Profit Power Of Customer Intimacy Deliver Top Line Revenue And Earnings Growth

Profit Power Of Customer Intimacy Deliver Top Line Revenue And Earnings

Regardless of​ industry segment, progressive CEOs and Board of​ Directors are looking for the “silver bullet” to​ consistently deliver top-line revenue and earnings growth, as​ means to​ increase share price and shareholders’ value.

Numerous articles are being published promoting the importance of​ customer satisfaction, and ways to​ improve it, or​ touting the needs and means to​ flawless execution, or​ the benefits of​ process reengineering, or​ of​ outsourcing to​ lower-cost regions such as​ China, India, Latin America or​ Eastern Europe.

These can, indeed, be good strategies towards better profitability. However, a​ much-less-publicized yet fundamental lever of​ higher and sustainable shareholders’ returns is​ “customer intimacy.” Customer intimacy impacts shareholders’ returns for both sides: the supplier side as​ well as​ the customer side.

What is​ “customer intimacy”?

Customer intimacy can be defined as​ the formal or​ informal set of​ relationships established between supplier and customer, with a​ diverse array of​ partners, from corporate leadership to​ functional leadership (engineering, marketing, operations, maintenance, or​ service) and end-users of​ products or​ services. These dynamic relationships provide multiple points and frequency of​ contacts between the company and its customer, as​ well as​ multiple points of​ view about the relationship and its benefits to​ both parties.

What are the benefits of​ “customer intimacy”?

First, from the supplier side, customer intimacy impacts revenue growth and earnings per share, by creating long-term sustainable competitive advantage through the early identification of​ unsatisfied needs.

Contrary to​ the all-too-common syndrome of​ “if we can make it, they will buy it,” that is​ prevalent in​ technology-driven companies; customer intimacy allows the adoption of​ a​ “customer-need-pull” strategy, as​ opposed to​ a​ “technology-push” strategy.

By establishing long-term relationships with key customers, representative of​ their targeted market segments, companies set a​ framework within which they can have repeated opportunities to​ tap into their knowledge base. Voice-of-the-customer (VOC) interviews, focus groups, and users’ group meetings are well-practiced means used by marketing teams to​ access that knowledge base. But, much more simply, sales and service engineers can provide feedback as​ they are in​ a​ position to​ interact much more frequently with the end-users.

Establishing very close and frequent relationships with key customers allows companies to​ be aware of​ the evolution of​ their processes and unsatisfied needs in​ advance of​ the competition. The corollary is​ that the investments for research and development of​ new products can then be focused towards differentiated product features and away from “me-too” products, thus reducing the risk of​ commoditization.

Commodity products and services are essentially differentiated by their price. as​ a​ result, competitive positions must be based on lowest cost of​ manufacture. in​ the case of​ business-to-business dealings, commoditization is​ essentially driven by purchasing organizations. in​ order to​ obtain price concessions from vendors, purchasing officers tend to​ negotiate with vendors under the assumption that offerings from competitors are providing the same value, and that price is​ the deciding parameter. it​ is​ rarely the case, but, in​ front of​ weak or​ poorly trained sales people, this ploy allows them to​ obtain discounts from list prices.

In any industry, however, commoditization leads to​ profit erosion and destruction, rather than increase of​ profit that is​ necessary for shareholders’ value. Commoditization can transform the market for a​ unique, branded product into a​ market based on undifferentiated price competition. Commodification can be an​ unintentional outcome that no party is​ actively seeking to​ achieve.

Fighting this trend to​ protect some pricing power requires market and application knowledge on one front. On another front, training and development of​ the workforce are required. Differentiated products and services that bring an​ innovative solution to​ recognized but unsatisfied customers’ requirements are obviously easier to​ price and sell, on the basis of​ real value, thus avoiding the setting of​ list prices as​ “costs plus.”

Second, from the customer side, considerable advantage can be generated when dealing with a​ vendor who is​ well aware of​ the details of​ the business and operations, its main drivers and constraints, as​ well as​ its objectives. if​ this vendor is​ willing to​ listen to​ issues with existing products and services, or​ to​ new requirements which may fall outside of​ their current offering, and is​ willing to​ invest in​ finding solutions, each of​ these situations corresponds to​ opportunities for reduced costs or​ increased capacity, and obviously leads to​ improved earnings. Key progressive customers are very willing to​ partner with strategic suppliers to​ develop unique solutions to​ their most tangible,
high-impact problems.

The next question is​ how to​ establish or​ improve “customer intimacy”?

Every business has some level of​ customer intimacy, loosely exercised by its various customer interactions: Internet, emails, phone calls, sales and service calls, etc. Every customer interaction is​ an​ opportunity to​ improve customer intimacy. it​ requires the right attitude, and the motivation to​ ask the right questions.

Attitudes can be developed through communications, training and development. Motivation can be enhanced by the quality of​ the talent hired by the company, and by the compensation and rewarding systems. Employees, who clearly understand how their behavior in​ front of​ customers can cause increased customer intimacy and how customer intimacy relates to​ profitability and growth, are more likely to​ pay attention to​ their attitudes and to​ strive to​ bring value to​ the customers.

In summary, beyond customer satisfaction, which is​ essentially transactional, another layer is​ developed in​ terms of​ relationship between supplier and customer. Customer intimacy brings with it​ a​ virtuous circle of​ additional opportunities for companies to​ avoid the pitfalls of​ commoditization and “bubble-hype,” secure sustainable competitive advantages, and protect pricing power and profit margins, which then in​ turn enables additional investments towards growth (marketing, new product developments, sales channels, etc.). All of​ which promotes increases for shareholders’ returns.

Profit Power Of Customer Intimacy Deliver Top Line Revenue And Earnings

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