TOOL KIT • Building Loyalty in Business Markets
commodities (think of cement, for in-stance, or soda ash) aren't easily differ-entiated by their features. Customersare interested only in the money theycan save by buying from one vendor in-stead of another.Anotiier textbook strategy in con-sumer marketing is to group peoplewith similar needs, so that a companycan reach out to them through adver-tising and other forms of mass commu-nication. That, too, fails to work in busi-ness markets because each customeruses machines and materials differently,often specifying distinct characteristicsfor them. Almost every customer needsa customized product,quantity,or price.In fact, each segment effectively con-sists of one customer.
"segments ofone" render marketwide selling tacticsexpensive and ineffectual; instead,firmsmust communicate directly to each cus-tomer the value they
Thus, com-panies in business markets must use anapproach that is based on benefits
how our product or service canhelp solve your specific problems")rather than features
superior").Managing individual customers istough, but it has become an imperativein business markets today. In many in-dustries, suppliers have no choice but tofocus on the few large customers thatsurvived the wave of mergers and ac-quisitions in the 1990s. In addition, ven-dors have zeroed in on a few midsize
that are the profit bulges in theircustomer bases. And
competition hasintensified in business markets, custom-ers have demanded more services andsupport. Suppliers can deliver thoseservices only if they understand whateach customer wants. Besides, techno-logical advances have reduced compa-nies'costs of collecting and analyzingdata on each customer. Despite execu-tives'fears about the additional costs,my research shows that companies ben-efit by entering into long-term, individ-
Das Narayandas (firstname.lastname@example.org) is a
adminis-tration at Harvard Business School inBoston.
ual relationships with most customersin business markets.Clearly, marketers need to think-andsell-in terms ofthe benefits they pro-vide customers or the customer prob-
have been researchingbusiness markets for more than
years.I find that most marketers are so busyfiguring out how their companies cancreate value that they don't pay atten-tion to communicating the benefitstheir companies deliver to customers.Marketers rarely even think about thedifferent types of benefits their compa-nies offer and are often unable to con-vey the value of benefits to the execu-tives who want them. I also find thatcompanies often don't focus on devel-oping individual relationships so thateach customer becomes more loyal.That's a mistake, because in businessmarkets, loyalty offers companies sev-eral advantages. In the following pages,I will show how companies can com-municate benefits effectively to acquirecustomers and to develop loyal custom-ers over time.
Typology of Benefits
Companies rarely, if
take the trou-ble to communicate to prospective cus-tomers all the economic, technical, ser-vice, and social benefits they provide.Most sellers simply assume that buyers
the value of products and services.That's a reasonable assumption, but it'sdead wrong. My studies show that busi-ness buyers don't keep track of all theproducts and services they get and thatthey cannot quantify the value of manybenefits. For instance, Arrow Electronicsstarted coordinating parts of customers'supply chains and offering engineeringdesign services in the late 1980s. A de-cade later, the electronic-componentsdistributor was shocked to find thatcompanies regularly using those ser-vices weren't aware that they were pro-vided by Arrow. Similarly, a medical in-struments manufacturer found fromannual surveys that not one of the ex-ecutives who worked for its customerswas aware of all the services that thecompany provided his or her organiza-tion. In fact, buyers don't use some ser-vices that suppliers routinely provide,and they stop using others if vendorscharge forthem.When Owens
Minor,a medical supplies distributor, made cus-tomers pay for each service instead ofcharging them for a bundle, it discov-ered that hospitals quickly leamed todo without many services.When
work with companies, I findit's useful for executives to think abouta product's value by grouping its bene-fits into four categories:Tangible financial benefits havevalue that sellers can communicate andbuyers can verify. For example, Volvocan use standard measures like horse-power and torque to prove that
truckengines are more powerful than com-petitors', and fieet owners can calculatethe money they will save by using Volvoengines to haul greater
or to moveloads faster. Industrial marketers oftenhighlight tangible financial benefits be-cause prospects grasp their value easilyand can verify claims before purchasingproducts. However, if one vendor canoffer such benefits, so can rivals. Thatkind of competition inevitably leads toprice wars.Nontangible financial benefits arethose with value that sellers can conveybut buyers cannot easily validate. Forinstance, when SaleSoft, an early en-trant in the sales software market, toldpotential customers that it could esti-mate the additional revenues they wouldgenerate by using its software suite,most prospects were skeptical about theclaims. Such situations pose a challengeto marketers, particularly because non-tangible financial benefits are an effec-tive way of differentiating industrialproducts.Companies can convince prospects ofthe value of nontangible financial ben-efits in several indirect ways. They canuse research from independent agen-cies to overcome prospects' skepticism.Alternatively, suppliers can conductpilot projects at potential customers'facilities. Siebel Systems, for instance,started out in the early 1990s by doingeverything it could to get prospects toagree to pilot projects.
company re-alized that once buyers estimated the132
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