Long ago Peter Drucker, the father of business consulting, wrote: “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
Today, many industrial companies successfully deal with innovation, increasingly investing in R&D, product development and scientific partnerships. As the result, the number of new innovative technologies is progressively growing in different sectors, including industry, energy and IT. At the same time, a large number of these technologies fail to meet their goals in the marketplace. The reason for this lies in the fact that many B2B companies are still paying little attention to their marketing strategy.
The central role of marketing in the company comes out from the fact that marketing is the process through which a firm creates value for its customers. Value is created by meeting customer needs. Thus, a company needs to define itself not by the product it sells, but by the customer benefit provided. However, industrial companies are generally so focused on designing and manufacturing new products that they neglect the hard work of identifying the needs of the market and the opportunities they represent for their business. Moreover, most of B2B executives have a technical background, and frequently tend to assess their products from a technical rather than a user point of view. They can spend millions designing costly features into new products without considering the value of such features to target customers – and then wonder why the company is not able to sell these products.
For industrial companies to succeed, it is not sufficient to have an ingenious innovation – a product that technologically might be superior to existing solutions. Having an attractive product is only one step in the process of commercialization, and if other steps, including marketing and sales do not function, it can be very hard to succeed in the tough international competition. So, in order to successfully bring new products to market and sustain the process of creating and capturing value over time, industrial companies have to develop their fundamental marketing capabilities.
The good news is that B2B companies don’t need to reinvent the wheel. The practices that define basic marketing capabilities have been already established and proven for B2C companies where marketing has always been an important core competence. In this article I will discuss five common reasons of go-to-market failures and five marketing principles that can help B2B companies to make their technologies more valuable to their customers and thereby gain greater market share.
Target market is not correctly identified
The development of the go-to-market strategy begins with understanding of the company’s own capabilities, customers and business environment. A good starting point for developing a go-to-market plan is the 5 C’s analysis. 5 C’s are customers, company, competitors, collaborators, and context. At the stage of new product development, managers should ask:
Customer Needs What needs do we seek to satisfy?
Company Skills What special competence do we possess to meet those needs?
Competition Who competes with us in meeting those needs?
Collaborators Who should we enlist to help us and how do we motivate them?
Context What cultural, technological and legal factors limit what is possible?
In fact, many B2B companies are still steeped in a philosophy called “If I build it, they will come.” They are creating new products without any idea about market needs, competing solutions and business environment. As the result a new product is often doomed to failure before it has even been brought to market. That’s why the validation of basic 5 C’s fundamentals should be a prerequisite step in bringing a new product to market.
The next step in the go-to-market plan is a deep understanding of the customer. As it was noted, marketing is the process through which a company creates value for its customers. The key question is what potential customers the company will attempt to serve? To answer this question, the managers must determine the most appropriate way to describe and differentiate customers. This is the process of segmentation. Selecting the segments to serve is critical because, ultimately, the customer has the right to dictate the rules via which the go-to-market game will be played.
Each group of customers has a different nature of needs. Consequently, their requirements and purchase criteria will be also different. So, by identifying the homogeneous groups of potential customers and what things are really important to them, the company can determine the most efficient means of serving each of the chosen segments.
For example, when DuPont was bringing to market Kevlar – an aramid fiber that is lighter yet stronger that steel – the company focused the unique needs of customers in three different segments:
- Potential fishing boat owners: Kevlar’s lightness promised fuel savings, increased speed, and the ability to carry more fish weight.
- Aircraft designers: Kevlar has a high strength-to-weight ratio.
- Industrial plant managers: Kevlar could replace the asbestos used for packing pumps.
At the same time, not all groups of potential customers identified during the segmentation process will be viable and attractive. For a segment to be attractive as a target market, it must offer a high potential for growth and profits. Moreover, it should be viable in terms of competition. A segment will be less attractive if it already contains many strong and aggressive competitors. In order to identify valuable customer segments, managers can use two criteria: segments with the most attractive lifetime economics and those where a company’s distinctive offerings win consistently.
Customer needs are not entirely understood
A company can miss potential market if its new product is neglecting to address all key customer needs and requirements in their entirety. For example, a product can provide significant benefits to customers, but it requires existing infrastructure or expertise. A product can also address only one customer need and miss other important requirements that matter to the end users. In these cases the product will be seen as incomplete from the customer point of view. So, until all important customer needs will be addressed, the market for the product will remain limited.
In order to bring to the market a valuable solution, companies need to identify what product features and additional services matter most to their target customers. Companies need to understand what efforts from their part will likely to have the greatest impact on their customers’ businesses. At the same time, it is not enough to identify only the technical needs of the potential customers. To be effective, companies need to focus on all key points that could influence their customers’ decision-making process.
For example, a recent research by McKinsey has revealed a dramatic divergence between B2B companies’ messaging about their brands/products and what really matters to their customers. McKinsey analyzed the key marketing messages used by leading global B2B-focused organizations and compared them with the priorities of more than 700 global executives with responsibility for making buying decisions. Researchers have found that most of the common corporate messages had minimal impact on the executive’s evaluation of potential suppliers.
As we can see, three of the top 5 values that were most strongly appreciated by the buyers (open and honest dialogue with customers, alignment with the customer’s value and beliefs, and evidence of vendor leadership in their chosen field) had an unmeasurably low presence in the core vendor messages. Even if this research was primarily focused on B2B brand positioning, it gives however an illustrative example of a huge gap between what B2B companies offer to their customers and what customers really want.
The main reason for this divergence between a new product and customer needs is that B2B companies’ marketers typically have limited involvement in the product development. For example, according to another study made by Booz & Co and the ANA, 90 percent of the B2B marketers are not tightly integrated into their companies’ product development processes.
So, in order to bring the most valuable solution to the market, marketers should first of all clearly identify the needs and the value drivers of each customer segment. Secondly, they should translate this customer insight into the product features and other actions needed by the principle functions of the company, including R&D, engineering, logistics and sales.
Product doesn’t deliver value to the customer
Another key element in bringing new products to market is the value proposition. Value proposition is a statement that explains what benefits a new product provides to target customers and why it is distinctly better than alternatives. This statement should convince a potential customer that your product or service will add more value or better solve a problem than other similar offerings. The ideal value proposition is concise and appeals to the customer’s strongest decision-making drivers. That includes delivering what the customer want and nothing more that could distract him from the value.
According to Harvard Business Review ‘’Customer Value Propositions in Business Markets’’ research, most managers, when asked to construct a customer value proposition, simply list all the benefits they believe that their offering might deliver to target customers. The more they can think of, the better. This approach requires the least knowledge about customers and competitors and, thus, the least amount of work to construct. However, all benefits value proposition has serval drawbacks. For example, managers may claim advantages for features that actually provide no benefit to target customers. Also, most of the benefits may be points of parity with those of the next best alternative, diluting the effect of the few genuine points of difference. So, in the case of the value proposition, more is not better.
At the same, time focusing only on the points of difference that a product has relative to the next best alternative, could be dangerous. In many cases, a point of parity – a product attribute with the same performance or functionality as those of the competitors – is required for target customers even to consider the suppliers’ offering. So, without these points of parity, the product value will be a priori inferior to the next best alternative.
The gold standard that is proposed by the Harvard researches is the resonating focus value proposition. In this approach the supplier can provide value proposition by making its offering superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer’s business priorities. The resonating focus proposition may contain a point of parity when it is required for target customers even to consider the supplier’s offering.
