D. Keith Pigues, UNC Kenan-Flagler adjunct professor of organizational behavior, is the guest columnist for this month’s Marketing Insight. Pigues, who also is senior vice president, chief marketing officer and a member of the executive committee for Ply Gem Industries, has written a book called Winning With Customers: A Play Book for B2B. It is due out next month.
Amazing things happen when an organization begins to think first about how it can make its customers better off. Really. The days of defining winning by only considering your own P&L are over. Leading B2B companies are focused on making their customers more money than their competitors and getting their fair share.
How can you tell if your organization is focused on winning with customers? Ask yourself: Do your customers make more money doing business with you? Consider these four statements that describe a company on the right path.
- How many describe your organization?
- We know specifically how we help customers make more money.
- We measure and track how much money customers make doing business with us over time.
- We measure and track how much more money our customers make doing business with us compared to our competitors.
- We understand how we will make our customers more money in the future.
At the Business Marketing Association (BMA) Engage conference in June, 2010, only 5 of 600 (less than 1%) attendees could say that these statements applied to their companies.
At the heart of this model is Customer Value Creation (CVC.) CVC is a method that helps companies better manage the value exchange with their customers and suppliers. In all business transactions a value exchange is at work. Companies seek products and services to meet their business needs and (most importantly) help them improve profits. In most value exchanges, neither party has a good way to measure how much value is exchanged or how it is shared.
CVC helps companies:
- Identify the specific areas where they can create more value for customers than competitors
- Measure the financial impact
- Create plans to deliver the value to customers while capturing their fare share in return
What does it take to win with customers?
1. Help customers make more money by having a different conversation. Discuss the ‘measurable’ financial value you create for customers today and the specific opportunities to create more value in the future. CVC uses a method that engages decision makers and influencers throughout the customer organization in a conversation about their business.
This answers questions like: Are you helping the customer make money? Are you helping the customer make more money than your competitors? What can you do (from the customer’s point of view) to help them make even more money in the future?
This new approach to seeking customer input provides dramatic improvements over more traditional approaches like customer satisfaction or customer loyalty metrics. It provides a current rather than retrospective assessment. And it changes the conversation of value propositions from purely qualitative aspects.
This places customer value metrics at the center of the dialogue.
2. Inject into decision-making measurable, customer information about what customers value. (Yes, sometimes we don’t know as much about our customers as we think.) This model measures the value a company delivers to its customers in terms of the incremental operating income that customers earn by doing business with you versus your competitors. This connects your value proposition to the customers’ P&L statement and has produced some surprising results for the companies that are using it.
3. Develop and execute plans with customers that deliver value and clearly outline what is expected in return. A critical part of this approach is a list of the top 3-5 opportunities identified during the customer discovery that provide value for both parties. The list builds and continues to improve the customer relationship. Our work has shown that while customer relationships are important, long-lasting and mutually beneficial financial relationships are what truly matter. These relationships provide the fertile ground for true co-creation with customers that results in sustained profitable growth for both parties over time.
4. Predict future profit growth for you and your customers by aligning your investments with their impact on customers’ profits. One of the most exciting features of this approach is measuring the customer’s actual performance against the predicted incremental operating income earned by doing business with you. One company that has been using this approach over a 3-year period has produced impressive results showing the relationship between their investments, improvements in their value propositions and predictable future financial performance.