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Business customer loyalty a ‘tough nut to crack’

PASSIONATE customers who love doing business with you — that’s an aspiration that matters only to consumer-market companies, right? Manufacturing and industrial companies, whose buyers base decisions on a cold assessment of product features and price, don’t put much stock in loyalty, right?

Think again.

It turns out that even in business-to-business markets, customer loyalty can accelerate growth and create a competitive advantage. In our studies of loyalty metrics for B2B companies, we found:

 Customers who are “promoters” of a company have an average lifetime value between three and 12 times that of “detractors,” depending on the industry and customer segment.

 Promoters stay longer with the company, buy more products, usually cost less to serve and are more likely to refer the supplier to colleagues.

 Greater loyalty correlates closely with higher market share, a higher share of the customer’s spending and higher profitability.

 As a result, B2B loyalty leaders tend to grow four to eight percentage points above their market’s annual growth.

But loyalty has become an even tougher nut to crack: In a recent survey by Bain & Co of 290 executives in B2B industries throughout 11 countries, two-thirds of respondents said customers are less loyal than they used to be. The challenge of building loyal customers is compounded by the structure of B2B industries, with their complicated channel structures, concentrated buyer communities and large accounts with many people influencing the relationship. Take, for example, Dürr, the German supplier of paint and assembly shops. Each of its 40 accounts is a huge automotive manufacturer with hundreds of decision-makers and influencers. So mapping Dürr employees with customer contacts — a prerequisite to marketing to them — is complex.

Despite the challenges, some B2B companies have managed to earn strong loyalty. What do they have in common? First, they identify the things that truly delight or annoy customers through short, frequent surveys after key episodes, such as a new contract negotiation. When they market to distributors or other intermediaries, they also seek out feedback from retailers and end users.

Tata Steel Wire Division, for instance, has long marketed steel wires to distributors in India, but the company tended to view its end users as a homogeneous group. It didn’t know how different types of farmers and growers used the wire and what features were most valuable to them. As the market grew more competitive, the division realized it needed a better understanding of its end users. Working closely with its distributors, the company spoke with 1,100 end users and more than 200 retailers, contractors and other influencers.

These conversations revealed that some customers were willing to pay more for premium products. Some farmers prized durability because, if the wire broke, entire rows of grapes would fall and rot. Others valued ease of installation, so that they could install a fence in one section of the farm for a crop’s growing season, then dismantle it and reinstall it elsewhere for a new crop.

This sort of customer feedback helps B2B companies decide where to place their bets. At Tata’s Wire Division, feedback from farmers and retailers led the company to design a new wire product with an advanced protective coating for durability. Sub-branded as Farming Gold, the wire comes with a 15-year warranty, approval by an external testing lab and a price 25 percent higher than the existing product. Early results show Farming Gold to be one of the most profitable wire products in the company’s portfolio, and the company is working on sub-brands for security-conscious and do-it-yourself customer segments.

Extensive collaboration

Bringing the voice of the customer into B2B marketing decisions also requires other departments to collaborate more closely with one another and with external partners. E.ON, a multinational power and gas company based in Germany, learned this lesson in one of its country operations that relies on third-party agencies to acquire new small- and medium-size business customers. Feedback from newly signed customers showed significant gaps between the rebates, tariffs and features that customers thought they would receive, and what E.ON actually provided. This disconnect prompted a stream of calls from confused business owners.

In response, E.ON invested in support tools and training session for its agencies to convey more accurate information. It established quality targets as part of the agencies’ compensation, in order to motivate the desired behavior and reward the best agencies. Early results show that E.ON’s new small-business customers in that particular country have recently been brought on board with greater clarity and fewer complaints.

Business buyers often demonstrate the same intense advocacy for a trusted supplier that consumers show for their favored brand of shoes or smartphones. The payoff: Many leaders in industries ranging from manufacturing to financial services to healthcare are relying on loyalty to grow their businesses.

David Michels is a Zurich-based partner in Bain & Company’s Customer Strategy & Marketing practice. Ellon Xu is a principal based in Shanghai and a member of the firm’s Healthcare and Customer Strategy & Marketing practices.

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