What if you knew exactly how much money you helped put into your customer’s bank account? What if – rather than using anecdotes to determine where you invested your company’s money, that you used quantitative data that came from your customer’s? What if you could take that information and make concrete plans that not only made your customers more money, but made YOU more money in the process? Lastly, what if you could predict profit growth for both you and your customer? Do you think you would win in the marketplace?
This is the promise of Winning with Customers, the new b2b playbook written by D. Keith Pigues and Jerry Alderman. If this sounds compelling to you, I hope you’ll join us on this 10 minute journey today, and then an hour the rest of the week with the action book to get you on your way implementing these principles in your business. Let’s get started!
There are 6 steps to this journey:
- Discover, where you’ll understand what value you bring to your customer’s business;
- Analyze, where you’ll put all that information together and prioritize the opportunities;
- Execute, where you’ll create a plan to capture that value for you and your customer;
- Measure, where you’ll create a dashboard so you can see the results of your efforts;
- Certify, where you’ll build this capacity throughout your organization;
- CVC Management System, where you’ll ramp things up a notch by combining people, processes and technology to ensure that this becomes a long-term competitive advantage.
We are going to focus on the first 3 steps of the journey this week.
What’s the Metric?
One of the companies who have been through this process is Owens Corning. Here’s what Bob Harlan, their Director of Business Insights has to say about it:
“When we look at loyalty programs and we’ve done them as well, it is our operating theory that the thing that drives loyalty as strong as or stronger than anything else is the ability for us to help our customers make money. Where there are many schemes for measuring loyalty, we rather think the most powerful way to engage our customers in this kind of conversation is better served by talking to them about their ability to make money.”
The problem with most, if not all companies who don’t implement this type of rigour in their business is that they either think it’s too hard, and they don’t have a way to measure it. Well, to take care of the second problem, the authors have introduced a new measurement, and they call it the Differential Value Proposition. There are two critical parts to this measure:
- The investments you make that create value for a customer that are unmatched by the competition (your Differential Value Attributes); and
- The impact of those investments on customer profitability (your DVP percent).
Essentially, what this is measuring is how much money you put into your customer’s bank account relative to your competition. For that reason, it’s much more than a number, it represents your strength of your competitive advantage in financial terms. Powerful stuff indeed.
The metric looks like this:
The differential profits to you customer/cost of your products to your customer. Now, you are probably thinking, “how the heck am I supposed to know this “differential profit stuff”? Good question. Quite simply, you are going to ask your customer.
Prepare Before we go an talk to our customers, we need to do a little prep work. Before we step foot in the customer’s door, we want to understand two things: our DVP hypothesis for both our value attributes and the amount of profit you make the customer.
For the attributes portion, you are going to have a stacked bar graph that adds up to 100. They are going to include the things that YOU think are your strongest differentiating factors. If you are a manufacturer, you may have included things like product line, packaging, customer service and product differentiation. If you are a service firm, you may include things such as depth of expertise, experience, and speed of service. Whatever it is, make sure it’s something you do to stand apart from your competition.
For the DVP percentage, you could run all sorts of financial analysis from internal numbers, or you could simply just make a guess. Remember, the goal here is to eventually find out the real deal from your customers, so understanding this number is not critical at this point.
Now it’s time to get out in the field and start talking to your customers. That seems easy enough. But who at your customer do you talk to? You’ll definitely want to talk to the people who you sell to directly, but you might also want to talk to other people who are part of the value chain. For instance, you might sell to purchasing, but you also might want to talk to your customer’s marketing team, general management, operations and maybe more.
If you are a small business, you might just want to bring one person to the interview: you. But if you are a medium to large sized business, you might want to have two people at the interview. If the only person at the interview is the person managing the account, you are likely to get some bias in the data and comments you get back.
Here are the 4 simple guidelines for the interview.
Ask the question. You might start the meeting by saying something like: “We have put our hypothesis together on how we believe we create differential value for you”. Go on to explain the factors you’ve laid out, and how you believe it impacts their bottom line. Then ask: “what’s your perspective?”
Listen. And for god sakes, no selling. Your job is to listen to what the customer has to say, and probe as much as possible.
No solving. You are likely to hear some of the areas where there is a need and opportunity for improvement. Your one and only job in that interview is to uncover those opportunities, not to solve them. There’s plenty of time to be Superman later on.
