UYC – Understand Your Customer – A Key to Improved Business Success

UYC – Understand Your Customer – A Key to Improved Business Success

What distinguishes consistently well performing companies to those that are slipping in their business performance? In an increasingly competitive world, companies are finding it difficult to grow their businesses or maintain healthy profit margins. The underlying cause is to not know all your customers, their needs and values in detail.

Understanding your customers requires the following elements:

  • Knowing who all are your customers, not just the person who gives you the purchase order.
  • Understanding the needs of the customers and what they value. Remember like you, the customer is also under pressure to create value for their customers.
  • Understanding what value are you are creating for them or what value can you create for them.

In my earlier post, I wrote about the fact how companies in B2B manufacturing industries are not able to keep high business performance as they find most of their customers becoming price driven buyers. Being a business management advisor and consultant in India, I then explained that such behavior is due to some deep-rooted myths or misconceptions. Finally, I discussed the steps that companies can take to transform themselves into customer value driven companies. At the root of any such transformation is to know all your customers; understand their needs and values; and finally, what value can you create for them.

In this post I am going to discuss each of these issues:

Let me start by giving my definition of customers:

A customer is any member of the value chain, who – directly or indirectly – purchases or influences the purchase of what you are trying to market or sell.

This definition is very different from the commonly held view of customers. What this means is that customers are not just people to whom we are shipping products or people to whom we are invoicing for payments, but can be a person in production, R&D or could even be a customer’s customer. Serving highly complex value chains requires B2B companies to make extraordinary efforts to gain insights and understanding about the value delivered for customers at various levels of that value chain.

Let me now take you through the challenges in understanding the customers in B2B industries:

UYC Challenge no. 1

Do you understand the value chain of your business in its entirety? Have you ever done business mapping? Have you ever tried to understand the connection between business mapping and customer experience? Have you ever identified all of your customers as per the definition of customer above?

B2B companies leave large customer orders on the table because they do not fully understand their value chains and therefore do not have the full understanding of the value they are creating or can create for their customers.

Here the value chain being referred to is the industry value chain. Who buys what from whom for what value, where, when, how and why; who supplies what to whom for what value, where, when, how and why? It is always a good business practice to start the value chain understanding from the consumer end and then work backwards. Identify various customer segments based on needs, values and behaviors and then map the value chain upwards, identifying multiple options and sources available to the consumers or purchasing entities. Then identify why certain customers buy from certain suppliers and other customers from other suppliers.

UYC Challenge no. 2

Do you know what is it that your customers are willing to pay for? Have you quantified it?

Defining the benefit(s) and value of what you deliver to your customers is already quite a challenge. Quantifying that value is a HUGE challenge and is most often neglected or done badly, because it is difficult and challenging. All the more reason to do it!! Quantifying value requires us to dive deeply into the world of the customer and gain insights into their business, how our offerings are used, how our offerings impact their broader business world and what overall value that creates for the customer. We need to explore also what alternative solutions are available to the customer and how our business solution(s) compare(s).

These customer insights need to be described, documented and monetized by a value equation. Let us look at a simple example of a value equation

Value Statement

You can serve your customers more effectively and profitably by helping customers achieve continuous production afforded by our continuous supply and timely delivery

Value Basis

* Additional profit from continuous business @ probability

* Additional profit from more customization @ probability

Value Equation

# USD 200,000 @ 10% probability = USD 20,000

# USD 100,000 @ 5% probability = USD 5,000

UYC Challenge no. 3

Do you have a meaningful customer segmentation based on customer needs, behaviours and value-drivers? Have you made decisions based on customer segmentation about which segments to participate in and in what way?

As this is such an important and fundamental concept in good marketing and sales, let’s start with a definition:

Customer segmentation is the practice of grouping all customers in a market to reflect similarity among customers in each group (segment) and differences between groups. The goals of segmenting customers are:

  • To decide in which customer segments, you want or need to participate
  • To decide how to relate to customers in each segment in order to maximize your value to the customers and to optimize the value of customers to your business
  • To decide upon a market participation strategy
  • To implement that strategy through your marketing and sales plan
  • To measure and track business impact and performance in terms of value creation and capture, customer loyalty and retention.

There are many different bases for segmenting customers and each can tell you something:

  • By product: which tells you what the customer buys
  • By geography: which tells you where the customer is located and where the customer buys
  • By industry sector or application (very typical in many B2B industry sectors and markets): which tells you for what the customer buys
  • By decision-making unit: which tells you who at the customer buys (there are often multiple members of the buying decision-making unit, with varying degrees of authority and influence)
  • By purchasing approach or process: which tells you how the customer buys

While all the above customer segmentation models provide us valuable information, none of them addresses the most critical question of all: WHY the customer buys! This can be achieved only by using a customer segmentation model based on needs, behavior and value-drivers! Most B2B companies do not go there because it is difficult, challenging and time-consuming!!

So now twice in two challenges we read that B2B companies are shying away from critical and essential marketing tools.

Customer segmentation is the foundation stone of a solid and successful marketing, sales and customer value management strategy and plan. As such customer segmentation must be meaningful in terms of how it reflects the business market, how it represents customer needs, behaviors and value-drivers, and what it tells us in terms of how we should approach, participate in and address the customers in a market. You connect with any business management consultant or business coach, you will learn that such a process may also identify customer segments, to which we give a lower priority or choose not to participate in, either because they are unattractive or because we have no clear competitive advantage or position in that segment.