Editor’s note: Julia Cupman is vice president of B2B International, a business-to-business market research agency, New York.
The past decade has been challenging for business-to-business marketers in North America. The worldwide financial crisis, low-cost Asian competition and the rise of e-commerce have made markets more competitive and put huge pressures on margins. The response to this by many businesses has been one of resignation and an acceptance that prices have to be reduced and business less profitable.
However, this needn’t be the case as the requirements of decision makers are now more sophisticated than they have ever been. We have seen a shift in many B2B markets – those price buyers who are so price focused are now in the minority, with value buyers making up the majority. The latter group is becoming increasingly more discerning, with elevated needs based around service, brand and consultancy. This provides a great opportunity for sophisticated businesses to differentiate themselves through value marketing and value selling.
Remember, it’s NOT all about price
Our research has found that up to half of companies in B2B sectors believe that price and product quality are all that matter. The myth of the price-focused market is often perpetuated by individuals in B2B sales who are driven by short-term targets – these people in B2B companies often misunderstand, miscommunicate and simplify customer needs. Our data clearly shows that the average proportion of any market that ranks price over all other factors is 20 percent. That means that 80 percent of business-to-business buyers do not prioritize price, which in turn means that price-focused sales people are leaving value on the table in 80 percent of cases. Even in highly undifferentiated markets such as utilities, fewer than half of buyers give precedence to price. Independent market research and a more long-term, marketing-oriented mind-set are good ways of improving the business’s understanding of customer requirements.
Recognize what customers really want
Many companies fail to recognize that customer needs may change over time and a surprising number conduct no systematic research into customer requirement. Our recent survey of 67 B2B businesses in the U.S. revealed that only 42 percent use sophisticated customer segmentation. This, not falling prices, could be the reason why many companies struggle. Market segmentation facilitates customer choice by aligning different propositions against groups of customers with diverse needs, as well as arming suppliers with the knowledge of who not to do business with. As marketing is the profitable satisfaction of customers’ needs, customers or segments that will not provide businesses with profitable revenues should be deselected. Detailed definition and analysis (both market analysis and financial analysis) of a firm’s segments built around rigorous market research is the first, crucial step in deciding which customers they wish to serve.
Protect and build the brand
A strong B2B brand is one of a company’s biggest assets, providing credibility and differentiation as well as supporting price positioning. The value marketer and seller must recognize the power of brand in communicating and delivering value to the customer, and in extracting value from the market. On average around 5 percent of a company’s stock value derives directly from a company’s brand image, yet of the 67 U.S. B2B businesses that we surveyed, 56 percent said they struggle to build a strong brand and only 39 percent have a program in place for measuring the value of it. Brand management is crucial. In recognizing the strength of brand, companies can attain a high return on investment for relatively low cost. Market research can be used to demonstrate how a brand is positioned against competitors to allow for necessary alignment and strengthening. Only when a business understands its strengths and weaknesses – and those of competitors – are intelligent brand strategy possible.
Our most recent survey of North American businesses revealed that branding research is the top type of market research that firms think would be most useful over the next two years, with 61 percent of respondents citing it as a priority.
Embrace a cultural change
In order for value marketing and selling to succeed, it needs to be deeply embedded in the company culture. However, in most B2B markets, the limited size of the target audience results in a labor-intensive marketing and sales process, with a heavy emphasis on salespeople, volume and short-term results. Value marketing and value selling require a reversal of this approach, with marketers joining salespeople as the heroes of the B2B business, with profit supplanting volume as the number one KPI and a longer-term outlook communicated from the top down.