It never ceases to amaze how many times I discover sellers within client companies, who misunderstand the signals they get from their customers and – as a consequence – over-estimate the number of price-buying customers they have. My most famous case occurred ten years ago. I kicked off the first day of a three-day marketing workshop to be confronted by one seller: “Before we waste three days of our valuable time, could you just explain why I should spend three days in this workshop when 80% of my customers are Price Buyers?” – A not atypical challenge.
I was very interested by this claim, as I had personally never come across any market situation where there were so many Price Buyers and I had worked in a number of undifferentiated (some would say “commodity”) product-markets.
On that occasion ten years ago, I managed to convince my challenger to stay with the workshop. By the end of the three days he acknowledged and agreed fully that less than 30% of his customers were actually Price Buyers. The end result put several millions of Euros on to client’s bottom line that same year and sustained into the subsequent years.
This case highlights a very common issue and challenge for companies in many B2B markets and especially in the chemicals and plastics industry. Just imagine what that means to margins if we can misinterpret the needs of up to 50% of our customers!
So what are the causes of this widespread phenomenon and what can we do about it?
1. Buyers defences are high
Situation: Buyers are often between the rock and the hard place, under pressure to reduce raw material costs, whilst at the same time ensuring a continuous and timely supply of good quality products to the plant. That pressure is often manifested in a demand for better prices.
Remedy: Sellers need to understand how difficult it is for a buyer to be a GENUINE Price Buyer – it is not easy. To be a Price Buyer the customer must have the following conditions in place:
• A real choice of qualified products from at least three and preferably more suppliers
• The ability to switch suppliers easily at any time and at no significant cost
• Independence from suppliers in terms of technical know-how and application knowledge – meaning no need for technical support
If the customer cannot demonstrate these conditions, they cannot be a Price Buyer…..and, by the way, any customer that comes back to the seller with the offer to win or keep the business if they match the price of an alternative supplier is NOT a Price Buyer. This behaviour is a clear indication of a preference to do business with you – you must discover the basis of that preference.
2. Sellers think they are selling commodities
Situation: The word commodity carries with it many connotations, not least that there is no value in marketing or customer segmentation; it’s all about getting the price right, as customers do not value anything else.
Remedy: Sellers should think of these as UNDIFFERENTIATED PRODUCTS, which are just one part of the TOTAL OFFERING; this means that there may be still real possibilities to differentiate the offering on service levels (e.g. reliability or responsiveness) or on intangibles (e.g. reputation or relationship).
3. There is no meaningful and differentiating customer segmentation in place
Situation: Sellers have no reference points or supporting models to help them to distinguish different buying behaviours and different customer needs.
Remedy: Sellers need to be able to recognize the differences in need and behaviour of their customers. It can help to provide them with a customer segmentation model based on needs and values of different customer groups, encouraging them to seek out and recognize the differences and to gear the offering to fulfil the specific customer needs; for example:
• Innovators: value first and early access to new products;
• Growers: value reliable delivery of needed quantities of tried and tested solutions;
• Optimizers: value solutions that reduce costs or improve efficiencies;
• Easy to do Business: value quality products from reputable suppliers with no hassle;
• Security of Supply: value secure supply at all times from a committed supplier;
• Strategic Partner: value a long-term relationship from a strategic partner they can trust;
• Price Buyers: select the lowest price offered from at least three pre-qualified suppliers
4. There are no clearly defined customer value propositions
Situation: The seller has no clearly defined value propositions to offer to the customer, based on the segment to which they belong.
Remedy: Marketing needs to provide sellers with well-defined and clearly differentiated value propositions, providing them with the ammunition to beat the competition. Sellers fire the guns, marketers provide the bullets.
Each of the above segments demands a clearly different and differentiated value proposition with Product – Service – Intangibles and the 4R’s of sustainable differentiation
• Innovators: innovation led offering from a flexible and responsive creative supplier
• Growers: proven solutions from a responsive global player with advanced supply chain
• Optimizers: projects to reduce cost and improve efficiency from a loyal supplier
• Easy to do Business: high quality products delivered reliably from a reputable supplier
• Security of Supply: guaranteed continuous production from a highly reliable supplier
• Strategic Partner: strategic support from a long-term supplier they can trust
• Price Buyers: lowest price and available product
5. Sellers typically approach a customer with one offer rather than offering choice
Situation: Sellers are ill-equipped to offer choices to the customer, either because the marketers have given them no alternatives or they are not empowered nor authorised to develop their own alternatives and therefore make a single offer (“take it or leave it”).
Remedy: Customers need and value CHOICE. If you do not offer choice, they must seek alternatives from other suppliers in order to be able to run the trade-off process, which is typically the core of any buying decision-making process. Marketers must provide the sellers with a palette of offerings tailored to the needs of customers in specific segments and reflecting the importance and value of the customer to the supplier, so that sellers can offer their customer a genuine choice (“which of these offers best meets your needs at the price you are willing to pay?”).
Phil Allen is CEO and Value Creator at Marketing and Sales Excellence Practice, GEMS International GmbH.
For more information on how B2B International can help your business segment their customer base and more closely satisfy their needs and make a profit along the way then visit – Segmentation Research