September 22, 2020

Case Study: Can Chasing Small Customers Lead to Larger Profits?

THE CHALLENGE To become profitable, Big D must determine whether to cater to customers with large printing orders or small.

THE BACKGROUND Mr. Robbins, a former full-time musician who still plays in a band, was nostalgic for the multicolor tour shirts of his youth, which he described as “works of art.” He said he was appalled by the one-color shirts sold at today’s shows. He was also disappointed by the quality of shirts created by some of Austin’s many screen printers and said he could do better.

With that goal, Mr. Robbins and his partner, who worked for Capitol Records, invested a total of $225,000 to open Big D. The division of labor was clear. “I was a natural-born customer-service geek, and he was a natural-born salesman,” said Mr. Robbins, who resolved to take care of the customers his partner brought in. “We wanted to be one of the big boys.”

As his partner traveled the country trying to win accounts, Mr. Robbins ran the shop, frequently declining business from potential customers who requested small orders. Mr. Robbins, 44, who has a background in ad agency account management, said that turning away business kept him up nights. He wanted every call to end with a sale.

By the end of its first year, Big D had grabbed a few big accounts — local video game and record companies that placed orders for 5,000 to 15,000 shirts. But when the shop was not cranking out large orders, it sat idle. Mr. Robbins said his partner feared that small orders would prevent Big D from handling bigger jobs should they come in. But given his ad agency experience, Mr. Robbins said he was used to demanding clients and short deadlines. “With effective scheduling, you can pretty much accommodate any customer,” he said. Following the lead of his competitors, he charged more per shirt for the smaller orders he did take.

THE OPTIONS At first, Mr. Robbins and his partner agreed on strategy. With their industry contacts, they said they believed they could land accounts from major bands. Focusing on high-volume orders made sense to them in part because Big D’s suppliers offered a price break on large quantity T-shirt orders.

But the partners did not realize that most bands were locked in to long-term contracts for their tour shirts. Given that, Mr. Robbins started to wonder about the strategy of chasing down high-volume clients, particularly when he had so many smaller prospects knocking on his door. But, he said, his partner saw no point in accepting orders for one or two shirts. His partner continued to believe big orders were crucial to profitability and that he could best win those accounts by conducting in-office presentations for corporate prospects across the country.

THE DECISION After a year in business, Mr. Robbins threw an anniversary party in April 2008 to thank his employees for their dedication. His partner, however, opposed the modest celebration because its cost meant the difference between breaking even and showing a loss on Big D’s first-year sales. This disagreement highlighted the increasing tension between the partners’ growth philosophies.

Determined to accept smaller orders, Mr. Robbins bought out his partner around the time of the party. The split was amicable, Mr. Robbins said, with his former partner breaking even on the sale and returning to the music business. And then the economy crashed. “Almost overnight, companies tightened their belts,” Mr. Robbins said.

At that point, he decided that no order was too small. He would find a way to take all business, even an order for a single T-shirt. He knew there would not be a lot of competition from the other local screen printers for the small orders. “I noticed they weren’t in a huge hurry to fit them in,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=224c8fa0e6f8b704a78520840d0ec74f

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