D. Keith Pigues, dean of the Business School at North Carolina Central University and co-author of the business book, Winning with Customers, has a challenging and pointed question to ask of B-to-B companies: Are customers at the center of your business?
How to put customers at the center of your business, and how that can lead to greater profits for both you and your customers, was the subject of Pigues’ presentation at the recent Industrial Marketing Digital Summit.
The ‘Customer Winning Checkup’
To measure how close customers are to the center of your business, Pigues offered a four-point checkup and stated that while many companies will agree with statement number one, fewer and fewer can honestly agree with the subsequent statements:
- We know specifically how we help customers make more money.
- We understand how we will make our customers more money in the future.
- We measure and track how much money over time customers make doing business with us.
- We measure and track how much more money our customers make money doing business with us relative to our competitors.
Notice how each statement is centered around making customers money—rather than making money for your own company. Pigues states that a focus on your customers’ profitability is the key to your company’s growth and profitability, and that the true measure of winning is understanding how your customers make more money doing business with you versus what they can make doing business with your competitors.
Changing the conversation
Pigues argues that that all too often companies spend too much time talking about capabilities, products, features, reliability and quality, and not enough time talking about the reasons why customers buy a certain product or from a particular company. Customers aren’t interested in products and services per se; they are interested in reducing time to market, cutting production costs, increasing shareholder value, driving revenue, accelerating growth and improving other business metrics. And the reason they spend is to get a return in one or more of these areas. Our products and services are simply a vehicle for them to get a return.
This is what Pigues calls the value exchange, which he says is always at work in any transaction. And to the extent that we can help our customers earn a return on their spending, we can also do it for our own companies. But to begin talking about this value exchange, we have to change the conversation.
We tend to think about how much profit we make with our customers, and we all have that coveted list of our top customers. But that top customer list only provides one view of the relationship: how much we make from these customers. The other point of view is our customers’ profitability from doing business with us. If it’s not much, we might not keep their business for long.
Our task is to understand the value exchange by quantifying the value to your customers of doing business with you.
Introducing the Differential Value Proposition
The Differential Value Proposition (DVP) is the net result, expressed in percentage, of how your value propositions result in more profit for your customers. Pigues uses the term ‘differential’ because you should only consider those value propositions that are different from what others can offer. If you’re offering the same thing as other vendors, then in your customers’ point of view, you’re offering a commodity, and you will not be able to charge differential pricing. But each company should have those two or three things that they do that are truly differential and that you can turn into money for your customers.
The way to understand your DVP is to create a hypothesis about your differential propositions and their value, then share your findings with your customer. What you may think is a differential (customer service, for example) may mean little to your customer, who finds much greater value elsewhere (safety, for example). By working with your customers, you can better understand what are the top things you do that can help them make more money. You can also discover areas to grow your DVP by asking customers where they would want you to invest to make them more successful.
The end result is winning with your customers: you both win by both making more money. To learn more about Pigues’ concepts, including his formula for calculating DVP, view his presentation from the Industrial Marketing Digital Summit.
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Do you know how much money your customers make by using your products or services? Is this a better way to view a customer relationship? Share your thoughts in the comments section below.