Perfecting Service Management

Issue #25 Tuesday, August 18, 2003


topical index

Welcome to this edition of the Customer Centricity newsletter, where we explore ways you can improve the performance of your service organization.

In this issue:

Avoiding the Death Spiral While Reducing Operating Costs - Part 10
(Renegotiate Vendor Contracts)

By Lauren Weiss

This is the 10th and final article in the series "Avoiding the Death Spiral While Reducing Operating Costs" covering approaches to reduce operating costs while maintaining customer confidence and increasing customer satisfaction. Topics in this series include:

  • Cease activities that provide no value-add
  • Implement efficient and repeatable processes
  • Focus on existing product quality instead of new features and functions
  • Enabling customers to self-serve
  • Perform elements of the work with lower cost labor
  • Segment the customer base and provide ďappropriateĒ levels of support for each
  • Make informed, not random, cuts
  • Cease big, expensive projects with long-term ROI
  • Renegotiate vendor contracts

In this edition we will cover: Renegotiate vendor contracts

Just as you are trying to retain your customers by keeping them happy, so are your suppliers. In cases where you have flexibility in choosing vendors, you have an opportunity to increase the value received for the price of the products and services that you buy. This could include at least 3 negotiating points with your supplier:

  1. cost reduction
  2. increased level of service for the existing price
  3. lower minimum purchase agreements

Cost reduction

Price is a key factor affecting customer satisfaction and retention in the current business environment. If switching vendors for a particular product or service is an easy option for your company, let your suppliers know price is a deal breaker in your relationship. Companies eager to keep your business will be willing to negotiate. If not, find another vendor who is eager to obtain your business at a lower price. However, it is important to keep in mind some important points when considering alternative vendors:

  • Price is an important consideration, but not the only one. You should be careful not to compromise quality or other important factors.
  • Many companies are having their own difficult times. Be sure you assess the financial stability of a company before relying on them for any significant part of your business.

Increased level of service for the existing price

While a vendor might not be able to renegotiate price in this economic climate, you might be able to get other things of value to you, such as an increase in the level of service that they provide your firm, within the existing pricing structure. This could include increased responsiveness and/or additional flexibility in the services that they render to you. Additionally, you should tie financial penalties to their performance (if you havenít done so already). And, when they donít perform to the standards that you have agreed to contractually, you have lowered your costs or increased the value of something else that you can get from the vendor. Obviously, you donít prefer "less than adequate" service to obtain a discount, but tying performance to cost is one way to ensure that your supplier performs to the levels that you expect (or better).

Lower minimum purchase agreements

If you are still living with contracts that were negotiated during the boom, you may have agreed to higher than presently required volumes, as a minimum purchase agreement. You should review your current volume requirements and where they fall significantly below the minimums in your contract, work with your supplier to bring the two in line. You might also consider negotiating more favorable purchasing timelines.

In general, the more a company relies on your business, the more leverage you have to renegotiate contracts and increase the value received for the price. With a more stream-lined cost structure, your company is in good shape to maintain or increase customer satisfaction while reducing operating costs, thereby avoiding the "death spiral."

This article completes our series on "Avoiding the death spiral while reducing operating costs."

Previous articles in this series:

Part 1   Part 2   Part 3
Part 4   Part 5   Part 6
Part 7   Part 8   Part 9


Customer Behavior Metrics - Part 3
(Prevent Customer Problems with Company Performance Metrics)

By Bill Riquier, Business Metrics Specialist

This is the 3rd article in the series on using customer metrics to prevent customer problems. Previous articles highlighted the importance of using customer metrics to prevent problems and discussed customer behavior as a source of important metrics. This article and the next will discuss additional metrics that are leading indicators of change in perceived value.

Company Performance

Well-executed customer satisfaction surveys offer a wealth of useful data about your customersí feelings. But remember that these are already established feelings, and they are costly and difficult to change. Whatís really helpful is examining trends in customer satisfaction scores, and linking them to your companyís performance at various customer-facing activities. A thorough analysis of the correlation of business process metrics and satisfaction scores over time will teach you a lot about what hurts, helps and has no effect whatsoever. Some warnings: Correlation does not establish causality. Managers should be able to judge whether the measured activity has effected changes in the customer experience or if a third variable is affecting both measures. Also, if performance at an activity shows little correlation with satisfaction scores at one level, but high correlation at another level, then this suggests a threshold effect. For example, an increase in the average hold time, for callers to Customer Service, from 20 to 30 seconds may have no affect on satisfaction scores. However, when the average hold times rise above one minute, satisfaction begins to drop.

Staff satisfaction surveys also offer useful, and often surprising, results. If customer-facing employees feel safe enough to be candid, managers will learn many secrets about the customer relationship. They will locate areas of stress, determine which resources are in demand, learn about deficiencies in tools and training. All these phenomena should be measured in your own staff before they are felt by your customers. Furthermore, a well-designed survey will elicit comments that will introduce managers to different facets of the customer relationship and novel approaches to current problems.

The next article will discuss two other important indicators: Industry, and Growth and Learning.

Bill Riquier can be contacted at

Previous articles in this series:

1. Don't Solve Your Customer Problems: Prevent Them!
2. Identify Changing Customer Attitudes



More About Customer Centricity, Inc.

Customer Centricity is a business consulting firm that partners with companies to improve the performance of their service organizations. We leverage our real-world experience to help our clients manage their customer relationships in more effective and satisfying ways.

Customer Centricity delivers on this promise by optimizing the interaction between people, process and technology to achieve higher levels of customer satisfaction and increased operational efficiencies. We provide:

  1. Comprehensive assessments to identify the actions that will yield the greatest return;
  2. Skills Training to enable customer-facing personnel to deliver exceptional levels of customer service;
  3. Design and Implementation of business process techniques to serve the customer in efficient, effective and consistent manners; and
  4. Identification of the appropriate business processes to automate, enabling companies to get the most from their investments in technology.

In addition to our core practices, we also maintain a network of strategic partnerships to provide end-to-end consulting across your organization with a commitment to seamless execution.

Click on the following link to see what our customers have to say.

To learn more about Customer Centricity:

call: 603.491.7948

send e-mail to: 

or visit our web-site:

In Closing

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