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| Delivering profitable service focus of Purdue conference |
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By SARAH B. AUBREY
Indiana Correspondent
WEST LAFAYETTE, Ind. — In the consolidated agricultural inputs industry, one last frontier remains for companies striving to be different and generate new sources of income: Selling services.
“Profits from service have to be the number one priority – we haven’t done that in agriculture, it’s always been sort of ‘free’,” stated Dr. Allan Gray, associate professor at Purdue University and associate director for research programs at Purdue’s Center for Food and Agricultural Business. “In order to do this, we have to ask ourselves what it is that the customer is truly willing to pay for and ask if that is worth more than what it costs to produce and deliver it.”
Gray specializes in strategic management for agribusiness, agricultural policy and guiding companies through decisions during times of uncertainty.
During the upcoming National Conference for Agribusiness set for Nov. 13-14 at Purdue University’s West Lafayette campus, groups of commodity industry professionals from in and outside of agriculture will address the topic of successfully selling service. Taking service from an add-on to a viable profit center will be one focus.
Gray said because of tremendous pressure on ag sales managers and professionals to achieve results and differentiate themselves, the session “Delivering Impactive Service: Organizing for Effective and Profitable Service Delivery” will have relevance for them.
“The argument is that to deliver services effectively, the company must get organized to do so, first. Everything from the physical structure to the incentive structure of the business must be on board,” Gray said.
One company that has produced recognizable success in selling service in a commodity market is the Jeffersonville, Ind.-based American Commercial Lines, Inc. (ACL). “Here’s a company with the main function of making barges and using those barges to ship goods up the river,” Gray said. “I can’t think of a business that is more commodity-oriented than that.”
Because of ACL’s business to business framework – similar to agribusiness – it made a strong fit for the conference even though it is not in the agriculture industry. ACL’s story is the classic example of innovation at work.
When new managers Jerry R. Linzey and Michael P. Ryan became involved, ACL was in serious financial trouble. The new team began to examine service offerings as a way to improve profits. Through their research, they discovered market segmentation of their customer base yielded noticeable variances.
“Two years ago, our customers all looked the same to us; just the volumes they shipped were different,” said Linzey, senior vice president and chief operating officer.
Yet, by utilizing market segmentation, ACL now sees service as a key profit center.
“While some firms find multiple customer segments difficult to manage, the more customer segments we can identify, the more opportunities we have to develop premium-based value bundles for them,” added Ryan, senior vice president of sales and marketing.
“There was an industry standard for delivery. That ‘on-time’ delivery was accepted within a seven- to 10-day window of the anticipated delivery date,” explained Gray. “ACL was able to do a better job of that, closing the window to two to five days; they effectively cut the time in half.
“Their system allowed them to just be more accurate about delivery and it allowed customers to get their goods in a more timely fashion than the competitors could do.”
While current customers were pleased with the quicker, more accurate delivery, ACL discovered even more value from the powerful change in service they offered – new customers, who had never considered using barges for delivery. Because a barge is generally less expensive than other means of transportation, even when charging a premium, ACL was still able to bring in new customers with the accurate delivery times they offered.
“ACL realized the key was not just low cost, because barge was already low cost. The key was that service can really differentiate you,” Gray noted.
He also said ACL offers a good example of an organization willing to change company structure to meet the demands of the customer. “When they realized that service was becoming a key component of their business, they knew they had to get located closer to the customer. They added regional sales offices and a marketing office located in New Orleans,” Gray said.
Can impactive service really save a struggling organization or improve one that simply needs a new focus? Gray believes it’s entirely possible, if the service offering is handled right. He said quality service can improve everything from customer retention to gross sales and, in cases like ACL’s, foster new customer development.
Bottom line: Service can put more dollars in a company’s bottom line. “It’s basically asking ‘How can we charge a premium for this service we provide?’ We have to learn what our customers truly value,” he said. “I think in ACL’s situation it was about improving efficiencies in cost structure, but ultimately it was about improving profitability through revenue enhancements like service.”
To design a service strategy, Gray said market research is the first element. He suggested five primary avenues to explore. First, conduct primary data research through talking with customers.
“You’ve got to be out there asking customers what they really want, realizing, however, that sometimes they don’t know what they want until it’s offered to them. You’ve got to do some creative listening,” he suggested.
Measuring the quality of service delivered or planned for delivery is the next step. Then, determining the benefits to the customer from the service offering is essential to making it work. “Is it cost savings for them, convenience, or are you providing certain information that they can really use?” Gray pointed out.
Number four on Gray’s list is to determine the price and how to position the service in the marketplace. He said the discussion of price is often difficult – “This one always seems to be the big problem, especially in the ag retail sector.”
Finally, Gray advised managers to not overlook conducting research internally. “Research how it will work on your end. Look at internal communications, how the service fits the business structure, and incentives to get employees on board.”
Revising the service strategy of any organization can be a massive challenge, but learning from peers who’ve been successful can be motivating and useful. Gray is looking forward to ACL as a highlight of the conference. “They have created a really compelling story; they’ve shown that a focus on service, even in a commodity business, can lead to success,” he said.
For more information about the National Conference for Agribusiness, contact Jane Ellis Anderson at Purdue at 765-494-4247 or check online at www.age con.purdue.edu/cab/programs/nca |
| 10/3/2007 |
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