What Manufacturers Can Learn from Consumer Companies on Driving 'Smart Growth'

Consumer companies ‘know’ their customers – who they are, what they buy, when and why they switch brands, what motivates them and how much they are worth – in an increasingly granular way. Many consumer companies are driving towards ‘segments of one’ in how they target and engage customers to win business.

By contrast, B2B companies tend to view the world through a product and end market lens, with actionable customer insight on where and how to grow profitably often underdeveloped. This creates a big untapped opportunity to reignite growth in what are often slow growth markets.

The Case for Change: Early adopters will have a first mover advantage

Intensifying competition and more customer purchasing sophistication is making it increasingly hard to sustain a differentiation advantage over competitors. Good products or solutions combined with regular offer enhancements is no longer the recipe for winning and retaining customers.  Unlocking growth and creating customer ‘stickiness’ requires a grounded point of view on who you are going to serve (and who not to target), how much those customers are worth, and what offer will deliver more quantifiable value to your customers than your competitors. Unless B2B companies start adopting some of the proven approaches employed by consumer companies and move beyond mere lip service to being customer-centric, many risk an eroding competitive position and deteriorating economics.

Lessons from Consumer Companies: Get granular

Many B2B companies tend to work product forward.  That is to say, they start with products or solutions they have (or could have) and end markets they serve (or want to serve), to set growth priorities and improvement plans.

Leading consumer companies, and increasingly banks, technology firms, healthcare providers, and even some industrial products & services businesses, are achieving higher levels of growth at better margins by reorienting their thinking to be customer back. They start by precisely defining highly granular segments (i.e. dozens of segments) and then select their bull’s-eye customer segments they aim to win, and create an offer and go-to-market model to profitably serve these target customers.

Key Enablers Observed in B2C Companies:

• Put the customer at the center of all decisions about the business model (e.g. R&D investments, operating configuration, sales channels),  not just marketing choices
• Get orders of magnitude more granular with how customers are segmented, driven by differences in customer behaviors + attitudes + demographics + economics
• Link up commercial and financial insights (customer demand drivers and customer economics)
• Eliminate silos due to traditional functional and product-market boundaries

Where to Start: Linking economics, needs and behaviors

Applying best practices from B2C need not be disruptive or take an extended period of time. A few new capabilities can uncover a large number of performance improvement opportunities. In our experience, moving the needle on growth and margins starts with adding two customer-centric capabilities to the toolkit:

1. Provide a line of sight into your fully-loaded customer economics, by which we mean the current and potential value of the customer relationship, inclusive of everything you sell to them (or could sell to them) and understand drivers of profitability including price, product mix, and cost to serve.
2. Create and leverage a granular customer segmentation, moving beyond observable characteristics (e.g. size, industry, sub-sector, location) and identify and prioritize segments based on differences in observables + behaviors + needs + economics. By granular, think dozens of segments, not single digits.

Used in tandem, these two tools alone identify rich veins of opportunity for revenue and margin growth, and help build consensus for action across organizational boundaries to realize those opportunities.

Benefits: What B2B companies stand to gain from building these capabilities

• Fresh set of actionable opportunities to energize the organic growth agenda
• Increased customer ‘stickiness,’ making market share more defensible
• Advancement of non-technological differentiation to complement the innovation pipeline
• Clarity of focus to better align and enable the often scarce resources for organic growth, e.g., R&D investments, channel enablement, customer support and service, etc.

The Result = new insight to drive volume growth, price realization and margin enhancement

How Manufacturers Are Using a Customer-Centric Approach

1. Agriculture Equipment Manufacturer

Addressing multiple brands & product proliferation: Driven by prior acquisitions, the business went to market under two brands. With an insufficiently precise, small number of high level customer segments defined (grain farms, livestock farms, hay and forage farms, etc.), both brands had significant overlap in their target end-markets, leading to product proliferation, costly product duplication, and competition with themselves as much as outside competitors. A new granular segmentation scheme comprising 180 segments (driven by crop, farm size, purchase behaviors, and farmer psychographics) informed, in a highly targeted way, where each brand had the most profit headroom and was best positioned to win. The result: clearly defined customer targets for each brand, edited product portfolios within each brand, and a coordinated go-to-market strategy that drove lower costs and higher growth with targeted customers.

Informing R&D investment: When considering a large R&D project to upgrade their cotton picker equipment, management couldn’t make the financial case to justify the investment. Not enough cotton pickers would be sold to offset the R&D spend. Taking a customer view of the business led to a different result. The cotton picker drives the brand choice for the full suite of equipment on a cotton farm. Having a competitive cotton picker means you win not only that product, but it greatly increases the chance you get the tractors, sprayers, tillage, loaders, attachment tools, etc. that are also needed. Understanding customer economics and customer buying behavior easily justify the investment to upgrade the offer.

2. Value-added Aluminum Products

Targeting profitable growth headroom: The business sold engineered products and had invested in a number of initiatives to differentiate itself from competitors including new alloyed products, specialized technical services, and highly trained sales reps. Despite these investments the business was facing margin pressures and growth was near the market average. By understanding the determinants of differences in customer profitability, customer needs, drivers of switching behavior and willingness to pay for various offer elements, management was able to group customers into a clear set of segments.  This approach highlighted that one segment, comprising about 20% of customers, offered meaningful growth potential because they valued higher service levels and tailored solutions, and they were brand loyal and less price sensitive. This segment also was twice as profitable as any other segment, clearly offering an opportunity to realign go-to-market investments to capture share.

Aligning service offering with willingness to pay: Granular customer segmentation also highlighted several opportunities to better align cost to serve with willingness to pay. Two segments labelled as ‘Value Seekers’ and ‘No Frills’ customers were frequent switchers and would predominantly purchase based on price or convenience.  Categorizing all current and prospective customers into behavioral segments allowed the creation of tiered offer structure (i.e. Silver, Gold & Platinum) that better aligned customer willingness to pay with the product/service offering. Sales reps were then trained and provided “playbooks” with key demographic, attitudinal, and behavioral information for each segment and recommendations for how to engage. The result was better targeted sales efforts resulting in improved conversion rates, improved price realization and better margins.

Becoming truly customer-centric and accelerating profitable growth requires B2B companies to adjust their mindset, leverage new tools and develop new customer insight: