The challenge for many companies is recognizing the difference between being overwhelmed with data versus building a knowledge base that can be used strategically with customers for everyone’s benefit. Converting data into knowledge is crucial for strong customer partnerships – particularly in a downturn.
Relationships between companies and customers are evolving rapidly, and the recession we’re entering will accelerate this process dramatically. During tough economic times, customers want to focus on getting the best price as they struggle to maintain margins. However, savvy suppliers see these challenging times as an opportunity to redefine their overall value to customers.
Since each customer defines “value” in their own way, it’s essential for sales and marketing to uncover true customer needs and define a unique value proposition. Increasingly, the value proposition revolves around collecting data and converting it into information and knowledge. Value has very little to do with price, as in traditional buyer-seller relationships, and more to do with leveraging knowledge to build strategic partnerships and develop win-win situations with individual customers.
It is a cliché to say the information age is having a revolutionary effect on business. But while many companies are collecting reams of data on customers, far too few of them are good at turning data into knowledge for customers.
Sharing openness and knowledge builds trust between a supplier and its customer, allowing a business to leverage its wisdom with customers. By sharing knowledge down through the value chain, a company provides end-user solutions to its customers, enabling them to sell smarter by resolving issues from their customer’s point of view. This enables everyone in the value chain to develop and maintain a “category leadership” position.
More importantly, the traditional seller-buyer relationship is converted into a genuine partnership.
The consumer packaged goods industry – notably food manufacturers – offers an example of how to shift from a price orientation to a knowledge-based customer interface.
For years, allowances used primarily to reduce price and increase inventories spiralled upward. Over time, trade allowances became the most significant line item, after Cost of Goods Sold, on most manufacturers’ P&L statements. As a result, money was transferred from brand building such as advertising and promotion with the consumer as they became unaffordable.
In an effort to better control costs and reduce their dependence on price promotion, many manufacturers began focusing attention on customer marketing. The industry has always been data-rich with consumer information from numerous sources including primary research and customer scanning. The wealth of data opened up countless opportunities for manufacturers and customers to discuss how best to manage a business.
The resulting “category management” approach largely shifted focus away from price and provided opportunities for collaboration. Now, partnerships focus on the end consumer, with both manufacturer and customer achieving their objectives. To be sure, manufacturers still need to be price competitive; however, the strategy of addressing the consumer by leveraging data with the customer results in a win–win situation.
True In Other Industries
There are parallels to the food industry within every sector. There are countless opportunities to leverage data into knowledge, and to use this knowledge to strengthen business relationships with customers.
A company may operate in another industry, perhaps further downstream from the end user. Maybe it supplies a significant component to an original equipment manufacturer. Perhaps the industry is seeing considerable consolidation such as in the DIY and hardware sector. But in every business or industry, regardless of size, information allows companies to control the evolution, primarily by building trust with customers. And what builds trust is openness and leveraging a company’s knowledge with its customers.
The key factor is staying focused so management doesn’t get lost in a forest of data and lose sight of the “trees,” staying connected with its strategy to build the business. Outside advisors can help executives do this.
Smart businesses are providing end-user solutions through to the customer. They are resolving issues from the customer’s point of view. By creating this newfound level of trust, companies develop leadership in their industry or sector by sharing their thinking down the customer chain.
By adding value to the customer by taking a leadership role with them and providing knowledge and wisdom, a business inevitably takes a leadership role. It enables both parties to capitalize on joint opportunities, and during a sharp economic downturn it means not just stronger relationships but more profitable ones – now and after things turn around.
By Atticus Management