Generating a Sustainable Advantage in B2B Markets. Moving From Price to Advice

Transcription

1 Generating a Sustainable Advantage in B2B Markets Moving From Price to Advice

2 For more information about Gallup Consulting or Gallup s B2B programs, please contact Sarah Van Allen at or sarah_van_allen@gallup.com Copyright 2008 Gallup, Inc. All rights reserved. Gallup and Gallup Consulting are trademarks of Gallup, Inc. All other trademarks are the property of their respective owners.

3 Generating a Sustainable Advantage in B2B Markets Gallup has interviewed thousands of business-tobusiness (B2B) customers over the last few years on behalf of its clients and, on average, only 13% of those customers were fully engaged. Think about that. A typical B2B company has what would be considered an optimal relationship with less than 1 in 7 of the customers it interacts with. Some might say this is based on the nature of B2B markets. These are business customers after all, less focused on the emotional components of the relationship and more focused on rational components like price, speed, and efficiency. But customer engagement is extremely important in B2B and measuring engagement is an extremely effective way of identifying at-risk accounts. EXHIBIT 1 Customer Engagement in B2B Markets EXHIBIT 2 Customer Engagement vs. Revenue Growth Year 1 Account Growth Growth of 20% or more Growth or decline under 20% 21% 45% 15% 25% 60% Decline of 20% or more 34% 4.00 and above Under 4.00 Year 0 Engagement Scores If You Don t Ask, You Won t Know Consider the following example from a professional services firm: Gallup Business-to-Business Database Actively Disengaged 26% Fully Engaged 13% Engaged 22% Customer engagement scores were tracked across 75 of the company s top accounts in Year 0, and then compared to account growth in Year 1. Of the accounts with engagement scores at or above 4.00 (out of 5.00), 21% of the accounts grew by 20% or more the next year, while 34% declined by 20% or more. Of the accounts with scores under 4.00, a comparable percentage (15%) grew by 20% or more, but nearly twice as many accounts (60%) declined by 20% or more making low engagement a prime indicator of future revenue decline. Not Engaged 39% Fully Engaged Strongly attached and loyal. These are your best prospects for organic growth. Engaged Emotionally attached, but not attitudinally loyal. Not Engaged Emotionally and attitudinally neutral; no positive association. They are price driven. Actively Disengaged Active emotional detachment and antagonism. They are distracting you from growth. In fact, customer engagement levels are the clearest window a B2B company could have into the status of its accounts. Given the long and sometimes inconsistent purchasing cycles in B2B, and the multiple layers of customer stakeholders a B2B company must deal with, it s easy to miss the early warning signs. Without some process for taking the temperature of the customer relationship on a regular basis, a company might not discover a problem until the customer Copyright 2008 Gallup, Inc. All rights reserved. 1

4 announces it is either taking its business elsewhere or significantly reducing the size of the contract. This dilemma is not limited to the traditional categories of B2B companies including OEMs, professional service firms, and IT solutions providers. The same can be said for what are primarily business-to-consumer (B2C) companies that have B2B relationships with their dealers, distributors, and brokers. Shifting From Price to Advice There are several levers a company can pull to drive the different elements of the hierarchy. Some relate to the features of the product/service offering. Some relate to the speed and efficiency of the service and delivery model. A company must also be effective in addressing problems and taking appropriate measures to prevent future problems. EXHIBIT 3 The Customer Engagement Hierarchy So how does a B2B company (or company with B2B relationships) secure a sufficient level of engagement with its customers particularly those top accounts that represent the bulk of its overall revenue? In short, a company must instill a sense of confidence in its customers, demonstrate its integrity, and create pride and passion around its brand and product/service offering. Can t imagine a world without Perfect company for people like me Treats me with respect Feel proud to be a customer Fair resolution of any problems Always treats me fairly Always delivers on promise Name I can always trust Overall Satisfaction Likelihood to Continue Likelihood to Recommend Passion Pride Integrity Confidence Rational Foundation These four elements confidence, integrity, pride, and passion (along with the more rational elements typically associated with what is called customer satisfaction ) constitute what Gallup calls the Customer Engagement Hierarchy. The core measure for engagement is constant, consisting of the 11 items referred to in Exhibit 3. However, the measure for impact typically varies by industry and business model. For a professional services firm, the questions might include the following: [Company] has had a signifi cant impact on our performance [Company] provides actionable insights and recommendations to address our specifi c business challenges Based on [Company s] work, we have made substantial changes to key systems, structures, or processes A consumer products manufacturer might test a different set of items: [Company] helps us innovate around merchandising [Company] helps us innovate around product strategy [Company] provides unique insights on category, end consumer, and retail trends [Company s] insights and recommendations have had a signifi cant impact on our bottom line Selecting the appropriate levers is often a difficult decision for a company. Each takes an investment of time, effort, and resources to implement. And you can only go to the well so often while maintaining a consistent brand message. More importantly, not all such measures actually drive engagement. Many companies expend significant amounts of energy on measures that fail to connect with the customer on an emotional level or that can be easily matched by the competition. This is particularly true of changes involving price. But when executed properly, these measures can create strong points of differentiation for the company. 2 Copyright 2008 Gallup, Inc. All rights reserved.

