Distinguish your customers before marketing
Dec 30 2013
While creating marketing strategies for clients, we generally ask clients about the price sensitivity of a target market segment. Does competitive advantage lie in price competition, or does it take value marketing — a bundle of services and intangible benefits enhancing the product — to win the business? Finding the answer that should drive your marketing plan is straightforward when the customer chain is simple, and the sole customer type is a direct buyer or a customer purchasing through a passive channel.
But most business markets do not work that way. The primary buyer responds to its set of value drivers and in turn must cater to downstream buyers’ preferences. Part of your competitive advantage, then, becomes your contribution to your direct customer’s marketing success downstream. For instance, does your product help your primary customer cut costs and thus better appeal to price-sensitive downstream buyers? Or do you provide a high-quality input to your primary customers’ products that contributes to a stronger value-added proposition down the value chain? The popularity of ingredient business branding, for example, reflects the industry’s growing recognition of brands’ ability to influence downstream demand and make a product indispensable to primary customers.
The simple customer-chain model begins to fail us as a strategic tool at this point when primary and secondary buyers respond to significantly different benefits. In a two-stage customer chain, how do you protect your downstream positioning as a value-added producer when your primary customer buys primarily on price? Or if your value sell to the primary customer will not impress the price-driven secondary customer?
Start with an analysis of your customer chains using specific strategies depending on the customer chain environment in which you are selling. Marketing strategies and the need to build a B2B brand are not simply a matter of throwing advertising money in print and TV. There are four B2B market environments based on the price-sensitivity of primary and secondary customers:
n When both primary and secondary customers buy mainly on price factors, promote your ability to reduce their costs.
n When both primary and secondary customers buy mainly on non-price factors, competitive advantage depends on building relationships throughout the value chain, emphasising service, product enhancements and the contributions of your processes and systems to customers’ business success.
n When the primary buyer responds to value-added and other non-price appeals, but the secondary customer is a price buyer, your job is to provide the systems and product enhancements that help the primary customer cut its price to secondary customers.
n When the primary buyer is price-driven, but the secondary customer seeks value enhancements and other non-price reasons to buy, promote cost-justifiable product enhancements that improve the primary buyer’s value-added appeal to the secondary buyer. In this environment, ingredient brand positioning strategies that assist OEM primary customers — such as the “Intel Inside” approach to personal computer OEMs and end-users — can be particularly potent.
Mapping the customer chains that create distinct market segments, then refining Blue Canyon’s broad strategic model using the specifics of individual segments, have helped firms spot opportunities they missed or identify shortcomings in their marketing plans. One industrial tool manufacturer relying on a top-shelf image and pricing to match repeatedly failed to penetrate a new distribution channel that it thought would be a natural expansion. Researching the price and value drivers of its current and hoped-for segments, and applying customer chain analysis, revealed why the manufacturer’s premier brand should not even try to compete in the relatively price-sensitive market segment it had hoped to capture.
(The writer is CEO and MD of CustomerLab)