Using Customer-Based Competencies for Building Strategic Focus

Vikas Mittal, Professor of Marketing,        Jones Graduate School of Business,             Rice University

Senior executives at business-to-business companies strive to satisfy their customers to improve sales and margins. Yet very few systematic frameworks exist to guide their customer focus.

Last year, I was discussing the content of a B-to-B strategy course with the dean of a top-10 business school in Asia who lamented, “Most of what B-to-B companies do relies on recycled concepts from consumer companies. Consumer goods and services are focused on customer experience, customer delight and hedonic consumption, and rightly so. But B-to-B is different. It has so many utilitarian value drivers like sales, bidding, billing and project management that go beyond experiential aspects of value.” Simply put, B-to-B customers are different than traditional consumers of goods and services.

B-to-B companies have important differences from B-to-C companies. B-to-B companies typically sell complex products and services that are purchased by clients through asystematic purchase process involving multiple stakeholders, such as end users, evaluators and purchase managers. In terms of consumption, B-to-B cycles are long and complex — sometimes taking several decades and involving hundreds of employees.

B-to-B companies, therefore, must keep this glacial time scale in mind — and the unique customer needs such a scale entails. Research by scholars at Rice, Iowa State, and Texas A&M universities, on behalf of the Collaborative for Customer-Based Execution & Strategy, identified eight competencies specific to B-to-B customers.

Unlike functional competencies based on silos — such as manufacturing, finance, technology or innovation —these are based on perceived customer value. Functional competencies are still necessary to deliver this perceived value to the customer, but superiority on functional competencies alone is not enough.

The eight customer-based competencies are based on in-depth conversations with more than 600 mangers, and surveys of over 4,500 managers and executives from the supplier and client sides in B-to-B firms. They include:

1. Bidding and Sales Process
While retail customers make quick decisions based on price tags, B-to-B customers typically go through an elaborate bidding and sales process. Throughout the process, they evaluate the sales team’s competency and the suppliers’ ability to provide accurate proposals. In interviews, customers described the process in one of two ways: either “We get a lot of work from relationships that our sales force develops,” or “Salespeople need to do a better job understanding our needs so that the proposals are streamlined to our needs.”

2. Quality of Product and Service
Products and services in B-to-B can range from multiyear service contracts to complete power plants. For B-to-B companies, quality is based on customers’ perceptions of how well the supplier’s core offerings perform. Customers describe this competency as “meet(ing) performance specifications for the equipment and the service employees.”

3. Billing and Pricing
Customer perception of whether a firm’s pricing and billing processes are fair and competitive goes beyond low prices.

Respondents report that they “don’t like companies that low bid and then issue change orders to jack up the price.” They also express frustration when “accounts payable has to go back over the billing because it is wrong about half of the time.”

4. Communication
In B-to-B relationships, communication is a core component
that can lower perceived customer value when derailed. We define communication as the extent to which a supplier shares appropriate and accurate information in a clear and timely manner. Customers describe companies that excel at this competency as “providing the attention required to keep accounts happy, especially the large ones.” In contrast, firms with poor communication are described thus: “Everything is email. I get zero in-person contact with them.”

5. Safety
Assuring the safety of products, customers and employees is a critical competency, especially in B-to-B contexts involving the oil and gas industry, manufacturing, transportation, nuclear energy and waste management. For example, the Deepwater Horizon disaster ensnared BP for several years. Customers describe safety as one of the major issues in complex jobs, saying “TRIR (Total Recordable Incident Rate) is very important.”

6. Project Management
Suppliers must be able to adequately help plan, execute, and support the initiatives and projects they are involved with. One of our interviewees mentioned that project management is an essential part of the business, explaining that “thousands of policies and procedures need to be followed to execute a project.”

7. Sustainability and Social Responsibility
Sustainability and social responsibility represent customer perception of the extent to which a supplier voluntarily incorporates societal and stakeholder concerns in its value proposition. In describing the benefits of these competencies, customers say: “I know they are not doing anything dirty — they help us stay on the right side of [the Environmental Protection Agency],” and “It is important to be a community partner by creating local jobs. We always emphasize local content and training.”

8. Ongoing Service and Support
Just because you’ve already sold a product or service doesn’t mean you’re done; service and support must continue into the consumption phase of a B-to-B relationship. In marketing, this has been described as after-sales service, as well as ongoing relationship management. It’s different from the customer’s initial assessment of the product or service quality. In interviews, managers stressed the importance of ongoing service support. One said, “For many contracts, we will need to have a guarantee that no issues will be happening after delivery.”

Using Customer-Based Competencies to Build Strategic Focus

Our research shows that these eight attributes make up a whopping 70 percent of customer value for B-to-B companies as measured by overall customer satisfaction. More importantly, our statistical models show that the customer value built from these competencies can reliably predict a company’s sales and margins. An engineering company in the Greater Houston area found that its customer value predicted sales and bookings one and two quarters out, and used this insight to plan its annual and quarterly budget.

By reliably predicting sales and gross margins —after statistically accounting for a variety of customer factors, such as purchase amount and involvement; company factors, such as size and firm risk; and industry factors such as the competitiveness of the field—enables B-to-B companies to bring a much needed rigor to their strategic planning process.

Figure 1

Yet, competitive advantage for companies lies not in being average at all eight of them. Rather, it lies in using analytical techniques to select the one, or two, or three specific competencies that deliver the most value to their customers. This focus set of competencies is unique for each firm. For example, the engineering company found that its customers valued project management, sales and bidding, and ongoing service and quality as key drivers of overall customer value. Another company in the business of providing oilfield services discovered its customers value proposition consisted of four specific competencies—product and service quality, safety, ongoing service and support, and communication. A distribution company was surprised to learn that product and service quality constituted only about one-third of the customer value it provided, the remainder coming from other areas. By understanding and prioritizing these competencies to maximize customer value, can also increase sales and margins.

Once the key competencies from among these eight unique competencies have been identified, companies can focus their strategic plan to deliver on customer value, in a way that meets customer needs. This should enhance customer loyalty and eventually grow sales, margins, and EBITDA. This process is shown in Figure 1.

Going from a focus on customer-based competencies to higher sales and margins requires a cross-functional approach that cannot be achieved by excelling in only marketing, finance, innovation, service or sales. For example, excellence in departments such as project management requires engineering, manufacturing, customer service, accounting, and even sales. To get these departments to work together, companies will need to accurately measure their role in each of these competencies and link them to sales and margins. At the same time, functional excellence in areas such as digitization can cut across different competencies such as billing and pricing, ongoing service and support, pricing and billing, communication, and even product and service quality. Understanding the role of functional excellence across the eight competencies requires a deliberate approach to implementation that is also strategic.

Done well, this can provide a roadmap for achieving meaningful improvements in both customer value as well as sales and margins.


Editor’s Note:
Rice Business School Executive Education offers Port Bureau members a 20% discount when you enroll in their 2019 Executive Education classes: (use code HPB20 when registering).

For more information, please contact Dr. Zoran Perunovic at or Dr. Sheree at Ahart

  • Date June 3, 2019
  • Tags 2019 May