5 EXHIBIT 4 Shifting From Price to Advice Know my business Create Impact Bring me new ideas Make it work for me Identifying the Red Flag Accounts A first step in this process is for the company to identify and begin to address its more problematic accounts. Low engagement and impact are two key indicators of at-risk accounts. But there are additional metrics that can provide a window into the overall health of the company s accounts. Product innovations New approach to markets More efficient processes The strongest levers a B2B company can pull are those that drive engagement by generating impact. This is where the company, through both its product and services and the breadth of its interactions with the customer, helps to produce some meaningful change in the customer s business or business processes. In many cases, it comes from providing specific recommendations or other value-added solutions that enhance the customer s standing in the marketplace (and thus its potential for future growth) while significantly improving the customer s bottom line. The B2B companies that employ this approach are able to shift their customer relationships from price to advice. To achieve this, the company must be positioned to do three things for its customers: 1) know their business; 2) bring them new ideas; and 3) make those ideas work for them. This provides a stickiness that is difficult to duplicate, because it is often based on access that competitors won t have, and it more than offsets the value of any proposed reduction in price. This doesn t negate the value of the more functional drivers of engagement, particularly those around quality, utility, service, and responsiveness. To ensure growth, a B2B company needs to produce high levels of customer engagement from the more functional drivers, and that engagement also needs to be driven by the belief that the company has or will produce tangible change and impact for the customer. Many B2B companies tend to focus on the basics when evaluating their accounts, including revenue, profitability, and growth. That is not to say that they don t track other things. But they don t necessarily have a mechanism in place to aggregate the available account data and to rank or tier their accounts. This can be particularly dangerous in the B2B world, given the number of touch points the B2B company may have in the customer organization and the long and sometimes inconsistent purchasing cycles. If a company is not out ahead of the curve, it may not be positioned to respond later on. B2B companies therefore should employ a more balanced performance scorecard to monitor their accounts to in- EXHIBIT 5 Balanced Scorecard for B2B Accounts Category Month Revenues From Account <$2.5M $2.5M-<$10M $10M+ Gross Margin <30% 30%-<40% 40%+ 1-Year Revenue Growth Percent of Revenue From Value-Added Services Decline of 20% or more Decline/ Increase under 20% Increase of 20% or more <10% 10%-<25% 25%+ Projected Share of Wallet <25% 25%-<50% 50%+ Customer Engagement (scale of 1-5) < < Impact (scale 1-5) < < Value of Outstanding Bids/RFPs <$1M $1M-<$5M $5M Copyright 2008 Gallup, Inc. All rights reserved. 3

6 clude both current and leading indicators of performance. An illustrative scorecard is shown in Exhibit 5. In this version, the account is assigned one of three possible scores in each category: a -1 for below average performance, a 1 for average performance, and a 3 for best practice performance. Using this scoring mechanism, accounts then could be ranked and evaluated based on their total score or their score in a particular category or combination of categories. Those with low scores in the targeted areas can be flagged for more immediate action by the company. Before taking action, the company should conduct in-depth interviews with a sampling of stakeholders and frontline users from these red flag accounts (or at least those accounts of a certain size or strategic importance to the company). This will help to provide some of the detail behind the scores. It will also help to convey a level of urgency or frustration among certain customers that the scores alone may not provide. EXHIBIT 6 Output From the In-Depth Interviews Results Low scores and/or sharp criticism of team s performance Intervention Senior Management to discuss changes to the account team Results Average to high scores and limited criticism or praise for team s performance Intervention Team to initiate action planning to further increase engagement and impact The format for the interviews need not be complex. Areas of focus should include: the evolution of the customer s relationship with the company the company s relative strengths and weaknesses the perceived level and nature of impact the company has delivered an assessment of individual account team members opportunities for development or improvement One potential outcome of the interviews might be to change the makeup of the account team particularly if the problems can be traced back to the specific team members or if the client is calling for a fresh start. The Five Intervention Zones Action need not be limited to the red flag accounts. Using the scorecard, and the customer engagement and impact scores in particular, a broader range of actions can be considered across all accounts. Each account can be placed into one of five categories, based on engagement and impact scores. Each category then lends itself to a different set of interventions to limit the risk of future attrition or to facilitate account growth. The categories, or Intervention Zones, are as follows: Intervention Zone #1 (customer engagement low; impact low). The goal for the B2B company in this case is to either Repair or Reevaluate the Relationship with the customer. These accounts may have already been flagged using the balanced scorecard, so the repair could involve a significant shift in the existing account team or approach. A reevaluation may also suggest that the account is not worth saving particularly if it is a smaller or less strategic account and that the existing resources could be better deployed serving other customers. Intervention Zone #2 (customer engagement average; impact average). As in Zone #1, where there is an issue on both the engagement and impact fronts, it is the engagement component that typically takes precedence because it presents the greater risk in the near term and is often a necessary prerequisite to impact. Here, the account team 4 Copyright 2008 Gallup, Inc. All rights reserved.

