Customer intimacy - the route to positive entanglement

Contributed by Peter Frost, CEO of Proficiency Group

In December last year I visited Jennifer Smith, the chief at Innovative Office Solutions in Burnsville near Minneapolis, Minnesota. I had heard about the progress of Innovative from Jeff Gardner at Maximum Performance and also United Stationers, so I wanted to take a closer look.

It seems to me that Boston may be the home of the big boys like Staples and WB Mason, but Minnesota is the home of some of the rising stars. Apart from the larger and high performing S&T, the state is home to Bertelsons, BuyOnlineNow and, of course, Innovative.

The new PROP in action
I met with the charming and elegant Jennifer Smith and her operations and marketing chief Jason Player. We spent a couple of hours together, enough to convince me that Innovative is up there with the top dealers in the US and UK which are consciously moving from the traditional products approach to the new PROPS model - providers of office productivity solutions. This was a treat, a PROP in action in Minnesota. Word was spreading like wildfire.

Here are some of the relevant extracts from the interview:

PF: What are Innovative's key perfomance dimensions at present?
JS: Sales in 2007 were $15 million, up 7 percent on 2006, with plans to reach $18 million in 2008. Employee totals (full-time equivalents) are 39 - 17 of the original team are still together. Employee retention is at the core of our relationship-focused customer approach - Innovative's core business model.

We started in 2001 with 19 people and almost seven years later we have sales of $15 million and are starting to grow rapidly. Our productivity levels are not exemplary at $385,000 per employee, but we feel we're set to grow 20 percent with the talented people we have, boosting productivity to $462,000 and up there with the best.

By empowering individuals in all aspects of the business, we have developed a unique, action-orientated approach to providing office supplies and furniture to our customers nationwide. Customer innovation is fostered at every level by our professional team who have individually experienced the big box mentality of our competition. Shared goals, pride and independence reinforce Innovative's ability to exceed customer satisfaction, cohesively service accounts and grow the business.

Maintaining a high performing talented team makes sure we deliver what customers want and enables us to take initiatives in meeting their future needs.

PF: What is your employee retention rate?
JS: 92 percent. (That's fantastic! A high retention rate, such as 90 percent plus generally translates into customer retention at a similar rate. Currently, Innovative's customer retention rate is 86 percent).

PF: What are the three specific key market differentials of Innovative?
JS: What differentiates Innovative in the marketplace is simple. Relationships, relationships, relationships. We pride ourselves on the relationships that we develop with our customers, vendors and with each other. Relationships truly make the difference.

PF: What are your primary marketing tools for new client acquisition and existing client development? How do you measure retention as well as share of potential spend?
JS: We use lead generation and telemarketing programmes. These programmes can be a big cash outlay at first, but we have had a 200 percent return on investment over the last year and a half. Gross profit generated in relation to the cost of reaching the customer. We are also a pilot dealer for United Stationers' Consumer Marketing System (CMS) programme which is getting underway now.

We measure retention by our trend reporting system. If an existing client has not bought from us in three months, we reach out to them with an email or postcard coupon offer. The reps are very involved and they follow up with a phone call, then report back to their manager with reasons for loss where applicable.

To make sure that we are penetrating our existing accounts we run product class reports monthly, and each quarter we promote a different category that incorporates flyers, website promotions and follow-up calls. We also incorporate the product class report into our business reviews with our clients.

PF: How many contacts do you aim to reach within each account? IT manager, accountant, facilities manager, HR manager and Exec PAs, for example.
JS: We currently have 1,783 live customers with 4,000 email addresses. This is strong but we now plan to take a positive look at our eMarketing systems with a view to greater personalisation, greater promotional frequency and to improve the customers/users webstore 'browse'n'buy' experience. We have an excellent marketing chief (Jason Player) who has been with us from day one. You have to have someone dedicated to marketing the company's products and services.

Jason works closely with the salesforce to build the contact database. At our regular sales meetings he will highlight by customer the gaps in the contact names we require in order to maximise our promotional effectiveness and share of customers' potential spend.

By building and maximising our contact database, obtaining customers' email addresses, we can with their permission develop a closer, more intimate relationship with our clients. The more contacts, the higher the touch and the higher the degree of 'entanglement', making it very difficult for one person to oust Innovative when we have a bad day.

PF: How do you conduct promotions? Direct mail, email, teleservice? What are the most attractive incentives to users, buyers and salespeople?
JS: We have found the best success with current promotions can be achieved using the team approach. When we launch a promotion, we try to have as many team members involved as we can to ensure maximum return.

For example, in the quarter that we promote the jan/san category, we will use United's direct mail piece and couple it with a website promotion and flyers (in paper and email format) for our drivers and sales representatives to hand over or send out. Then we list all current customers that do not buy that category and organise our customer service people to call and offer them a coupon code to enter when they place their next online order.

PF: Do salespeople sell Innovative programmes or productivity systems to save clients' time, money and space or do you sell product?
JS: Our salespeople here at Innovative never sell product. It is always a solution-based approach. We ask our salespeople to complete a star profile on their prospect/new customer. This is a full intimate analysis of the customer's wants, needs and preferences. The philosophy we adopt is to listen, absorb and respond. This enables the whole Innovative team to tailor the service and personalise the marketing.

Currently, Innovative does segment its customers by SIC type, but does not measure potential spend using the differentiated rates - the next step in customer intimacy and determining their share of customer potential.

PF: What are your favoured measures of profitability, productivity, marketability?
JS: We score all our customers and sales reps on an efficiency model.

Customers are given a rating and measured against other customers. We score them on 'average order size', 'returns rate', 'online purchases' and 'average days to pay'. We also monitor their gross margin and give STAR awards to sales reps and customers for their performance. All of these measures are presented to our customers at an annual business review.

PF: Looking at your sales analysis, furniture is strong at 25 percent of your sales mix. Can you tell me why?
JS: Furniture is strong because we have partnered with Evolve Furniture Group. Evolve produces office systems, seating and storage designed to meet today's business requirements while maintaining a firm commitment to save and protect the environment. Evolve maximises the use of material that would otherwise go to landfill. Evolve panels are 100 percent recyclable at the end of their lifespan.

An estimated 82 percent of an entire Evolve panel is made from recycled and environmentally-friendly material.

PF: What are your development plans going forward?
JS: We have three key areas of development we are working on:

First, we are committed to a green agenda and will hold an EcoExpo in May for our customers. The theme will be 'Cut costs...Cut carbon' and will involve our key wholesaler and manufacturer partners' latest products at the event.

We will present the four-step eco-productivity programme, enabling customers to reduce their acquisition costs and partner with us in cutting carbon emissions by single sourcing and rescheduling delivery frequency.

Secondly, in March we will be introducing our new Green Mountain coffee programme. This is a real and ethically-sourced Fairtrade coffee service.

Finally, we are conscious of the fact that we have made strong progress in building our user database and we now need to use it. We plan to reach the users more frequently, for example weekly, with relevant eMarketing promotional campaigns. These will be permission-based, office lifestyle-designed and personalised emails from our reps to the users. The final step will be to enable users to place orders online via the web store with minimum clicks.

We are developing greater customer intimacy and providing eco-productivity solutions to our growing portfolio of customers. A truly Innovative future.