To build compelling resonating value proposition, suppliers must undertake exhaustive customer value research and gain the insights of their customer’s business operations. Take for example the case study of Sonoco’s resonating value proposition, considered by the authors of ‘’Customer Value Propositions in Business Markets’’. Sonoco, a US based international packaging supplier approached a large European customer, a maker of consumer packaged goods, about redesigning the packaging for one of its product lines. Sonoco believed that the customer would profit from updated packaging, and, by proposing the initiative itself, Sonoco reinforced its reputation as an innovator. Although the redesigned packaging provided six favorable points of difference relative to the next best alternative, Sonoco chose to emphasize one point of parity and two points of difference in what it called its distinctive value proposition (DVP). The value proposition was that the redesigned packaging would deliver significantly greater manufacturing efficiency in the customer’s fill lines, through higher-speed closing, and provide a distinctive look that consumers would find more appealing—all for the same price as the present packaging. Sonoco chose to include a point of parity in its value proposition because, in this case, the customer would not even consider a packaging redesign if the price went up. The first point of difference in the value proposition (increased efficiency) delivered cost savings to the customer, allowing it to move from a seven-day, three-shift production schedule during peak times to a five-day, two-shift operation. The second point of difference delivered an advantage at the consumer level, helping the customer to grow its revenues and profits incrementally.
Resonating focus value proposition is very effective, but it is not always easy to craft. Companies often find it difficult to leave the favorable points of their products that customers value list and concentrate on improving only one or two points of difference that customers value most. Steve Jobs famously said that the hardest decisions were always about what to leave out of Apple’s products, not what to put in. The same is with value proposition – it could be difficult to choose only few points that deliver the greatest value to target customers. That’s why in order to build a resonating value proposition, it is critical to have a deep understanding of target customers business issues, goals and requirements, and what it is worth to fulfill them.
Product is falling into the pricing trap
One of the key questions in go-to-market strategy is how much should the company charge for a new product? Charge too much and the product won’t sell. Charging too little limits company’s growth and reduces profits. Moreover, a company that charges too little fixes the product’s value position at a low value, which is difficult, even impossible to raise back.
Ineffective pricing strategy is one of the most overlooked aspects of new product development. A single bad pricing decision can easily erase millions in potential profits. For example, according to McKinsey ‘’The power of pricing’’ analysis, charging just 1 percent less than the optimal price for a product can mean forfeiting about 8 percent of its potential operating profit.
Traditionally, industrial companies calculated price as ‘’cost + profit’’. This analysis of costs, plus a margin representing a minimally acceptable return on investment, reveals a new product’s lowest reasonable price level. At the same time, this method doesn’t incorporate the most important component of price setting – an understanding of how much customers will pay. As the result, this price has no correlation to what the market will bear. Normally, customers don’t care about your internal costs or whether you make a profit. Customers want to receive more in value than the price they are paying or they won’t purchase the product. So, the question that companies should answer is how to create additional customer value and increase customer willingness to pay? This requires clear understanding of customer needs, preferences and value perception.
In most cases, industrial suppliers overlook a range of factors that their target customers care about and that justify a price premium. Consider the evidence from a recent Bain survey of more than 400 purchasing executives for two major categories of corporate spending: bulk raw materials (such as metals, chemicals, agricultural commodities and paper goods) and enterprise hardware, software and services. The survey asked executives about the role of price in their purchases relative to other elements of the overall proposition.
Source: Bain, Purchasing Decision Maker Survey, 2013
Even in bulk raw material categories commonly thought to be pure commodities, price is rarely the most important decision criterion. It trails reliable delivery, reliable supply and quality when respondents are selecting a supplier. In fact, customers would pay a 4.2% premium for higher quality, 3.4% for best features, a 3.1% for more reliable product delivery and 2.4% for superior customer service.
Source: Bain, Purchasing Decision Maker Survey, 2013
In computer hardware, software and services, price is again not the most important factor. Survey respondents are willing to pay 8.4% more for better integration with other technical systems, 7.2% more for the ability to customize the product and 7.0% more for ease of use.
So, in order to set the price which captures the full value of the new product, companies need to identify and measure the economic or business value that customers derive from their offerings and incorporate this customer value into the product and service prices. Using value-based approach that derives from customer utility allows companies to set a price better aligned to the marketplace and often actually higher.
There are many examples that demonstrate value pricing. Consider for instance J. Hogan’s and T. Lucke’s article ‘’Driving growth with new products: common pricing traps to avoid’’. A large software database company was planning to sell a new product for $99. After assessing the potential value of its new product, the price was more correctly priced at $349. Another example is a health care company that had developed an internal tool that saved the company millions of dollars. The company decided to market this product set to other health care firms. The initial price point was $500, which did not provide enough of a gross margin to make introducing the product worthwhile. After research into the value of this product, the company estimated the value at 30 to 40 times the early estimates. The company then changed the pricing to $2,500 and still generated a significant number of sales, making a sound profit for the company.