7 needs to Recommit to Excellence by reviewing its existing policies and practices and creating greater visibility and accountability around its ability to consistently deliver quality. Intervention Zone #3 (customer engagement high; impact low to average). The danger in this scenario is the account team may not hear anything about this from day-to-day contacts, yet it may jeopardize the company s position with the senior stakeholders who make final purchasing decisions. Here, the B2B company needs to Reposition Itself for Impact. As a first step, the account team must examine its own orientation towards the customer. Is impact a stated goal? If so, is the team aligned around that goal? Does the team have a strong enough sense of where it can provide value? Next, the team must evaluate how it is perceived by the customer. It is vital that the account team establishes itself as a genuine business partner. Intervention Zone #4 (customer engagement low to average; impact high). In this less likely scenario, the B2B company assumes the role of absent-minded professor in the eyes of the customer. The company s actions, when executed properly, invariably drive impact. But those actions are often fraught with errors or inattention to detail. In this event, the account team must get back to basics and Reconnect with the Customer. As a first step, the company may want to examine its value proposition to see if it is layering unnecessary bells and whistles onto its offerings at the expense of quality. The company may also need to supplement its existing talent and infrastructure to better support its service and delivery model. Intervention Zone #5 (customer engagement high; impact high). These accounts teams don t need to fix anything per se. However, an opportunity may exist for the B2B company to better Leverage the Strength of the Existing Relationship and find new avenues for building out the account. These accounts tend to have the greatest opportunities for growth. One thing for the company to look at in the near term is if it is actually making a big enough investment in the accounts. Of course, the specific circumstances may suggest an even broader range of actions for the account. But the Intervention Zones present a helpful starting point. EXHIBIT 7 The Five Intervention Zones Customer Engagement High Average Low Impact Low Average High Prioritizing the Interventions I III II The Intervention Zones are equally applicable to all accounts, but this doesn t mean a B2B company should place the same emphasis on all accounts. B2B customers typically fall into three tiers, based largely on size. Tier 1 accounts are those top customers that tend to generate around 80% of the revenue for the company. Tier 2 accounts are mid-sized customers that tend to generate around 80% of the remaining 20% of revenues. This group may also include some high potential accounts or accounts that, while smaller in size, may hold some strategic importance for the company. Tier 3 accounts are the smallest accounts. These accounts could be new, but often have been around for some time and simply never grew or were once larger but have decreased in size. V IV I Repair or reevaluate II Recommit to excellence III Reposition for impact IV Reconnect with customer V Leverage strength of relationship Copyright 2008 Gallup, Inc. All rights reserved. 5

8 Naturally, efforts should center on the Tier 1 accounts and the more promising Tier 2 accounts. Considerably less attention should be focused on the Tier 3 accounts. INTERVENTION 2 Potential interventions to address Policies and Practices challenges include: Many of those accounts will likely fall into the lower Intervention Zones and fare poorly on the balanced scorecard, due in large part to the time and resources the company is able to dedicate to the customer and customer relationship. Here the company could use the balanced scorecard as a litmus test, phasing out its relationships with those accounts that fail to meet certain scoring thresholds (in the current or succeeding scoring period). Addressing More Systemic Problems The actions described thus far have been directed toward individual accounts and account teams. However, the balanced scorecard and in-depth interviews should also point to organizational challenges that cut across accounts. These INTERVENTION 1 Potential interventions to address People challenges include: Intervention Description Intervention Rules Audit Empowerment & Accountability Audit Internal Alignment Description Examination of existing rules and practices to determine level of understanding and effectiveness in organization. Rules are typically broken into one of three categories - those requiring greater education and awareness, those requiring minor policy changes, those requiring deeper policy discussions. Broader assessment of extent to which employees feel empowered to act in alignment with strategy and accountable for ultimate outcomes. Recommendations speak to a broader range of systems and policies (e.g., knowledge sharing, training and development, recognition systems, performance management). Measurement of the quality of internal partnerships between divisions and departments. Helps determine whether customer facing teams have the support of back offi ce functions. Could incorporate social network mapping to assess lines of communication across functions. Sales Talent Audit Strengths-Based Selling Selection of Team Members Leadership Development Assessment of overall talent level in sales organization and alignment of talent to current or desired sales strategy. Helps to establish viability of current or desired strategy, identify need to re-assign territories or accounts, set likely profi le for future hires. Series of workshops to help the sales force identify and leverage the individual strengths of its sales people. Development/deployment of tools to select team members for roles (leveraging Gallup s existing selection approach and methodology) and to assign team members to accounts. Series of initial workshops to help existing and prospective leaders identify and leverage individual leadership talents. May include additional work with client to map succession plans and establish rotational/promotion strategies across divisions or accounts. challenges typically fall into three categories people, policies and practices, and customer relationships. People issues typically center around talent particularly in organizations that are shifting to a new corporate or sales strategy. The company may not have a critical mass of employees with the appropriate talent to carry out the strategy, or employees may lack sufficient training to leverage their talents effectively. The company may also lack true leaders in appropriate roles, if a tendency exists to promote leaders based on their success in the underlying functional role and not because of their talent or training as leaders and managers. A key question regarding policies and practices is whether the company provides its employees with the flexibility and empowerment to act in support of the strategy. 6 Copyright 2008 Gallup, Inc. All rights reserved.

