The recession is perhaps hardest on business-to-business companies. Here’s how they can ride it out.
This is a rough time to be a business-to-business company. When a home improvement store has trouble selling new lawn mowers, it can fall back on plumbing and electrical supplies. But what's the lawn mower supplier supposed to do?
The problem is that as the consumer economy wheezes, the business-to-business (B2B) economy chokes. A few B2Bs -- the ones that really meet their customers' needs -- will survive. But how can they do that without rolling over on price? First, a B2B should know its customers and be competitive on price -- without falling into the trap of price-based relationships. So says William J. McEwen, a Gallup senior strategic consultant and global practice leader for Gallup's brand management practice and author of Married to the Brand.
The smartest strategy is to examine what you really stand for -- and what you hope to continue to stand for -- and make certain that your core value remains consistent.
As McEwen explains in this interview, a B2B marketer should be sensitive about price while showing that doing business with the company is a smart business decision. B2Bs must demonstrate that they are concerned and committed to their customers' business success and uniquely capable of adding to the customers' bottom line. That means they need to be attentive to their customers' business challenges, maintaining their essential listening posts with customers even as they may be cutting staff. Oh, and they need to watch for signals that indicate returning customer confidence in the economy too. If all this seems like a lot to juggle, it is. But perhaps it's not as hard as it sounds.
GMJ: According to The Gallup Poll, consumer confidence is up 20 percentage points compared to the same time last year, but consumer spending is down 33% from the same week a year ago -- which is definitely sending mixed signals to retailers. Are B2B customers conflicted about the economy too?
William J. McEwen: Yes, absolutely. I think they're at least as befuddled as consumers. They don't know how long this recession will last, and they don't know what their world will look like when it ends. They're not sure whom they can rely on, and they may well think everybody is out for themselves; nobody's worrying about their needs as customers. B2B businesses have a lot at risk. In fact, their future survival is at stake, and B2B marketers, like their customers, are also unsure about what's coming next and what it will mean. B2B relationships are larger ones, and B2Bs are often critically dependent on a relatively small number of customers. So I think the concerns and the confusion are every bit as rampant among the business customer as among the average consumer. [See graphic "Gallup Poll: Selected Trends Aggregated Weekly.]
GMJ: It's incredibly tempting for business-to-consumer (B2C) companies to slash prices to acquiesce to the consumer's worries about money. Is that a smart strategy for B2Bs, or is it a way to set up a price relationship that you can't ever get out of?
McEwen: Well, that's a great point. The business reality may be that you have to cut costs. A smart strategy is to make sure that you are focused on the changes that must be made with a clear eye toward how they will affect the customer. What are the base reasons why customers are doing business with you? Simply slashing prices without a strategy other than "We need to cut our costs and our prices" doesn't seem like a very smart idea to me.
I think that the smartest strategy is to examine what you really stand for -- and what you hope to continue to stand for -- and make certain that your core value remains consistent. This is at least as important during a crisis as it is during the times when your business is relatively flush.
I think the mistake that B2B companies are making with their customers is not talking with them. There's a high degree of uncertainty among B2B customers, and you don't resolve the uncertainty by cutting your prices. You need to talk with them. You need to share what you're doing, why you're doing it, and continue to point out exactly what you're doing to help them -- not just to help you.
GMJ: What should you ask your customers?
McEwen: Ask them about their business, their concerns, and especially their concerns about the services and products that you're providing. Make sure you're paying attention to them. The idea that companies can withdraw into themselves is a mistaken one.
Companies aren't so filled with fat that they can easily cut without hurting. So they tend to look first at the big piles of money.
If you're firing some of the people who talk to your customers, you're cutting back on your listening posts. That might be crippling your opportunity to let your customers know that you're listening and responding to them and that you're not just doing things that bear little or no relationship to the reasons why they picked you in the first place.
GMJ: What are the last things that B2B customers will give up?
McEwen: The things that are absolutely essential for their business. No company can give up the things that are crucial to their day-to-day operations. For example, a telemarketing company won't give up its telephone service. The challenge for a B2B marketer isn't just to provide a product that's irreplaceable, since there may be lots of other companies who can provide that product. The challenge is to be a company that's irreplaceable.
The things that B2Bs feel they can probably do without are the things that might seem nice to have, like consulting relationships, advertising, or participation in trade shows. The whole marketing effort probably comes under close scrutiny in terms of how much is necessary.
GMJ: That's why I asked this question. It would seem to me that pulling back on marketing or consulting relationships could hinder a company's ability to get through this down market at all.
McEwen: I don't think there's a company that doesn't realize that. The question is, how deeply do they feel this? They know they must invest during tough times. But what does an investment mean? An investment means you'll choose to cut elsewhere, and you'll keep the things that you believe are essential.
