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This is called becoming a trusted advisor to the customers, and while there are many books written on this topic every year, the concept of the trusted advisor is that the members of a distribution channel form a team to assist customers in assessing their needs, modifying products to specifically meet those needs, and creating a strong foundation of support. AMR Research (2003) in defining the complexity of fulfilling B2B product needs for customized products shows how both processes and software can be used to streamline in-channel product customization.
The bottom line is that business channels, or as they are sometimes called multi-tier distribution channels, vary significantly by industry due to the major differences between customers' requirements and the need for bringing together members of a channel to form a team that can respond effectively to the complex needs of customers. This is pervasive in B2B marketing, selling and servicing scenarios. Several layers of a channel may have varying relationships with the end customers, and therefore bring to the manufacturer insights into specific needs that just one company may not have the bandwidth and ability to respond to. The evolution of solution selling and the trusted advisor is actually leading to more cooperation across the layers of a business channel framework, as the role of trusted advisor becomes critical for the long-term selling to larger customers with more complex organizations and needs. There are many other reasons for channels to have more layers in some industries and less in others, yet the most dominant factor is the complexity of end customers' needs and the corresponding requirement of aligning all available resources to serve and retain the end customer.
Q3: many companies seem to devote more energy to getting new customers than keeping old ones. Please explain why.
In many industries there is a high level of customer churn, or customers continually seeking new alternatives to existing solutions to their problems, and as a result many companies in these industries need to replace existing customers quickly, as attrition of their customer bases happen over time. The costs and time associated with winning a new customer, especially in a B2B environment, is inordinately higher than keeping an existing customer. Customer retention and loyalty studies have indicated that customers leave a company for one of two reasons, either the customer defects from the company or disadopt the new technology according to (Hogan, Lemon, Libai 2003). Increasingly the latter is occurring in the enterprise software market for example.
Another major reason for companies stressing the growth of new customers is that regardless if they are public or private, much of the company's reputation is tied up in their top-line revenue growth. This is their Gross Sales figure on their Income Statement for example. Many bankers and financial institutions look at this figure as a measure of the company's organic growth, or ability to grow from new customer sales. Because of these two critical points, and the fact the sales people are under a high level of pressure to bring new business in so that existing obligations of the company in addition to new growth can be attained, many if not all customer-facing processes are designed to make new business sales possible. The sales cycles, or how long it takes to win a customer, in B2B environments especially, can be well over 9 months, so the need for having multiple sales cycles moving, always progressing, is critical. The fact that B2B selling is based more on the long-term requirements of buyers and not simply a transaction is also what contributes to long, and often complex, sales cycles. Taking all these factors into account and realizing that customers defect more often from technology obsolescence than simply switching to another vendor (Hogan, Lemon, Libai, 2003) all points to the intensity of effort and focus companies put on winning new customers first.
AMR Research (2003) - Configuration is the Heart of Customer Fulfillment for Complex Product Manufacturers. AMR Research Report. Monday March 31, 2003. Retrieved from the Internet on May 13, 2007 at http://lwcresearch.com/filesfordownloads/ConfigurationIstheHeartofCustomerFulfillmentforComplexProductManufacturers.pdf
Hogan, Lemon, Libai (2003) - What is the true value of a lost customer? John E. Hogan; Katherine N. Lemon; Barak Libai Journal of Service Research: JSR; Feb 2003; 5, 3; ABI/INFORM Global pg. 196
LWC Research (2005) - Users Speak Out About SAP NetWeaver. December 12, 2005.…[continue]
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