Marketing Tips - Know Thy Customer

Leading business marketers are focusing on the core of their mission: profiting from the knowledge that drives their art and science of acquiring and keeping customers.Improving their knowledge of customer needs, market segments, and the drivers of customer value heads business-to-business marketers’ 2005-2007 list of priorities, according to the recent Trends Survey of marketing experts conducted by the Institute for the Study of Business Markets (ISBM).

Deploying better tools for discerning customer-perceived value and segmenting markets effectively is the most important “critical challenge facing business marketers over the next two to three years,” survey respondents said. As one participant explained, the B-to-B marketing fraternity must “learn to account not only for tangible differences between offerings, but also for emotional differences related to relationships, reputations, and trust."

The panel of marketing executives and academic researchers polled via email and phone in the 2005-2007 edition of the biennial ISBM Trends Study cited seven top priorities overall for business marketing now and in coming years. In order, they are:

• Expand understanding of customer needs, market segments, and the drivers of customer value.
• Competing globally.
• Master analytical tools and improving quantitative skills.
• Reinstate innovation as an engine of growth.
• Create new organizational models and linkages.
• Improve return on marketing investment (ROMI) decision making.
• Demonstrate and document delivered customer value, and price accordingly.

ISBM is a Center of Excellence at the Smeal College of Business at Penn State.  Networked with leading executives, researchers, and educators in business-to-business marketing throughout the world, ISBM is supported by about 60 member corporations, most of Fortune 500 size. ISBM asked participants on the Trends Study panel to identify the greatest challenges facing business marketers in the coming two to three years, and to enumerate the capabilities marketing managers will most need to surmount those challenges. Respondents also cited companies that in their opinions are best positioned to meet those critical challenges.

Marketers’ top concerns have changed depending on the economic and competitive context surrounding each of the Trends Studies ISBM has fielded since 1997. Participants in the ISBM 2003-05 Trends Study perceived profitable growth strategies and tactics to be their biggest challenge at the time, followed by the need to “market marketing” within their companies and better position their offerings for target market segments. Two years before that, 2001-2003 ISBM Trends Study panelists put marketing accountability and proving the investment value of marketing atop their agendas, followed by aggressively “selling the marketing function within the firm, and harnessing eBusiness tools.

Today’s Challenges
Business marketers’ current emphasis on customer understanding reflects, panelists said, an explicit recognition that the advanced tools and sophisticated strategies marketers are employing in this decade can only succeed when based on intimate knowledge of customer operations, economics, and purchasing practices. Companies are learning that nurturing relationships matters. The string has run out on the managerial fantasy that companies can continue cutting marketing budgets and magically keep achieving “more with less.”

Trends Study panelists variously described the customer knowledge challenge as, for example: “understanding the underlying motivations of the customer” … “listening, communicating, and discerning” … “identifying highly profitable customers and building loyalty programs around them” … “marketing driven systematically by the voice of the customer”… “knowing which customer relationships to invest in” … “finding better ways to empirically link the voice of the customer to business processes that add value.”

Panelists also cited factors that they believe inhibit gathering incisive customer knowledge. Traditional market research techniques, many agreed, cannot dig deeply or accurately into the determinants of customer value. “Although fine for preference ratings, the research doesn’t explain ‘why,’” a respondent contended. “Current market research methodologies are just not working today, yet these methodologies are so entrenched it will be tough to move past them, ” another panelist explained. “We are going to have to become much more disciplined at acquiring the right customer information from both customers and non-customers,” said another. To efficiently deploy resources, marketers must “positioning companies to choose customers and narrow their focus [in order to] dominate markets vs. promising everything to everybody.”

Another debilitating factor is that marketers don’t understand procurement processes as well as they should, a panelist asserted. “The assumption that we know how firms make decisions now is often false.” Other panelists voiced continuing suspicion of engineeringbred approaches to customers. As one marketing expert leveled the blame, “Six Sigma is a real culprit in this problem. It’s fine for fixed processes but it doesn’t reflect how buying practices and purchasing decision makers are changing now.”
 
