Advantage through differentiation – the need for customer insight

Understanding customers’ needs revolves around both people and processes. It involves implementing customer growth strategies that focus on deepening relationships and long-term customer satisfaction. It also requires finely-tuned marketing to position products in anticipation of changing market circumstances and customers’ requirements.

Why do many businesses get it so wrong?

CSA believes that businesses can become complacent and insufficiently understand the evolving dynamics of their customers’ needs and supplier selection criteria in the corporate, commercial, enterprise and industrial sectors to which this paper refers*. Although they may continue to trade with their customers, relationships stagnate and opportunities for product line extensions and services up-selling are missed for example. On more than one occasion during our work as advisory consultants to the SME community, CSA has heard customers say, “We buy that from elsewhere as we did not know they could do it; that aspect of their service was never mentioned to us – we don’t actually speak with them very often.”

Much of the interface between a business and its customer base is routine across order intake and delivery updates, etc. Both sides are happy, and things are generally ‘tickety-boo’. But questions about the bigger picture are not asked, and the business loses its sight of reference. Such businesses can go on to drift in a favourable economic tide for long enough, but can come unstuck when things change.

A customer referencing project programme is often an effective starting point to address this issue. Referencing provides a means to audit how well a company’s services align with customer’s vendor selection criteria. Carried to its conclusion, it delivers a balanced quantitative and qualitative assessment of a business’s performance attributes—a metric that can be benchmarked against market rivals and comparable industry peer groups.

In our experience, a customer referencing programme typically centres on seven main points, though additional questions may be included based on the required bespoke nature of the project’s scope:

• Does the customer perceive the company as a leader or follower in its field? Why?
• What specific strengths and weaknesses does the customer identify within the company’s operations?
• Which other companies in the market are considered by the customer to be the closest alternative suppliers?
• What supplier threshold criteria does the customer use for selection?
• How does the company rate in each criterion compared to others known to the customer?
• How easy is it to switch between the products and services of one supplier and another?
• What could upset the market, eg new technology, legislation, economic outlook or other matter?

Indicators of success, such as these amongst others, demonstrate the level of customer value created by the company as a supplier. Moreover, they confirm factors such as loyalty (which underpins future sales), the degree to which a specific product or service offering is embedded in the customer operations (maintains pricing), and the difficulty of its substitution (barriers to third-party market entry).

Customer insight obtained through a programme of formal customer referencing enables businesses to understand market attractiveness and their sustainable advantage over rivals. Referencing links a business’s understood performance parameters to identified competitive benchmarks — from the customer’s perspective.

*As opposed to the general public as personal or individual retail consumers.

CSA’s strategy and due diligence advisory services sit alongside and complement the day-to-day activities of company management. They provide an independent and objective evaluation of strategic direction and customer value creation, providing a road map for business performance improvement.

For information about how we can help you to assess business and market attractiveness please call: 0208 947 5108.