9 Many organizations have rules and procedures in place that, although implemented with benign intent, tend to restrict behavior and limit efforts to act in the best interests of the customer, thereby reducing engagement and impact. Another problem is how roles are defined and employees are compensated. It is not uncommon to see employees told to do one thing, then get paid or otherwise recognized to do another or for the rewards system to be so different across roles that it limits communication and collaboration between departments. The challenge with respect to customer relationships is often in identifying and then leveraging the factors that separate the company s value proposition from those of competitors. In many cases, a company s opinion of its strengths and weaknesses differs from customer perceptions (which becomes apparent in in-depth interviews). The company then attempts to highlight areas in which it overestimated INTERVENTION 3 Potential interventions to address Customer Relationship challenges include: Intervention Competitive Assessment Customer Acquisition Plans Brand Ambassadorship Description Assessment of key competitors to drive for point of differentiation in the market. Periodic sessions with key stakeholders to prioritize opportunities for new business based on competitive assessment (what the market will bear) and aggregated scorecard results (where company has had success in building and maintaining customer relationships before). Would also speak to potential talent and alignment issues presented by each pursuit. Measurement of the extent to which employees comprehend and take pride in the brand message and serve as advocates for the brand. Often highlights need for stronger internal communications and adjustments to compensation or performance management system (including creation of shared goals and incentives for account teams). its proficiency or which provide only limited differentiation from the competition. Another challenge is in helping the company s employees to internalize the value proposition so they can become more effective ambassadors for the brand. Every interaction with the customer, or in support of the customer, presents an opportunity to highlight the brand message and to further engagement and impact. Yet many employees do not feel that connection to the brand or understand how their role contributes to the brand strategy. This is particularly true for those in back office functions. Summary Customer engagement remains an important consideration for B2B companies and is the clearest window a company has into the status of its accounts. Gallup has identified four key elements of engagement integrity, confidence, pride, and passion that constitute what Gallup calls the Customer Engagement Hierarchy. There are several levers to drive the different elements of the hierarchy. Some relate to the features of the product/service offering, while others relate to the speed and efficiency of the service and delivery model. Of course, not all such measures actually drive engagement, particularly those around price. But when executed properly, these measures can create strong points of differentiation for the company. The strongest levers a B2B company can pull are those that drive engagement by generating impact. In many cases, this comes from providing specific recommendations or other value-added solutions that enhance the customer s standing and potential in the marketplace while significantly improving the customer s bottom line. It is important for the company to first take action on its red flag accounts. These are identified by reviewing engagement and impact as well as a broader range of metrics incorporated into an overall account scorecard. Copyright 2008 Gallup, Inc. All rights reserved. 7

10 Before taking action on these red flag accounts, the company should conduct in-depth interviews with a sampling of stakeholders and frontline users to provide some of the detail behind the scores. One potential result of the in-depth interviews would be to change the makeup of the account team. A broader range of actions can be considered across all accounts. Each account can be placed into one of five categories, based on engagement and impact scores. Each category then lends itself to a different set of interventions to limit the risk of future attrition or to facilitate account growth. Intervention Zone #1: Repair or reevaluate the relationship Intervention Zone #2: Recommit to excellence Intervention Zone #3: Reposition for impact Intervention Zone #4: Reconnect with the customer Intervention Zone #5: Leverage the strength of the existing relationship The balanced scorecard and in-depth interviews should also point to organizational challenges that cut across accounts. These challenges typically fall into three categories people, policies and practices, and customer relationships and a different set of interventions is recommended in each area. For more information about Gallup Consulting or Gallup s B2B programs, please contact Sarah Van Allen at or sarah_van_allen@gallup.com 8 Copyright 2008 Gallup, Inc. All rights reserved.

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