Understanding Customers in the Solution Economy
August 28, 2012 Editor 0
Companies in all varieties of B2B markets have moved beyond selling products and services to offering complete “solutions” to their customers. Alstom keeps trains ready to run each morning for railroad operators rather than just selling the rolling stock to them. General Electric helps hospitals manage and use patient data rather than selling them the equipment and software to do the job. Hilti provides and maintains power tools for builders. Rolls Royce runs the engines you see on the wings of your plane. Syngenta offers rice farmers planted fields.
From the provider’s perspective, selling solutions allows companies to differentiate themselves in commoditizing markets and to benefit from economies of scope across multiple profit and service capabilities. For customers, these solutions offer better value than the products and services that went before. After all, who would not prefer a “solution” to their business problems rather than simply buying services and products?
My INSEAD colleague, Professor Markus Christen, and I have been researching “solution” strategies in a number of industries. We believe that it is the way of the future and that we are moving toward a “solution economy” where organizations focus on what they are really good at, relying on their suppliers’ “solutions” to take care of the rest.
Getting there, however, is going to involve a bigger change than most suppliers realize — most particularly in the way they gather information about their customers.
For a start, there has to be general agreement on what the word “solution” actually means. Customers and suppliers often have different definitions. B2B customers regard a solution as something that helps their business. That is, a solution increases their revenues, lowers their costs, or reduces their risks — and in doing so boosts their overall profitability.
The trouble is, suppliers don’t always think about their solutions from that perspective. Many define a solution as a package or bundle of the products and services they already offer. And what they already offer may have no explicit link to an individual customer’s business objectives, since the bundles of products and services are constructed to meet generic needs.
Achieving a solution economy will require these providers to change their mindset. But this is not the whole answer. The solution itself has to add real value not seen before. If not, for all the interest shown by the supplier, the customer is going to view the solution simply as a volume discount offer.
Creating that new value will require suppliers to combine their expertise with their understanding of the customer’s business needs This calls for changes in how B2B companies gather customer intelligence. Specifically, customer researchers need to:
- Ask different questions, much more often. Most companies’ customer research focuses on how the customer uses or perceives the supplier’s products and services rather than on how these help achieve the customer’s business objectives. There needs to be a change, therefore, in the types of questions companies ask their customers and how the resulting data is interpreted. What’s more, traditional market research is episodic, whereas the nature of solutions requires a more ongoing, relationship-based approach. Periodic market research surveys or focus groups should be replaced by continual data collection, from all interactions between the supplier and its customers.
- Observe the customer directly. Solutions often represent major innovations and, as such, customers may not always be able to grasp the value immediately. Traditional research techniques (surveys, focus groups etc.) need to be complemented with observation of how the customer currently operates. And not observation by typical market research or salespeople — rather, observation by personnel with the necessary technical and business expertise to spot opportunities. This is, of course, a challenge when there are large numbers of customers. Technology can help here. One company we know maintains sensors in customers’ factories so that it can monitor how the relevant parts of the customers’ operations work.
The bottom line is that customer intelligence for the solution economy will look very different from what most companies do today. Customer orientation will become paramount. All customer-facing personnel will be involved; verbal, visual, and quantitative data will flow continually; and this data will be interpreted by people looking through the eyes not just of their company’s expertise but also from the perspective of their customers.
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