Asked which business-to-business marketing companies best understand customers and  discern value, panelists generally cited familiar marketing blue chips such as General Electric, 3M, Dell Computer, IBM , and Microsoft, among others. A number of lesserknowncompanies also received praise from panelists who’ve watched them closely. For example, electronic component distributors Anixter and Ingram-Micro were credited with pricing savvy grounded in superior value discovery and segmentation. McKesson and Cardinal Health in healthcare received praise, Home Depot has appealed to building contractors’ otherwise unmet needs, a panelist pointed out, Google has found the customer knowledge sweet spot in a fast-changing market. Smaller firms such as HardiPlank, Sonoco Products, and Thermo-Electron also received notice, among others. As one respondent summarized the criterion for greatness, “Companies that are truly, maniacally focused on their clients’ success are best prepared to win.”

Nor all panelists were quick to give credit. Asking for the names of exemplary companies “is not a good question,” a respondent declared. “The problem is that the typical poster children really are behind the curve. The best players are a B minus.” Said another, “Although there are no superior performers across companies, I do think there are standouts in parts of some companies.” said another. And, as a survey participant summed up his frustration, “When I ask marketing strategy practitioners ‘Who does this in your company?’ the answer is ‘Nobody.’ This guy Nobody seems to have a monopoly on synthesizing [customer] data!”

Fundamental as it is to marketing and the business model of every firm, customer knowledge and understanding plays a significant role in meeting all the 2005-2007 business marketing challenges cited by the ISBM panel. Within overall survey results, nearly half of all respondents cited better customer knowledge as one of their top three 2005-2007 priorities.

Globalization presents an inescapable challenge to virtually all business marketers as international trade barriers diminish and developing nation industrial growth—led by powerhouses China and India—floods markets with low-priced goods of increasingly acceptable quality. Citing this trend as the second greatest business marketing challenge in 2005-2007, ISBM study respondents often distinguished between import competitionin domestic markets and ever-stiffer competition in unfamiliar markets abroad confronting international marketers. “We will need to customize product, service, and business models to be effective in different markets and cultures. One size does not fit all,” a panelist said.

Meeting the “China price” only begins to describe the task, panelists said, pointing to the growing sophistication of marketing and product technology in emerging markets. Among such trenchant comments: “China is realizing that economies of scale will only go so far. It is moving beyond reinventing how manufacturing is done and turning attention toward marketing.” … “They are working to build, acquire, or license brands that buy them market relationships, sales force connections, and emotional ties with customers and markets.” … “These are more than “emerging new economies. The very nature of business markets will change. We need to understand and model how this will evolve.”

The globalization challenge has risen quickly on business marketing’s radar screen. It ranked just seventh among top challenges four years ago. In 2003-2005 it did not make the list of top priorities.

The drive for more efficient business models worldwide fuels globalization as companies seek the best supply deals wherever they might be. To compete “in a world driven by outsourcing,” a panelist stated, “companies need to redefine themselves into business models that create value by leveraging the assets of suppliers and partners.” Said another, “Networking and partnering skills will be prized as global business becomes the model of all successful firms.” In other words, few organizations can expect to implement global marketing models alone, or find the skills for those relationships only domestically. “America and Europe do not have a lock on technical talent; it can and is moving wherever it is wanted and where opportunity knocks,” a respondent observed. But, as a survey participant cautioned, there’s significant challenge in “learning to effectively specify key internal market requirements to others who don't share your corporate culture  and philosophy.”

Mastering analytical skills and tools, the third-most-important challenge for business marketers, means, a panelist said, “being able to collect enough appropriate market information, then digesting it, so that a company can identify its market positions and market conditions, to enable educated decisions and action.” More bluntly, business marketers need “some real math and analysis skills. Quantitative stuff, not fluff,” said a marketing manager apparently frustrated by superficial number crunching. Another panelist described what’s needed: “financial analysis skills to develop value propositions that positively affect customer income statements and balance sheets.” Another respondent called for “reliable and accurate market research data as the basis of strong predictability models.” The reason why is that “product and program life cycles continue to compress and reaction time is at a premium,” a panelist reasoned, adding that “many marketing folks are ‘marcom’ strong and stay clear of business analysis tools.”