No justifying. You also don’t need to justify your past actions. In fact, doing so will probably act to undermine the entire meeting, as they’ll understand pretty quickly that you aren’t there to get clarity on how you can help your business, but to cover your own ass. Don’t do that.
All of this may seem a little too simplistic – but here’s the thing – the powerful part about this whole process is the conversation itself. I don’t know about you, but in all my years in business I’ve yet to have a vendor come in to see me and ask me how they can help understand the way we make our money so they can help us make more? What if that happened to you? Would you feel more compelled to do business with them if they thought that way? And what if they delivered on that promise?
As you are are listening to your customer, here are the things you want to be capturing:
How does your customer view your differential value proposition today relative to what you thought it was? In particular, what things would the customer change within the ranked attributes? Do they place more value on your service level than you did? Less? Are there attributes that are missing that they would add?
What is the opportunity for improving the current situation over the next 18-24 months? This is where you’ll have your road map for the next 2 years – these are the areas you can focus on for improvement in the value creation department.
Lastly, what are the top 2 or 3 specific opportunities to create improved differential value. **** Now you are ready to take the information back to your company to figure out the game plan for moving forward.
You could do a number of things with the data you’ve collected through the interviews. You could run regression analyses, pore over the numbers to detect any patterns, or you could do what the most successful people in the world do: make a list. That’s right, you are going to make a list. This list will contain the top opportunities identified by your customers to help them make money. It will contain the value attribute that needs improvement, a short description about the nature of the improvement, and the potential dollar impact to the customer’s bottom line.
The true benefit to this data is that it very well might be the first real data you have on what impact you have on the bottom line of your customer’s business, and in turn, what your true competitive advantage is (or isn’t!!!). Almost every single company has their own version of “how we compete”, and it’s usually made up of jargon like “Best-in-Class Customer Service” or “Innovative Products” or “International Distribution”. Those are usually backed up by no data whatsoever.
What’s worse is that you’ll probably be making investment decisions based on those platitudes because one day somebody decided that “that’s how we compete around here”.
To put this into perspective, perhaps you were just about to place a large bet on a new innovative product that was going to revolutionize the industry, and you are “sure” that your customers are going to eat it up. However, you now know that if you increased the speed of delivery of your current products, your customers would buy twice as much from you.
Now you can make investment decisions with all of the data in front of you. To close this section off, the list will allow you to answer 3 very powerful questions:
1. What is the Value Creation Opportunity worth to the Customer’s bottom line?
2. What are the Top 10 investments you can make to build competitive advantage?
3. How can customers be segmented based on their needs?
As we’ve heard time and time again, the difference between winning and losing comes down to execution. The authors give us a roadmap for creating the action plan to get these projects done.
Here are the 5 parts of the Customer Value Creation Plan:
What you said. You’ll want to repeat back to the customer what they said in the interview. Have you ever had somebody ask you for your opinion and then never got back to you with what they did? Luckily, most people don’t follow up with these things, so even if you just take this first step you’ll start to look like super hero.
What you are going to do and what it’s worth to the customer in dollars and cents. This is an essential part of the conversation. You want the customer know that you heard them and that you’ll be implementing their suggestions.
Other initiatives that you’ve decided to implement. You’ll notice that you went through the customer’s suggestions first. But you also got great feedback from other customers, and you believe that there is great value in those items for this customer as well. This is a great conversation to have, because you’ll be bringing new ideas to them that will generate more profit for their business.
What you are not doing. It’s also important to point out that there are things that you will NOT be doing. You still want to acknowledge that you heard them so they know that the feedback wasn’t ignored. You will also let them know WHY you didn’t move forward with the suggestion, so they know you considered it seriously. You’ll be surprised how much they’ll respect you for NOT implementing something if you have the courage to tell them why.
The status of your actions. This one is pretty simple, but it conveys two things. First, it let’s the customer know where you are with this project. Second, it’s lets them know that you’ll be continuing to follow up with them as time moves on, which is exactly what you should do.
There’s so much great stuff in this book that we just don’t have the time to get into, but this will give you the headstart you need. If you DO want to move these ideas forward, I strongly urge you to buy the book and to visit www.winningwithcustomers.com to get even more support and information on how to do that. You’ll learn measure your progress, certify your team, and implement the complete CVC Management System in your company.