The B2B epiphany: People buy from People

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By: Wise Marketer Staff |

Posted on November 11, 2013

The B2B epiphany: People buy from People

Does it cost ten times more to sell to a new customer than an existing one? This is a figure that has been bandied around for years in B2B circles. But is it accurate? Of course not, because every business is different, according to John Coldwell, managing director for InfoQuest CRM.

Having said that, the cost of a sales person is their salary plus government costs, plus a car, a lap-top, a telephone, hotels, flights, training, back-office support, a desk, and of course the overheads associated with that desk. Let's not forget the costs of marketing and advertising, and lead-generation, and Google AdWords, and trade shows and exhibitions. And that only covers existing products in existing geographical areas. When you start looking at new product development costs and research for new markets, where does the budget stop?

Now compare that with the very welcome e-mail: "Hi, we'd like to place another order. We'd like to increase the quantity. Could you please advise if the unit price still the same?". So the cost of sale in this instance is two tenths of nothing. It makes the 10 to 1 argument look silly. It might actually be thousands to one.

So it seems logical that, regardless of how inaccurate the 10-to-1 assertion might be, businesses should be targeting their existing customers and doing everything in their power to garner not only repeat business but incremental sales.

When InfoQuest performed a statistical analysis of Customer Satisfaction data from over 20,000 customer surveys conducted by the company throughout 40 different countries, it found that:

  • A Totally Satisfied Customer contributes 2.6 times as much revenue to a company as a Somewhat Satisfied Customer.  
  • A Totally Satisfied Customer contributes 14 times as much revenue as a Somewhat Dissatisfied Customer.  
  • A Totally Dissatisfied Customer decreases revenue at a rate equal to 1.8 times that which a Totally Satisfied Customer contributes to the business.

Consequently, a well-structured customer satisfaction survey asking lots of questions with a high-response rate, which is then followed up by the right actions, can address three critical areas of revenue generation:

  1. Reducing customer churn;
  2. Making more sales to existing customers
  3. Increasing selling prices

But what does a well-timed and well structured survey look like? Well, best practice for obtaining meaningful and valuable feedback from your customers requires two parallel systems.

The first is a regular, event-based telephone call from your own people to the customers, at an appropriate time following the delivery of your products and services. This is to make sure that all went well and, if it didn't, allows knowledgeable people to sort out any issues as quickly as possible. This is aimed at the recipients of your products and services who, by the way, are not necessarily the decision-makers.

The second is an occasional (say, every 12 to 24 months) in-depth survey of the decision-makers, looking at all your systems, disciplines and procedures, and looking for any 'people issues'. It is this second business process analysis review that needs close attention.

The raison d'etre for any B2B customer satisfaction survey should be "to increase profitable sales" - and those increases will come from three main routes:

  1. Reduced customer churn We need to identify individual dissatisfied customers, find out what has led to the dissatisfaction and do something about it.  
  2. Selling more to existing customers Using "share of wallet" or "percentage penetration" figures will help identify key customers who could and should be buying more from you.  
  3. Increased prices Customers that love you will, by definition, understand and value your company's contribution to their success. If you go the extra mile, and your customer knows that (and values that) then that opportunity should be realised.

Statistical validity is not important for a typical B2B customer satisfaction (C-Sat) survey on the basis that (a) the number of customers is not large when compared with B2C, (b) the relationships are already being managed by key account managers, and (c) these customers are all different anyway.

In a C-Sat survey conducted by InfoQuest, you find out exactly who said what, with an average response rate of 70%, so it's very important that you choose the most important customers to be included in the survey.

Most of us will recognise this diagram as being similar to their own circumstances. Pareto's 80:20 rule defines the curve, with A's being the major buyers of your goods or services, and the C's being the 'tail-end Charlies'.

But the second diagram highlights what often happens in terms of contribution. The A customers know the power of their spending. They buy from you as though they are buying a commodity rather than a value-added item. The extra demands from large customers can include special packaging, special deliveries, stock-holding, extra-long credit terms, days out playing golf - all on top of extra-keen prices. These extra costs regularly turn A customers into marginal accounts.

But you need the A customers. They deliver the volumes that you need in order to gain the economies of scale - without which you couldn't service the B customers. My advice is to carry out the C-Sat survey on the A and B customers only.

The survey needs to identify if any of the A customers are looking like they might take their business elsewhere, to the competition. If that happened, news of the migration might get out, leaked to the trade press, and some of your B customers might follow without knowing the full story. And that's a bad thing.

The B customers need to be surveyed so that more can be sold to them. This is where your profit comes from. This is where we're looking for references, referrals, case-studies, cross-selling, up-selling and more business.

But when it comes to the C customers - those tail-end Charlies - they won't be left out completely. In fact they'll benefit from the generic improvements you'll be making to your systems, disciplines and procedures for the A's and B's.

You're going to target your most important customers. Now make sure that you'll find out who said what. In B2B people buy from people. Different people (firms) have different needs - it's not a one-size-fits-all - and finding out from an anonymous survey that just one person wants something to be changed is quite different from finding out that your most profitable customer has a personality clash with the key account manager that has been assigned to look after them.

There is an argument that you only need to ask one question - the Net Promoter Score. A single NPS score can often be very frustrating for an operations person who is looking for levers to pull. It's like saying "The train is running late" without any other feedback. Did it set off late? Is there a problem with the track or the engine? Was the driver given the wrong set of instructions? Is it because of the weather? Has the train taken the wrong route? Or is your expectation of when the train should arrive misguided? You need 'useful' rather than 'interesting' feedback, so you need to drill down, ask as many questions as possible.

The people in your senior team need to be involved as much as possible, to get them on-side in order to make the change-process (based on the survey results) as easy as possible. Get the senior sales people to check the customer list for omissions. Invite the directors to choose which questions should be posed - or at least ask them to check the chosen selection before going ahead.

Finally, consider how you're going to put the survey out there. Postal, web and e-mail surveys will provide response rates averaging 5% to 15%, and the drop-off rate for telephone surveys with lots of questions is increasing year on year, leaving you with a maximum response of maybe 30%. On the other hand, a professional and trusted C-Sat survey provider (such as InfoQuest) can garner genuine responses from up to 70% of your target audience.

Once you've got your survey completed, you need to make sense of it. You need to find out what needs to change, and that's one area in which an accountable survey is invaluable - one that names names and points a finger when there's a real problem. That's not something that an anonymous or aggregated survey data set can give you. If there's an issue between a key client and their account manager, you need to know about it if you're going to be able to fix it.

For example, once you have your survey data, you could organise the negative responses in a spreadsheet, listing the clients down the side, and the areas in which the most negativity was found in columns to the right. That in itself can tell you which clients are least satisfied and therefore which ones are at the greatest risk of defection.

But if you add an extra column into your spreadsheet showing the annual sales or profit value of each customer, you can re-sort the spreadsheet to find out which of your most valuable clients are at risk of leaving you.

But even that isn't the whole picture. Add in a column for share of wallet (either estimated or based on what you actually know about individual clients' spending within the sector), and you can immediately multiple each client's actual spending by your 'share of wallet' and arrive at their potential annual value to your company. And that's the column you want to use to sort your satisfaction survey data: that tells you which clients are at risk and which clients are potentially worth the most if you can increase their satisfaction.

Even if you have a database of hundreds or thousands of clients, you'll find that a relatively small number - often a 'top ten' - accounts for the lion's share of potential gains from a C-Sat survey like this. And it won't take much in the way of sales resources to get in touch with each high potential client and find out what will make them happier - and more profitable.

See? Even in business, people buy from people.

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