ISBM, which has developed and taught the tools and techniques of Marketing Engineering™ for more than a decade,1 has seen the challenge of using such skills persistently concern its members, particularly in terms of ROMI and other marketing performance metrics. In the current study, however, marketing leaders explicitly criticized what they see as analysis shortcuts shortchanging decision making. They describe the tasks ahead as, for example: “separating bad, erroneous information and sources from good ones in this information age” … “credible measurement tools, used not to justify expenditures but to improve the marketing process” … “competitive intelligence and how to evaluate the strength and strategies of the competition” … “resource allocation” … “decomposing sale cycles into steps that can be tracked and monitored for both inputs and outputs” … “The days of x cents a pound over last year, bump the numbers by 3 percent, and play golf are over! Marketing is no longer only fun campaigns.”
 
Innovation, ranking fourth among business marketing challenges, is an essential engine of growth when it creates genuinely new customer value and competitive advantage. As ISBM Fellow Robert G. Cooper has documented, however, companies have increasingly taken the easy route of marginal product improvements, at their peril cutting back their search for breakthrough new products. “Our portfolios are killing us,” Cooper maintains. “Simply stated, businesses are preoccupied today with minor modifications, product tweaks, and responses to salespeople's requests, while true product development has taken a back seat.”2

“The innovation skill set, capacity, and resource must be rebuilt” at business-to-business   marketing organizations, a survey participant insisted. As another explained, “Engineering, R&D, and marketing suffered heavily in the quest for short-term profits, so much so that some businesses have lost their ability to innovate. The folks that are left are skilled at doing the day-to-day stuff, but not well suited to handle longer-term, bolder innovations.” As a result, companies let their competitive strengths erode, a panelist noted: “Since few companies are investing heavily in R&D and creating breakthrough products, differentiation for the majority is more about image creation than product differentiation.”

New product development and marketing capabilities received more recognition in the current survey than in the 2001 Trends Study where it ranked sixth. Innovation did not appear within the top-seven challenges respondents cited in 2003. Current publicity for Cooper’s recent alarming research findings has helped to spur concerns. So has what appears to be an emerging new role for chief marketing officers in business-to-business firms: change agent and innovation coach for the entire firm focused on creating and delivering customer value.

Marketing organization models and marketing’s relationships to other functions in companies poses a challenge for coming years, many panelists agreed. Overall, organization ranks fifth in priorities. “The biggest challenge over the next few years will be improving performance. Senior marketing executives will have to evaluate staff, add process and discipline, and invest in new technologies,” a respondent stated. It’s a challenge because, another panelist opined, “The fundamental role of marketing in growth, decommoditization, and business strategy is not well understood across B-to-B firms.” Others point to overcoming the classic divisions between “marketing” and “sales.” And, companies continue to wrestle with the centralized vs. decentralized question: whether business units should rely on their own embedded marketing staffs or on a central corporate department. Panelists noted that the current trend appears to be toward more centralization—perhaps too much—than in past years.

Again, the emerging role of the chief marketing officer is providing more companies with C-level champions for a coordinated, process approach for an entire organization focused on going to market. It won’t be easy, a panelist predicted, pointing to the countertrend of non-marketing staffers taking over some marketing functions at some firms. “The ability to affect corporate vision and respond to market demands is a challenge as marketing continues to fragment in B-to-B.”
 
Organization ranked as the second most important challenge to survey participants two years ago, but then they focused largely on the ROMI aspects of marketing accountability and proving its worth to the firm. In the most recent survey, marketing’s influence within the company receives more recognition. To a critical eye, “Marketers seem to lack focus. We are expected to do too many things. This creates a condition where we have too few resources to get the jobs done.” A more optimistic view cited areas where marketing should take the lead: “It seems to me that if organizations could find ways to integrate all the initiatives they have around customer satisfaction, customer experience, value delivery, value propositions, customer-centered quality, and value selling, and then look across the whole value delivery system, you’d have a capability that could really take you somewhere important.” That panelist recommended Six Sigma tools for such a process approach.

