|Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
|Published by the Industrial
Performance Group, Inc.
The Customer Driven Economy
Today's business environment is the result of a number of trends that have been playing themselves out during the past 20 years. The globalization of markets, productivity-induced over capacity, and an ever-increasing amount of products and information available on the internet have resulted in high levels of uncertainty, low prices, and predatory competition in many industries.
The net result of these trends has been a fundamental shift in the balance of power from the people who make and sell products to those who purchase and use them. Manufacturers and distributors alike are humbled by the increasing power of their customers. Whether you choose to accept it or not, your customers are now in total control.
As a result, it's a whole new ball game in terms of how you need to compete for their business. Those who continue to practice the "four Ps" that have defined the field of marketing since 1957 are doomed to the frustration of under performance and declining profitability.
For example, Price is no longer determined by the selling party based on cost plus, but by customers who determine what they are willing to pay based on perceived value.
Fewer and fewer Products are being made in batches and pushed into the market. Rather, more and more are being made to order based on what customers actually want.
The Promotional monologue of advertising at the seller's convenience has given way to dialogue at the customer's convenience.
And the market Place has evolved into the market space of the Internet where customers determine the place and time of order and delivery.
Customers have become more informed, savvy, demanding, cynical, price-conscious, and empowered. Manufacturers and distributors who fail to recognize and respond to this reality are in for rough times.
However, opportunities abound in this new environment for manufacturers and distributors who choose to distinguish themselves by doing business the customer's way instead of the old way.
The first step toward success in the customer driven economy is to determine who your customers are and how they define value. While this may seem overly simple, many manufacturers do not really know who their customers are.
An IPG survey conducted in 1997 revealed that a significant number of manufacturers believe that the distributor is their customer. While manufacturers may send their invoices to distributors, and it may be the distributor's checks that manufacturers deposit in their bank accounts, this transactional relationship doesn't make the distributor a customer. The real customer is the person or organization who derives value from the possession and use of the manufacturer's product. Without customers, neither the manufacturer nor its distributors would be in business.
The "distributor as customer" mind set evolved during a period when doing business was much simpler than it is today. Manufacturers made stuff and sold it to distributors who in turn sold stuff to customers whose fundamental purpose was to consume whatever stuff came down the pipeline. Customers had little input in terms of product design and the methods of purchase and delivery.
However, during the past 20 years as more and more choices became available, customers in virtually every industry segment have revolted against the suppliers who previously held them captive. Customers have abandoned brands they had long been loyal to and embraced generics, private labels, foreign competitors, and anyone else who payed attention to them or offered them a better deal.
In the customer driven economy, knowing who you customer is and how they define value isn't an option, it is a requisite for survival.
Thriving in the customer driven economy requires knowing what customers want and delivering it in a cost effective manner.
The good news is that customers are eager to share their opinions and concerns with their suppliers. They realize that an informed supplier can do a better job of delivering the combination of products and services that best meets their needs. You just need to ask them.
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