Insights

Deleting Voicemail 666

We were having a conversation with one of our clients following a meeting related to their strategy for the China market. This client is a major manufacturer of high-technology equipment, and you’d most likely see some of their product if you visited your corporate data center, and possibly even if you looked around your desk area. During our conversation, one of his direct reports poked her head into his office and said “Just a heads-up. I forwarded you a Voicemail 666 from [the name of one of this firm’s largest customers].” Our client picked up the quizzical look on our faces, and asked if we had ever heard of Voicemail 666. When we answered that we had no idea, he gave a recital of the content of a typical Voicemail 666 message:

“You know how much we like working with your company, but we’ve gotten a proposal from [here, he said, you fill in the appropriate blanks] to supply your equipment at a pretty significant savings. We’d like to talk to you about an adjustment.”

Our client went on to say that they’ve heard that message so often, they just found it easier to just code it as Voicemail 666 rather than go into details every time.

As we continued our discussion, he went into the reason for this phenomenon:

“We have basically three ways in which we go to market. First is our own direct sales force. That’s how we started and that’s still our preferred strategy. We put a lot into this group. They’re engineers, we do a lot of training, and they can bring a lot of value to our customers. The second group is the integrators and VARs that are out there. We have to work with them, and some of them are really good in their niches. The best of the lot know an industry or an application, and can do magic in that arena. So we sell to them and let them repackage our products into their own systems. The third group involves the distributors and wholesalers, basically our industry’s version of the Big Boxes that ‘stack ‘em high and watch ‘em fly’. They carry our products as well as everyone else’s. If there’s demand, they are in the market.

Now here’s the issue. All three groups are constantly getting into each other’s turf. The integrators go to our customers and tell them what they can do. They tell them they are experienced with our product – and it’s often true, since some of them used to work for us before they left, or were sent off during the recession, as the case may be. Some of these integrators would give away the hardware to get the job because they make all of their money on their labor. And the distributors go after both us and the integrators, often making a price pitch. Our stuff can be a perfect loss leader for some of them. Or they try to capture the integrator with a convenience pitch and put themselves in between us and them, taking their cut. They don’t have the overhead we have in terms of the experienced sales team. In fact, we often get pulled into the situation to deal with issues that these distributors don’t even understand.

So that’s how we get Voicemail 666 messages. One of our sales forces decides to go into competition with one of the others, and the end result is that we get a call about the pricing issue. It’s a constant conundrum.”

Complex Business-to-Business Customer Chains

We explained to our client that his situation was hardly unique in the business-to-business world. It was, in fact, almost the text book definition of the channel conflict that accompanies complex, competitive customer chains. In our own experiences, we’ve seen analogous situations in industries including electrical equipment, fasteners, tools, packaging, medical equipment, and telecommunications gear. Our guess is that managers from the business-to-business environment could give dozens and dozen of personal examples of this type of conflict.

The basis for the conflict comes from looking at the complex customer chain structure that this executive just described:

Even in this relatively simple customer chain structure, there are four distinct paths between our client (the supplier) and the end customer organizations that are the final users of its products:

  • Supplier > End Customer
  • Supplier > Distributor > End Customer
  • Supplier > Distributor > Integrator > End Customer
  • Supplier > Integrator > End Customer

Add the normal real-world dynamics of multiple products, competitors at every stage of the chain, distinct end customer segments, distinct applications, and geography, and the already confusing picture becomes even more complex.

It is a certainty that each of the participants in such customer chain structures will inevitably look forward into the customer chain and spot a prospect that they would like to convert into a customer. Is the choice then between an eternity of Voicemail 666 messages or a decision to become another GEICO and “eliminate the middlemen?”

We think not, and in fact believe that the “eliminate the middleman” option is rarely practical. While a firm can eliminate the middlemen carrying its own products, it can’t eliminate such firms from carrying competitors’ products. And if there’s one thing worse than a Voicemail 666 message, it’s a voicemail message announcing that a customer has switched to a competitor’s product.

So to some extent, continued receipt of Voicemail 666 is likely to be a fact of life in the business-to-business arena. We believe, however, that firms can minimize the number of such calls and sort through those that occur in a logical and constructive fashion.

Service Contributions in Complex Customer Chains

When examining the services associated with the types of complex customer chains that we described above, we have found that customers place value on three distinct categories of services:

  • Product-specific services are those that are most closely associated with the physical product manufactured by the supplier in question. Such services often involve design, customization for a customer’s particular application, engineering modifications, testing, commissioning, quality assurance, training in the use of the product, support related to upgrades and successive generations of technology, and other examples of services that are unique to a particular product technology, product application, or business environment.
  • Systems-related services are those that involve the integration of a family of products into a functioning system that delivers performance in accordance with certain goals and requirements. Such services typically fall within two categories:
  1. Those associated with the technical integration and linkage among individual products. This environment ensures that components work seamlessly together, delivering superior performance and/or economics.
  2. Services associated with the spectrum of challenges that are often called “project management” and which encompass metrics related to production quality, on-time schedule, and budget.