Calculating ROMI to guide marketing decisions and to prove the investment value of the marketing function is a perennial challenge, as most business marketers know, and asTrends Survey panelists consistently comment. Mastering the tools to measure the financial impact of marketing and determine the return on marketing investment (ROMI) ranked as the second-most important priority in the 2003-2005 study, and as the top priority in 2001-2003. The fact that it ranks sixth among panelists’ concerns in the current poll suggests that more marketers are feeling comfortable with ROMI modeling and that he imperatives of customer understanding, global competition, innovation, etc. are more pressing today.

Marketers have always felt pressure from the corner office, particularly the demands from financial executives for marketing spending justifications similar to the much more quantifiable returns calculated for, say, plant and equipment expenditures. “Show me the ROI—or else” is the threat business marketers fear. The lagging and long-term residual effects of marketing programs confound the analysis, as does the unpredictability of the human behaviors marketing tries to influence.

Additionally, ROMI is new enough to many firms that it begs basic questions such as “What R?” and “What I?” that don’t yet have consensus answers. Not only marketing programs and budgets are at stake, the credibility of marketing can hang in the balance, survey respondents repeatedly pointed out. One described the mission as, “clearly defining that business marketing is not just something sales does at night, but requires high-caliber, dedicated and knowledgeable people.”

Demonstrating delivered value and documenting it to prove an offering’s worth to the customer ranks seventh among 2005-2007 business marketing challenges. Understanding what drives customer-perceived value is marketers’ primary challenge, but marketers must also convince customers that their products and services will deliver, and do so at an acceptable price. Creating and delivering customer value, which are cornerstones of ISBM’s approach to marketing, consistently rank among business marketing experts’ priorities in successive Trends Studies.

As a panelist described the challenge and requisite skills needed to meet it, “The ability to construct and deliver persuasive value propositions requires capability in customer value management and substantiation.” In other words, it’s about the cash flow and “demonstrating and documenting in monetary terms how the customer will be more profitable from doing business with your firm as opposed to your competitors,” a respondent said. Additionally, documenting economic value is the key to effective pricing. Too high a price for the value delivered sends the customer elsewhere. Too low a price leaves money on the table and out of the marketer’s pocket.

Without demonstrating and documenting value, marketers cannot be sure that customers and prospects will recognize all a supplier has to offer. Customers become distracted, Six Sigma marketing expert Pete Pande told ISBM’s 2005 annual members meeting. According to his Law of the Ignorant Customer, “Customers rarely, if ever, understand or can communicate their own requirements as well as we’d like, or expect.” Among the reasons he cites: “They have other important priorities, rarely are they experts in our products/services, and customer organizations have silos, too!” Pande adds that “customer priorities change to match the latest crisis, they may not really understand their own customers requirements, and what they think they know could well be wrong.”

Today’s Implications
\What should these results mean to business marketers? The 2005-2007 ISBM Trends Study reveals what leading executives and researchers in the field worry about most, in terms of the challenges facing business marketing practice in the short term and the skills marketers need to meet those challenges. The survey’s practical importance is guiding how the academic community, consultants, and of course marketing executives themselves address their work.

Of course, every company has its unique challenges. Its priorities for improvement may well vary widely from the broad industry consensus. But every marketing executive, from chief marketing officer through brand manager and communications director, should examine how well his or her business fares according each item on our checklist. Anyone who can really claim to have mastered all the challenges wins our admiration at ISBM— leavened with a healthy does of skepticism. There is always room for improvement. Sad to say, complacency has created the messes in which business marketing has wallowed in the past.

Avoiding complacency requires, our study indicates, better tools for understanding customer needs, proactive strategies for globalization, harnessing better quantitative tools, building innovation skills and then breakthrough offerings, rationalizing the marketing role and contribution in one’s organization, and not only creating value for customers but conclusively proving it to them as well.

Fulfilling those requirements obviously isn’t easy. It means taking the risk of pushing the envelope. That takes guts, but it should be clear that the same old thing won’t produce growth in today’s markets. It also takes originality. Today’s markets invite innovation in business models, customer connections, and market analyses. Your competitors are very likely to know that at least as well as you do. Finally, and here’s the art of management at work, business marketing success requires virtuosity, knowing the rules well enough know when you can break them and break out of the pack.