Companies aren't so filled with fat that they can easily cut without hurting. So they tend to look first at the big piles of money. Marketing looks like a big pile of money, but it's money invested for future business returns, and companies are aware of the articles in the business journals that talk about how companies that invested during tough times benefited when they emerged. Company leaders know this. It's logical. But there's a vitally important emotional side as well.
When someone says to you, "Either I cut this funding, or you tell me who to fire," that feels like a very different issue. There are relatively few large costs that most companies can readily control. So you look at something like marketing investment and think, "Well now, there's something that I can control. I know it's a bad idea to pull back on marketing, but give me a better one." So cutting in these areas seems like an unavoidable solution, even though most companies will agree that it is not a wise investment for the future. They just don't see an alternative.
GMJ: Not when they're up against the wall.
McEwen: They might not be up against the wall as much as they think they are. But I think the real problem is that a lot of companies view marketing and consulting as expenses with an uncertain return on investment. If you've spent your marketing money without clearly benefiting from it, or your consulting money without holding the consultants accountable for performance, during these times, you wonder, "What's the point?"
I saw an article from McKinsey that indicated a rather stunning one-third of companies don't have meaningful benchmarks to hold their marketing spending accountable. It also appears that this percentage is higher in the B2B world, because it's lower among what they call "consumer-focused" businesses. Small wonder, then, that these allegedly business-building activities would be cut during these tough times. If you cannot document your contribution, your budget deserves to be terminated, although I would contend that this is hardly beneficial to the company's long-term brand health.
GMJ: So if a B2B can prove the financial return for the customer . . .
McEwen: It's essential that you be able to prove it. The world was headed in that direction even before the recession. The idea that you would expend monies without having a clear idea of what you'd get from your investment has been dwindling for some time, as companies have attempted to look more closely at return on investment [ROI] in all of their business-building areas.
Show your customers what they're getting -- not what you're doing, what they're getting -- because customers are in this for their own benefit.
During tough times like these, the need to demonstrate ROI is even more imperative. But if you haven't had metrics in place until now, any activities that haven't already demonstrated their clear value to the company now and in the future are at risk -- and probably should be.
GMJ: So the best way to support a B2B relationship is to prove yourself accountable on a dollar basis at a very basic level.
McEwen: And show your customers what they're getting -- not what you're doing, what they're getting -- because customers are in this for their own benefit. You've got to show how you contribute to what they need to have done. You have to show how doing business with you decreases their uncertainty. These are uncertain times. Make your customers more comfortable rather than more uncomfortable.
I think B2B customers have, in many ways, grown up. They're sufficiently skeptical that they don't believe half of what companies tell them unless they can document it. That's in part a communication issue, but solving it requires recognizing that B2B customers are in it for more than just a product. This is really a tough time to be a commodity. If you offer a commodity that's differentiated primarily or only on price, then don't be surprised if you lose all your business to someone who does what you do for less.
GMJ: When B2B companies look around at their competitors, what should scare them?
McEwen: I think that what scares them are companies who appear to be offering what they're offering for less, promising a competitive pricing advantage. But what should scare them even more are the things that should scare them during the good times as well as bad -- if they haven't articulated what makes them different and better and worth more, it's a little late to start. They have to provide something that their competitors aren't offering.
GMJ: How can B2B companies counteract that fear?
McEwen: B2B companies must drive impact with their customers; they must contribute in demonstrable ways to their customers' business success. Knowing what drives impact and focusing your company's efforts on delivering impact every day will differentiate your company from the competition. It's what will build an enduring, engaged relationship with your B2B customers. The problem with a lot of companies, such as cargo shippers, for example, is that they look at shipping as the product they're providing. They should be looking at the ownership and usage experience instead, because that's really what a B2B customer is buying.
B2Bs can learn something here from B2C marketers. Lexus, for example, differentiates itself based on the ownership experience, not what it feels like to sit in one of its vehicles. And I think that's what B2B companies have to do: differentiate themselves based on the total experience.
Cargo shipping is cargo shipping, and software is software. The key question is: What kind of brand promise is being made and actually being kept? Shipping seems like one of the toughest examples because differentiation in that category is very minimal. But maybe that's not because it can't be, but rather because it hasn't been. In far too many cases, B2B marketing organizations are differentiated based on fluff. I think there's an obvious need to get beyond fluff now, a need to be honest and straightforward with people.
GMJ: On a happier note, what indicators should a B2B look for that suggest consumer confidence is picking up? "Increased business" is a trailing indicator.
McEwen: I think you must look at the emotional climate. You should be looking at the level of apparent optimism; you should be looking at plans and not just actions. Keep an eye toward how your customers are feeling as well as what they're thinking and how they're acting. Watch what they're investing in and what they're cutting.
I don't think there's a substitute for sitting down and chatting with your B2B customers on a regular basis, and it's probably twice as important now as it ever was before. People don't forget who was there for them during tough times -- or who worried about them as much as they worried about themselves.
-- Interviewed by Jennifer Robison