobulated market dispersed customers like a shotgun blast scattering a flock of blackbirds.
High Touch/Hi Tech Outsourcing Solution
A paradigm shift in the approach to servicing small customers arrived in 1999 when Royal Vopak, a global logistics provider to the oil and chemical industry headquartered in the Netherlands, created ChemPoint. Nutrinova chose to enhance serving its small customers by outsourcing to ChemPoint in January, 2000.
Located in Belleview, Washington, ChemPoint specializes in marketing and sales of specialty chemicals to small customers. The premise is service to the small customers through interpersonal communication at its call center supplemented by a user-friendly eCommerce site.
Tamara Jerome, a business development analyst for ChemPoint, points out that this approach enhances service and is more cost-effective. “The focus is on providing a faster, easier and more personalized service than traditional chemical distribution. The average face-to-face sales call costs about $400 to $500. A telephone sales call costs about $25 to $30.”
Jerome points out that by speaking with customers over the phone, ChemPoint can recognize and adapt to market changes and the needs of the customers quickly. “We change quickly depending on the market, sometimes in a matter of hours.”
Specialized CSRs and state-of-the art CRM tools help ChemPoint recognize trends and industry directions. There are three CSR teams: a chemical manufacturing/ formulation team, a polymer /compounding team, and a pharmaceutical team. The CSRs include chemical engineers, chemists and industry experts, who seek to develop dynamic relationships with clients by learning their processes, needs and preferences. Combined with the analytics from the CRM tools, ChemPoint can be proactive in marketing to small customers.
Outlaw says the idea “is not the technology but really knowing the customers.” Increased and quicker communication is a major key. “The more you know the customer, the more rapidly you can target those people with products that they will want. The concept is an ever-increasing list of customers and a growing knowledge about those customers.”
Though ChemPoint takes about three quarters of the orders over the phone, the eCommerce site is an integral part of customer service. It provides the customers with a means of accessing their account to order and track shipping through self-service. Outlaw feels that “for smaller businesses, CRM strategies need to be intertwined with eCommerce strategies. One of the growing channels of interacting with these customers is the eCommerce channel.”
Van Mol concurs. “What attracted us to ChemPoint is that they could tap into resources of a traditional distributor. We were also thrilled by their marketing and human interaction with a willingness to be flexible with the customer.”
Progressive Proactive Policy Produces Profits
Van Mol says the transition was rapid and easy. Deployment went quickly. There were two campaigns initiated a few weeks apart. The first list was current accounts that had been buying since 1999. The second involved accounts that had not purchased since 1998 or 1997.
Nutrinova and its customers are pleased with the outsourcing solution, according to Van Mol. “ChemPoint has done extremely well at servicing the small accounts and regaining lost business,” he reports. Since ChemPoint has taken over, the segment “has grown at 20 percent; ChemPoint has been able to regain business that we had lost.”
Outsourcing has proven to be the optimal solution for the servicing of the small customers for Nutrinova, notes Van Mol. “ChemPoint has been a great partner. It has been a very worthwhile investment.”
Outlaw observes, “ChemPoint is more efficient and focused. The ChemPoint model has begun to change the way that the industry views selling these volumes to these kinds of customers.”
Lessons from the Outsourcing Journal:
- In the specialty chemical industry, manufacturers have trouble reaching small customers. ChemPoint, an outsourcing service provider, has adopted personalized selling techniques to sell to this smaller segment.
- Outsourcing has allowed one manufacturer to grow its small business customer roster by 20 percent.