5/31/2018By: Vikas Mittal
To satisfy customers and increase profits, B-to-B companies must stop emulating consumer brands and understand what their own customers value
Senior executives at B-to-B companies strive to help their customers improve sales and margins. Yet very few systematic frameworks exist to guide their customer focus. Last year, I was discussing the content of a B-to-B strategy course with the dean of a top 10 business school in Asia who lamented, “Most of what B-to-B companies do relies on recycled concepts from consumer companies. Consumer goods and services are focused on customer experience, customer delight and hedonic consumption, and rightly so. But B-to-B is different. It has so many utilitarian value drivers like sales, bidding, billing and project management that go beyond experiential aspects of value. Simply put, B-to-B customers are different than traditional consumers of goods and services.”
B-to-B companies have important differences from B-to-C companies. B-to-B companies typically sell complex products and services that are purchased by clients through a systematic purchase process involving multiple stakeholders, such as end users, evaluators and purchase managers. In terms of consumption, B-to-B cycles are long and complex, sometimes lasting several decades and involving hundreds of employees.
Considering these differences, B-to-B companies can satisfy the needs of their customers by developing customer-based competencies. Research by C-CUBES (the Collaborative for Customer-Based Execution & Strategy) has identified six customer-based competencies pertinent to B-to-B customers. Unlike functional competencies (technology, finance, innovation or creativity) based on silos—such as manufacturing, finance, technology or innovation—the six customer-based competencies rely on six specific domains of perceived customer value.
Each of these competencies represents an element of the customer-driven value proposition. Functional competencies are needed to deliver the perceived value associated with these customer-based competencies. However, superiority on functional competencies is not enough, unless they can become inputs to delivering customer value.
Customer value is linked to the six customer-based competencies. These competencies were developed as part of a research project by scholars at Rice, Iowa State and Texas A&M universities. They are based on in-depth interviews and surveys of more than 600 managers and executives from the supplier and client sides in B-to-B firms. The description of each competency also includes direct quotes from clients of a diverse set of B-to-B companies.
1. Bidding and Sales Process
Though consumers respond to displayed prices in stores, B-to-B customers typically go through an elaborate bidding and sales process. Customers evaluate suppliers’ understanding of their need to provide accurate proposals, and they evaluate the sales team’s competency. When asked, customers describe this competency as, “We get a lot of work from relationships that our sales force develops,” or, “Salespeople need to do a better job understanding our needs so that the proposals are streamlined to our needs.”
2. Quality of Product and Service
Products and services in B-to-B can be complex, ranging from multiyear service contracts to complete power plants. For B-to-B companies, quality of product and service is based on customers’ perceived performance of a supplier’s core offerings. Customers describe this competency as, “meet(ing) performance specifications for the equipment and the service employees.”
3. Billing and Pricing
This competency denotes customer perception of the extent to which a firm’s pricing and billing processes are fair and competitive. This goes beyond low pricing. Respondents report that they, “don’t like companies that low bid and then issue change orders to jack up price.” They also express frustration when, “accounts payable has to go back over the billing because it is wrong about 50% of the time.”
In B-to-B relationships, communication is a core component which can detract from perceived customer value when derailed. As a competency, communication represents the extent to which customers perceive the firm as being receptive to and sharing appropriate and accurate information in a clear and timely manner. Customers describe companies that excel at this competency as, “providing the attention required to keep accounts happy, especially the large ones.” In contrast, firms with poor communication are described as, “Everything is e-mail. I get zero in-person contact with them.”
As a competency, safety denotes customer perception of the extent to which a supplier assures the safety of the products, customers and employees. Safety is a critical competency, especially in B-to-B contexts involving the oil and gas industry, manufacturing, transportation, nuclear energy and waste management. For example, the Deepwater Horizon disaster ensnared BP for several years. When asked, customers describe safety as: “Many complex jobs have problems … safety is one of the major problems,” and, “TRIR (total recordable incident rate) is very important.”
6. Sustainability and Social Responsibility
Sustainability and social responsibility are not merely fads but critical elements of B-to-B customer value. They represent customer perception of the extent to which a supplier voluntarily incorporates societal and stakeholder concerns in its value proposition. In describing the benefits of these competencies, customers state: “I know they are not doing anything dirty—they help us stay on the right side of [the Environmental Protection Agency],” and, “It is important to be a community partner by creating local jobs. We always emphasize local content and training.”
These competencies touch the entire customer journey. Research conducted by me and my colleagues from Rice, Iowa State and Texas A&M universities shows these competencies explain 70% of customer value, as measured by overall customer satisfaction. By focusing on these six competencies, B-to-B firms can satisfy more than 70% of their customers’ needs. These competencies are integral predictors of sales and gross margins—even after statistically accounting for a variety of customer-relevant factors (e.g., purchase amount and involvement), company-relevant factors (e.g., firm size and firm risk) and industry-relevant factors (e.g., industry competitiveness). Thus, satisfying customer needs through these six competencies also satisfies shareholder goals. Finally, these six competencies cut across a wide swath of B-to-B companies and are key to improving sales and margins by providing customer value to virtually all B-to-B firms.
B-to-B companies should no longer emulate B-to-C companies to develop a competitive advantage. The competitive advantage for B-to-B firms resides in these six specific competencies. Though deceptively simple, they can be difficult to develop. They cannot be achieved by excelling in only marketing, finance, innovation, service or sales. Delivering each competency will require a cross-functional approach to deliver perceived value to B-to-B customers. To focus on these competencies, companies will need to measure them through key processes and metrics, understand the relative importance of these competencies for customers and link them to sales and margins. This can provide a roadmap for achieving meaningful improvements in customer value and shareholder performance for B-to-B companies.
What? B-to-B companies must satisfy their customers’ needs to improve sales and margins by executing on six competencies that create customer value.
So what? B-to-B companies run the risk of emulating consumer companies focusing only on customer experience.
Now what? B-to-B companies can implement a systematic customer-focused strategy by measuring and managing six core competencies that provide the bulk of customer value.