Winning with B2B Customers
What it takes to win with B2B customers
By D. Keith Pigues, CMO of Ply Gem Industries
Amazing things happen when an organization thinks first about how it can better its customers. Really! The days of defining winning based solely on your own P&L are over. Today’s leading B2B companies are focused on making more money for their customers—and doing it better than the competition—while also getting their fair share in return. This redefines what it means to truly “win” with customers.
How can you tell whether your organization is focused on winning with customers? Answer these four critical questions to determine where your organization is along the winning path:
First, do you know specifically how your company helps customers make more money? This is the starting point, and if your company can easily and quickly answer “yes,” then you’re on your way to success. I would argue that if you are not absolutely sure about the answer, you should ask another question: Why are we in business?
The second question often requires more thought. Does your organization measure and track how much money customers make doing business with your company over time? This question begins to part the waters and separates those companies that are truly interested in their customers’ success from those that are only interested in their own success. This is a key indicator as to whether your company is externally or internally focused.
Here’s the third question: Does your organization understand how it will make more money for your customers in the future? Organizations that can answer in the affirmative have a clear road map of the most valuable things it will do during the next few months or years to help customers grow their profits.
The fourth and final question is the ultimate measure of winning. Does your organization measure and track how much more money your customers make doing business with your company as compared with your competitors? This is, after all, what your customers care most about. Proving that you can really have the greatest impact on your customers’ profits is the Holy Grail in business relationships between companies. It reduces all other measures of your success with your customers to “noise.” Organizations that measure and continually improve the impact on customers’ profits and capture their fair share in return are the true winners.
Consider these startling numbers:
At the Business Marketing Association (BMA) Engage conference in June, only five of 600-plus attendees—that’s less than 1%—could answer yes to all four questions.
Among nearly 200 marketing and sales executives attending the Institute for the Study of Business Markets (ISBM) member meeting in September, only 1 participant could answer yes to these questions.
At the CMO Thought Leadership Summit in November, yet again a very small percentage of attendees could answer yes to these questions—questions that are redefining what it means to win with customers.
So if your answers to those four questions left you with the feeling a little exposed, not to worry—as you can see, you are not alone. The good news is there are things you can do to build on what you’re currently doing to win with your customers.
You can begin by changing the conversation your sales and marketing professionals or executive team has with customers. The people on the front line of your organization spend lots of time engaging with customers. However, in most companies the bulk of these conversations are not focused on what matters most to the customer—their profit and how to increase it. A new approach that makes each customer interaction more valuable for both parties is called “Customer Discovery.” Asking customers to validate or invalidate your hypothesis for how you help them make more money with your value proposition creates an environment conducive to different and more fruitful conversation—a conversation that customers love to have. Does your product line really provide a differential impact by helping your customers increase sales, versus the impact of your competitor’s products? How about your sales force, brand, or customer service? How do they help your customers grow revenue or trim costs that impact their bottom lines? What you find out in these conversations will likely surprise you.
Calculate The DVP%
The results of these new “value-based” conversations are pretty powerful. The information captured during the structured, in-depth conversations allows you to take the critical next step to winning: quantifying just how much more money your customer makes doing business with you versus your competitor in real dollars and cents. This new metric used to measure the incremental value gained by your customers is called the “Differential Value Proposition Percentage,” or DVP%. There is finally a quantitative measure of the effectiveness of your company’s value proposition—no more wishy-washy discussion about your value proposition and how it differs from competitors. The DVP% is a rigorous financial measure of how much additional operating income your customer earns by using your products or services and represents a true measure of your competitive advantage. The balance sheet measures company value, the P&L statement measures profit, and the DVP% measures competitive advantage. This new metric is a real breakthrough in customer engagement and loyalty measurement. It is the first “direct” measure of what drives customer engagement or loyalty, representing a significant improvement over measures like Net Promoter Score (NPS), which is an indirect measure.
With the DVP%, companies are able to gain both a quantitative and qualitative understanding of the opportunities to improve their winning score over time. In addition to the current measure of the value you bring, customers also provide a forward-looking view of how you can help them make even more money in the future. This forward-looking and actionable output provided by the DVP% is yet another improvement over the traditional measures. If your customer indicates your DVP% is 4%, this means for every $1 million in purchases from you, the customer gains an additional $40,000 in operating profit by doing business with you rather than with your competitors. This is, indeed, good information to have at your fingertips—no more guessing about where you stand with the customer.
What is even more valuable is an output from this conversation called “The List.” The List includes the top three to five things the customer suggests you do to help them make even more money in the future, relative to your competitors. Each of these suggested investments is associated with a specific portion of your value proposition—either areas you can improve or new areas you can create. Also included here is your customer’s estimate of the impact these investments will have on his operating profit. This is worth pure gold and should be kept in your company vault—it’s the road map to your competitive advantage in the future. This is invaluable input to your business-planning efforts and decision-making. It also helps to align your entire organization with the things that matter most to the customer, while bringing a new level of understanding about how your products and people impact the customer’s business.
Business between two companies is really about value exchanges. In most of the exchanges today, neither party has a good way to measure how much value is exchanged or shared, resulting in a lot of waste and mistrust. Customer Value Creation (CVC) is the new business management system that helps you win with your customers. CVC helps companies identify the specific areas in which they can create more value for customers than can be created by their competitors, measure the financial impact of the value proposition in dollars and cents, and create plans jointly with customers to deliver more value to customers while capturing a fair share of the value for themselves in return.
Now that is winning! It’s time to get in the game and improve your winning score.
Copyright D. Keith Pigues, 2010
D. Keith Pigues, CMO of Ply Gem Industries, is co-author with Jerry Alderman of Winning with Customers: A Playbook for B2B, which was published in August 2010 by Wiley & Sons. He can be reached at Keith.Pigues@plygem.com.