Selling preferred suppliers: what is agency ‘best practice’?
By Daryll Page*
There is a lot of “post conference” conversation at the moment in relation to preferred supplier benefits and sales and there are several schools of thought as to what is best practice from an agency perspective.
The reality is that it needs to be looked at from two key perspectives – customer satisfaction and the financial implications for the business.
The customer perspective
There is a sound argument that in order to engender customer loyalty and achieve high levels of customer satisfaction, consultants must aim to meet (or exceed, if you listen to the gurus) customer expectations.
Therefore it is rational to assume that the more definitive the expectation, the less choice there is of appropriate products to meet this expectation.
The simple example is if the customer wants a blue seat with bells on, red seat without bells will not be an option that is likely to satisfy the customer or bring them back to you. But if a customer just wants a seat then red or blue, with or without bells will do.
The key words here are expectations and options. For consultants the key skill is ascertaining just exactly what the customer expectations are and then determining the most appropriate options.
The financial perspective
The financial benefit to the business of using preferred suppliers can be significant with incentive revenues, sponsored training and education and productivity gains through stream-lined processes, product familiarity and dedicated support functions.
As a conservative view of an additional financial benefit of just two per cent, the impact for an average agency (turnover $4m) would be circa $80,000 in revenue and assuming all other operational factors are equal then this could be taken as additional net profit.
Our research through our bench-marking of the industry shows this figure could well be the difference between profit and loss for most businesses.
Understanding the kickers
Most preferred supplier agreements have “tiers” relating incentive payments increase to sales growth and most of these are paid retrospectively back to dollar one. Unfortunately the management of these tiers is somewhat sporadic within the industry and it is not uncommon for agencies to miss out on achieving additional incentive revenues.
From a revenue basis this can again be significant. An 0.5 per cent kicker on a $250,000 sales base is only $1250 but if you apply this across 10 different products then suddenly the impact is $12,500. So we are left with the age old conundrum of service (meeting expectations) and profit (reason for existence) and as with most service based businesses the focus turns to those delivering the service – consultants.
It is at this point in the sales process that directional selling or positioning of product can be achieved and a skilled consultant can not only meet the expectations of the customer but also influence the use of a preferred supplier assuming that expectations and available options match.
For buying group members, there is significant evidence that continued support of group preferred products ultimately leads to greater benefits. This is sometimes a little bit contentious as non preferred suppliers will try various forms of incentive to entice agencies to step outside of the group guidelines.
This can be tempting to an agent but ultimately there can be greater benefits (either financial, productivity or educational) if the group can truly evidence support for preferreds. That’s worth considering when looking at your agency practices.
The real questions to be asked are:
- Do you fully understand the financial implications of your current preferred supplier arrangements?
- At any point of time are you cognisant of how you are tracking against preferred supplier targets both for your agency and your group?
- Are your non-preferred sales really being driven by client demand or is it just easier to give the client what they initially ask for without consulting?
- Are your staff aware of the implications of any preferred supplier arrangements?
- What is the cost of not conforming to a preferred supplier program?
- What is the benefit of selling non-preferred suppliers?
The preferred supplier route is a proven approach to increased income at both gross and net levels. If clients are not definitive about expectations use your skills to influence, if they are definitive find the best match and give them the choice.
* Daryll Page is the travel industry specialist for the Resurg Group and works with individual business owners and travel groups in financial performance improvement, profitability and productivity programs.