Part 1: How getting your customers to fall head over heels could be the most important differentiator for U.S. Manufacturers
Think about companies you love doing business with. According to Bloomberg Business’s review of the most loved and hated companies in America in 2015 (http://tinyurl.com/mlzcg8l), companies like Wegmans, Costco or Apple might have come to your mind. Companies like these delight their customers with their products, services, and the overall experience of doing business with them. These are companies who deeply understand what their customers are looking for and are able to not only meet expectations, but go as far as challenging their customers’ thinking about the issues they’re trying to solve.
Let’s look at Wegmans, the Northeastern grocery store chain that ranked #1 in the Bloomberg list. Wegmans of course provides what you’d expect from an excellent grocery store – competitive product selection and prices – but what takes them to the next level for customers is the way they are able to solve problems that customers don’t typically expect to have addressed by a grocery store. Some of the most popular innovations at Wegmans are their extensive selection of pre-chopped veggies, which make it easier for busy cooks to get dinner on the table, grouping seasonal recipe ingredients together so shoppers can grab everything they need in one place, and sampling / teaching shoppers how to use unusual ingredients that many would have otherwise passed up. Instead of just giving customers what they expect, they help them meet their goals of cooking more often at home despite busy schedules, eating healthier, or maybe even throwing a spectacular dinner party.
A modern, efficient ERP system that communicates seamlessly with customers and vendors can make all the difference when it comes to keeping your most important stakeholders happy.
The results of this strategy are that their customers love them so much that they don’t just shop there. They become advocates for the store, raving everywhere from social media to the water cooler and everywhere in between. Their success, and the success of other companies with customer-focused approaches, is what lead Forbes to declare that “Customer service is the new marketing,” (http://tinyurl.com/bnohuvx).
But is this an approach that could work for manufacturing businesses as well? Or is this type of “love” unique to B2C business with fun, sexy and/or easy-to-sell products like rosemary sea salt bread and pre-made balsamic reduction? To answer that question, let’s look at various ways a business can differentiate itself and how those methods work in B2B manufacturing businesses.
Challenges of Differentiation in Manufacturing
There are many ways that businesses can differentiate themselves, although two of the most common can be problematic for manufacturers:
- Differentiating based on lower prices: Offering a lower price can be done a few different ways: producing a lower quality product, accepting lower profit margins, starting with a lower cost of raw materials or labor, or improving efficiency of processes or production.
For manufacturers based in the US, labor and raw material costs are relatively fixed. Customers demand a certain quality of product, and most companies aren’t especially interested in reducing profitability. Efficiency improvements have, though, been an effective way of reducing prices for some manufacturing businesses. Investments in modern ERP systems, supply chain management, lean manufacturing processes, and warehouse optimization have all given manufacturers opportunities to cut their costs, which they can then pass along to their customers. The ultimate problem though is that even with these innovations, the cost margins are so tight that hard-won cost cutting successes can be derailed with a tiny failure – bad weather, a delayed shipment, a broken machine. In addition, a customer who picks you based on cost could easily switch to a lower-priced competitor next time around, leaving you stuck with loyalty-free customers. Cost efficiency may be important, but it’s not necessarily the differentiator that US manufacturers should hang their hats on for long-term success.
- Differentiating based on product Innovation: A second common way to differentiate is based on product innovation, providing something unique that your competitors don’t have. Depending on the maturity of the product you are producing, this may not be an option – for example, there’s little to no room for product innovation when producing mature or simple products like staples or spark plugs. But in newer or more complex industries, such as electronics, innovation can be a strong differentiator. So why not go this route? The challenge is that the top-notch talent and big R&D budgets that are required to pull off this differentiator can easily raise prices beyond what cost-conscious customers are willing to pay. Unless you’re producing your product in a fast-paced, emerging industry, keeping up with innovation as your primary differentiator can be a no-go.
So that brings us back to customer service as a differentiator. This one is significantly different when looked at from the B2B perspective:
- Differentiating based on outstanding customer service: Figuring out how to make your customers love your business is a long-term investment with stable, long-term payoffs. In both B2B and B2C businesses, the more complex a product is, the harder it becomes for customers to understand or even perceive the differences between various products. This inevitably pushes them towards buying decisions that are based on trust, relationships and referrals. There are many ways to build these relationships, but one of the most important for manufacturers is their ERP system. A modern, efficient ERP system that communicates seamlessly with customers and vendors can make all the difference when it comes to keeping your most important stakeholders happy.