A key distinction of systems-related services is that they involve a spectrum of products, typically from different manufacturers, with key challenges involving the linkages across these products rather than with each of the products in isolation.

  • Distribution-related services are those associated with logistics and support to the eventual user of the product. Among the services often included in this category are order and fulfillment management, availability of a broad product line to allow low-cost purchasing, record keeping, inventory and expediting, finance and billing, returns and disposal, and other user support. More often than not, such services again span multiple products from multiple manufacturers.

It is hardly surprising that these three categories of services map straightforwardly to the three types of participants on the customer chains described above – supplier, distributor and integrator. The latter two categories of services in essence, define the value proposition of integrators and distributors. Understanding these various service categories and who along the customer chain is most proficient in providing these services empowers a business-to-business firm to sort out the conundrum created by the multiple pathways to the end customer.

For our client, a key challenge, and a key step on the route towards lessening the frequency of Voicemail 666 messages, involved understanding how the overall business was divided among these various service combinations. Working with our client, we examined each of their customer segments and determined the degree to which each such segment valued each type of services. There were, not surprisingly, many combinations in terms of the importance of each of the three types of services. The table below suggests the various combinations that can exist with regard to service importance, including a description of the typical environment associated with that combination and an example (drawn from various industries):

 

Product-Specific Services Systems-Related Services Distributor Services Description Example
1 Limited Limited Limited
2 Significant Limited Limited Customer seeks supplier’s technical design, engineering and other product related support. Engine control module in a vehicle brand
3 Limited Significant Limited Project involves seamless, on-time management to avoid delays and remain within budget Cables used in the buildout of a network for a financial institution
4 Limited Limited Significant Customer’s operations need to be up and running immediately Repair and replacement service parts
5 Significant Limited Significant Supplier test and commissions initial equipment, and purchases the consumables that interact with the equipment on a regular basis. Diagnostic equipment used in  hospital laboratories with consumables required for each individual test
6 Significant Significant Limited Several suppliers customize their equipment and/or software, with one party integrating the system Uninterruptible power supply incorporated into the critical power system designed for a data center
7 Limited Significant Significant Customer requires on-going technical integration and installation of products in high replacement environments Photoelectric sensors used in food production equipment
8 Significant Significant Significant Customer seeks technology upgrades, integration and reliable, sequenced delivery Controllers used in standardized robotic tools employed across multiple plant locations

 

From Assessment to Action

Our Voicemail 666 client described in the beginning of this paper eventually came to understand the complexity of its business in terms of the various combinations of service contributions that were important to each of its customer segments. This put them into a position to make decisions about the roles and responsibilities that it would assume and those that it would expect from its partners along the customer chain.

One action involved unbundling certain technical support services from the products themselves. By doing so, the firm was able to ensure that its product prices in applications that did not require technical support would not be undercut by intermediaries who took advantage by offering discounts. By embarking upon this unbundled pricing strategy, the firm was also able to capture additional revenues from customers who did require such technical services.

A second change was even more significant. By way of background, this firm had basically “opened its catalog” to distributors and integrators when it accepted them as authorized channel partners. The firm offered a discount pricing structure to these authorized channel partners. In calculating such discounts, the most important variable in the equation was the total volume of purchases from the firm. When the firm analyzed its business in terms of the eight combinations of service importance, it found that there were significant distinctions across its product line from one combination to the next. For example, there were certain products – which in truth were more like platforms allowing customer-specific customization – that appeared exclusively in the four combinations in which product-related services were very important. There were other products that were almost always in the four combinations in which product-related services were of little to no importance. The firm changed its authorization policies to cover only the products in the latter category, and restructured its pricing scheme to reward sales volume only in the four combinations in which product-related services were of little to no importance.

These actions not only reduced the frequency of Voicemail 666 messages, but also eliminated the misalignments that were open to exploitation by the two groups of intermediaries.

Summary

Our experience with business-to-business customer chains suggests that many organizations can find themselves involved in a crazy quilt of customer chain pathways into the multiple markets that they serve. Such complex customer chains are natural, the product of the distinct business environments that exist, or of historical decisions that evolved over time, or of responses to overtures or competitive challenges that occurred from time to time. An outgrowth of the development of such complex customer chain structures is that the various customer chain pathways frequently become confused, often begin to compete with one another, and lead to unintended outcomes such as Voicemail 666 messages.

Complex customer chains can however, be unraveled, with a focus on the end customers’ service requirements. These end customer service requirements often span three distinct types of business-to-business services, and it is possible to organize a firm’s business into combinations defined by the types of services that are important to certain end customer segments. That categorization provides a basis for decisions about the appropriate customer chain structures that should be used to reach each end customer segment, and, subsequently, about the relationships that will be critical to success and about the roles and responsibilities that should be assigned to each of the partners in these relationships.

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