that ultimately determines your company’s reputation. And the higher these customers are on the corporate ladder, the greater the impact of their opinions and recommendations. That’s why companies that successfully attain sustainable, predictable, profitable growth, such as Oracle, seek to anchor their reputations as high as possible within their customers’ organizations. The good will of end users is important, but the good will of the person who makes the decision to buy is far more important to B2B companies that are trying to maximize their margins.
“Customers are your brand managers,” explains Tom Webster, who was a senior marketing executive at several B2B companies prior to becoming CEO at Intesource. “They establish your brand and significantly impact its perception. If you earn their support, your customers can accelerate brand growth more effectively than anything else. Nothing boosts our position like a CFO [Intesource’s primary executive customer] sharing and endorsing the benefits of our solutions or working with us. The impact of his words is unmatched, and you can measure the return financially. His peers will assume that the value and pricing has been vetted and accepted, so they have little to question when negotiating with you. Margins soar!”
Moving up the B2B Relationship Continuum
A little more than a decade ago, India-based IT services outsourcer HCL Technologies successfully broke into the U.S. market with a “low cost” value proposition, like many other Indian service providers. But after a few years that proposition became less compelling, mainly because prices equalized as competition heated up. Many U.S.-based competitors, including IBM, Hewlett-Packard, and Accenture, lowered their cost bases (often by setting up operations in India) in order to replicate the cost structure of off-shore labor providers and remove the significant price decrease as a point of differentiation.
In response, HCL beefed up its capabilities in order to provide more value to its customers. The company transformed its value proposition moving beyond commodity-like outsourcing services to acting as a problem solver and often co-engineering applications and products with its customers. But HCL has encountered a dilemma that commonly arises when a company seeks to change its positioning in the market: although its existing customers have come to understand, appreciate, and pay for the added value HCL is offering, its target market (Fortune 2000) still perceives the company as simply a low-cost labor provider.
The “perception gap” that HCL is battling has a financial impact on its revenue growth and margins. As HCL’s global CMO Krishnan Chatterjee explains, this is where and why reputation and market positioning matters. “We have the proof points which can support our desired position as problem solver and trusted advisors. My responsibility now is to close the gap between the perception in the marketplace and the reality that we are capable of delivering to IT leaders around the globe.”
The following graph (Exhibit 2-6) depicts how branding and margin collide and impact one another in B2B companies. As the B2B company improves its position with decision makers, the higher premium these decision makers are willing to pay for perceived value. If you are stuck in the position of “commodity supplier” (whether or not that is the position you think you hold), you will only be able to command commodity pricing and the low margins that come along with it. To increase the value of your brand, you must move the market’s (more precisely, collective decision makers’) perception of you towards Problem Solver and Trusted Advisor in order to secure consistently higher margins needed for profitable growth. As I show in the graph, failing to improve your position, or the market’s perception of you, leaves a tremendous loss in margin.
Exhibit 2-6: The B2B Relationship Continuum—How Brand Perception Gaps Affect Margins in the B2B Sector
As a B2B company raises its reputation among executive customers and moves to the right of the Continuum, the premium decision makers are willing to pay for solutions begins to rise in their minds. If the B2B seller is stuck on the left side of the Relationship Continuum (again, in the minds of executive customers, whether or not that perception is an accurate reflection of reality), the company will only be able to command commodity pricing and the low margins that go with it.
B2B companies such as HCL need a marketing strategy and supporting tactics which are capable of positioning them farther to the right on the Relationship Continuum. Executive customers are indispensible for such a move. They are the opinion makers who matter the most and they drive the perception of a company in the B2B marketplace. Tactically speaking, they are also the peers their colleagues look to for information and recommendations. Credible third parties, such as industry analysts from research services like Forrester and Gartner, and messaging campaigns that repeat and amplify the perceptions of executive customers are useful and effective supporting tactics too, but executive customers are the cornerstone of reputation-building initiatives.
Decision makers become even more important as a company moves farther to the right on the Relationship Continuum. As B2B companies seek to assume roles as trusted advisors and business partners, they need enthusiastic executive customers who are willing to share their stories with their peers. It is very difficult to make a case that a B2B company is capable of acting as a trusted advisor or a valued business partner if no customer will step up to confirm or validate its claims.
The B2B Path to SPPG
In this chapter, I have discussed the critical differences between B2B and B2C companies which can be boiled down to three main points:
Revenue is controlled by relatively few customers
Decision makers are not users
B2B executives must leverage the domain knowledge of their customer executive decision maker peers
The needs, hopes, and aspirations of decision makers must be intimately understood and addressed because they literally hold the fate of your company in their decision-making hands. You can gain this critical knowledge by actively engaging decision makers to drive your company to SPPG. The balance of the Playbook will show you how they will help develop your strategy, fuel innovation, design marketing and sales plans, and align your leadership team.
CHAPTER 3
SIX BENEFITS, FOUR STEPS
TAPPING THE POWER OF EXECUTIVE CUSTOMERS
Very few B2B companies have fully engaged and developed substantive relationships with their executive customers. Most companies ignore executive customers, often not realizing how important they are to B2B success. Instead, they focus their relationship-building efforts on lower levels of the customer hierarchy. Other B2B companies relegate relationships with executive customers to their sales and marketing departments. Unfortunately, however, this usually results in an approach to executive customer relationship-building that treats these most important decision makers as sales targets. All of these companies are missing valuable opportunities to drive SPPG.
Companies that adopt a more strategic mindset in their approach to executive customers and in the development of these invaluable relationships can capture six opportunities:
Market and leadership team alignment
Strategic insight
Marketing direction
Improved sales retention, penetration, and references
Innovation that is relevant and important to decision makers and a critical mass of the market
Sustainable, predictable, profitable growth (SPPG)
Market and Leadership Team Alignment
The leadership teams of many B2B companies are beset with conflict. Often, this conflict is based on competing opinions about how to best move the company ahead. Some members of the team have rogue ideas;