There is a disconnect between marketing strategy and sales channels
A sales channel is the bridge between marketing strategy and the market. Depending on the product nature, the company can use direct, indirect or mixed sales channels. In direct distribution, there is no independent party between the firm and its customers, i.e. the firm’s salesforce directly visit their customers. In indirect distribution, there is a third party. This party may operate under contract to the firm (e.g., as in a franchise system) or it may act independently. In either case, the company must ensure that all the sales channels are properly aligned to its marketing strategy and, thus, to the target customers’ needs.
Ultimately, the role of marketing is to create a message that would resonate for target customers. At the same time, it is not marketers, but sales representatives who transfer this message to customers. So, if there is a disconnect between what the sales channels understand and what it is asked to sell, marketing strategy will not be executed correctly. In order to effectively sell a new product or service, marketers have to study the sales cycle of a new product and make judgments about what the sales field representatives need to know and what they should be able to deliver to the customer.
Wining in sales depends not just on what a company sells, but also how the sales team sells it. Sales representatives should focus on making each interaction meaningful for customers. Many industrial companies try to understand what customers expect of their new products and services, but only few ask customers what they expect of their sales people. For example, according to the research ‘’What B2B Customers Really Expect’’ published in Harvard Business Review, B2B vendors not only misunderstand what customers want from salespeople but often recruit for attributes that aren’t customers’ top priorities.
Researchers interviewed 120 sales leaders in vendor organizations across a wide variety of industries, from pharmaceuticals and financial services to telecommunications and software. They asked those leaders what they thought customers expected of their salespeople and determined whether they incorporated those expectations into recruitment. Then they interviewed 200 of these vendors’ customers to see what they really expected when evaluating potential suppliers and where they saw the greatest need for improvement.
As we can see, customers put salespeople’s subject matter and solution expertise at the top of their list of important qualities. It means that from the customer’s point of view, the greatest need for improvement is in salespeople’s knowledge of the customer’s business and industry. Vendors have to understand customer’s unique challenges and preferences, and provide to customers valuable guidance and insight at every stage of the sales process. To meet these customer expectations, companies need to train and enable their sales representatives to act as consultants who can advise customers on solving their important business problems, which often extend beyond the products or services they’re selling.
The second essential aspect of sales-marketing alignment is two-way communication. Without feedback from sales, marketing is blind. Marketing managers need to know how consumers perceive and evaluate a new product, what points in value proposition are resonating and what points are failing. For a company to be able to provide value-added products and services to customers, it is essential to integrate the knowledge that the sales channels acquire from their day–to-day interaction with the market, and then use it to continuously refine its product and value proposition. Some industrial companies make extensive use of frontline interaction to stay updated with customer needs and drive product innovation. For example, Hilti, a Liechtenstein-based supplier of professional construction tools, has its salespeople do double duty as distributors and hands-on market researchers at customer construction sites. Hilti’s sales representatives, unique in its industry, visits construction sites and solicits feedback from customers that then drives product innovation. Innovation, in turn, has helped the company sustain a consistent 6 percent growth for more than 50 years.
Unlike consumer-focused companies, marketing does not contribute to the success of industrial companies as much as it could and should. Industrial companies are historically focusing more on achieving product-based differentiation. Accordingly, they build sales channels to communicate that differentiation to customers, using marketing essentially as a support function that provides sales brochures and other collateral materials. As the result, many industrial companies know substantially all there is to know about their own technologies and practically nothing about how their customers operate and what are their customers’ needs and value drivers. However, customer insight is an essential ingredient in bringing new industrial products and services to market. Without a detailed understanding of customer requirements and preferences, companies risk to deliver relatively little value to their target market. That’s why in business-to-business sector there is a need for more effective marketing. Those industrial companies that will better develop their fundamental marketing capabilities will radically decrease the number of go-to-market failures, increase growth, profitability and market share.