Focus on Digitalization
What Classic Industrial Companies Can Learn from Amazon and Co
In order to remain successful in the future, companies must identify and maximize customer benefits. The basis for this is data - but also the willingness to break new ground.
Unlike companies that have emerged from digitalization, traditional B2B industries such as electronics, mechanical engineering or the packaging and paper industries are still struggling with the topic of digitalization. This is particularly the case with regard to market- and customer-side topics. Digitalization is often considered merely as an instrument for cost reduction. Digital use cases often include by-products of technical development. Facts that are often neglected are customer benefits and market-side monetization potential. The information provided by digital channels are quite clear: Whoever provides the maximum customer benefit wins. Providers who focus on precisely these customer benefits dominate the game in the long term. A look at Netflix, Amazon, Paypal or Google shows: The number of satisfied customers is the central currency in the new business world. What does this mean for traditional companies?
1) Everything is Networked
The business models of digital companies are based on networks and ecosystems. The best known examples are:
- Amazon with its Marketplace, Amazon Pay and Amazon Web Services,
- Google with the search function, Maps, Youtube and the Android Store
- and Apple with the App Store, iTunes, and the recently announced TV services.
But can this not also apply to the B2B sector as well? There is hardly any B2B company not involved in supply chains, just-in-time production and sales channels. The next stage of development is the Internet of Things. Factories consist of machines that are loaded with sensors to deliver data. However, their benefits only unfold if they communicate with each other. This applies to a production process as well as to a entire supply chain.
The benefit of data from individual machines working in silos is marginal. Only manufacturers who act openly and deliver data to comprehensive platforms oriented on customer benefit can actually deliver the promised added value of networking and digitalization. Technological platforms, which allow the appropriate networking and collection of data and offer solutions for data analysis, form the basis for B2B companies to counteract silo thinking and actively create customer benefits!
Well-known examples are Siemens Mindsphere or Trumpf Axoom. Core features of these platforms are their multi-sided and open design, i.e. in mechanical engineering, for example, users of the machines and apps are brought together with software developers who develop apps for the respective platform.
2) Availability of Data and Capacity for Analyses Has Increased Dramatically
The global volume of data is expected to increase tenfold by 2025. "Data competence" (in the sense of collecting and analyzing data, creating customer benefits) has already become a strategic success factor. The analysis of data and the generation of a data-driven customer benefit is the core competence of digital companies. For instance, software vendors use the data they collect to improve product functionality. Platforms such as Amazon use it to analyze purchasing behavior and suggest bundles to customers based on this data. But this strategy is also worthwhile for startups; they can start with the minimally functional product (MVP) and expand their range on the basis of data analysis.
Again, the question arises whether this does not also apply to B2B companies. The amount of data that can be collected along the supply chain has increased dramatically. What distinguishes many B2B companies from digital companies is the understanding of how the data is used. The focus is often on what is technically feasible, not on customer benefits. They far the rarely ask how use cases can actually generate benefits, what the concrete savings are for the customer and what the measurable additional turnover is based on.
Data alone does not suffice. The focus should be on understanding how these data can be evaluated in a targeted manner in order to increase customer benefit. One example is a mechanical engineering company that offers its customers exclusive collection and access to production data (e.g. machine condition, downtimes, technical values in the production process, etc.). When evaluating the data and deriving actions, however, the customer is "left alone", because evaluation software or digital functions and services that give concrete recommendations for action for the customer are not offered. However, this is often the only way to create (significant) added value for customers, such as improving uptime. It's a rule that: Only those who understand the customer benefit and can increase it to the maximum will succeed!
3) Sales Channels and Communication are Digital
To make one thing clear: No, traditional B2B sales are not dying out. But if you look at Amazon Prime, for example, as a very cheap customer loyalty offer or Google with many services that seem to be "free" for private users such as search, mail and maps, it becomes apparent: While in the digital world "increasing customer satisfaction" and "maximizing the number of active customers" function as equal guiding premises of sales, the former dominates in B2B sales due to an important restriction of the prevailing sales concept.
Amazon, for example, was able to achieve maximum sales with negative cash flow with the then new product Amazon Prime and a starting price of 29 euros in order to conquer the market first. Gradually, customer satisfaction was increased by offering added value - the continuous price increase to 69 euros today was accepted by the majority of customers - they also get more for their money.
In the B2B area, such a procedure can look like this: With existing (finite) sales resources, customer segmentation serves to ensure that sales focuses on the most important customers. Traditional sales will therefore continue to play a major role in the key account business. So-called C and D customers, however, have been neglected so far. In the future, however, smaller customers will be able to be informed about digital sales channels and thus receive "low-cost" advice - this will reduce the "cost-to-serve" at customer level.
According to the worldwide Pricing and Sales Study 2017 conducted by Simon-Kucher, 57 % of respondents believe that personal relationships with small customers will be completely replaced by technologies. Only 15 % see this risk for medium-sized and large customers. An increasing success factor for B2B sales will therefore be to establish a multi-channel strategy that focuses not only on supposedly large customers but also on supposedly smaller customers and ensures stronger relationship management.
Digital technologies provide B2B sales with the opportunity not only to focus on a certain number of customers, but also to maximize the active customer base. In this case, too, a clear rapprochement with digital companies can be observed.
A concrete example from mechanical and plant engineering: A company establishes an online configurator in which small customers can put together their own machine. The consulting also takes place online - with application-related sample configurations and digital optimization recommendations. In addition, the company focuses on the online channel and the customer portal for spare parts, accessories and service products in order to save distribution costs.
Let's summarize the facts: Our three theses from the digital world are also increasingly relevant in the traditional B2B world. Here, too, everything will be networked in the future and the chances of survival for companies depend on who recognizes and maximizes customer benefits. Compartmentalized thinking will not pay off, overlapping platforms have a clear advantage. The number of available data and the analysis power are increasing extremely. Only those who collect this data in a targeted manner, understand it and generate benefits for their customers will succeed.
Last but not least, B2B channels and communication are being digitized at breathtaking speed. Those who keep their finger on the pulse of the times will be able to serve all customer segments efficiently and in a customer-oriented way in the future. Digital companies and traditional B2B companies will therefore continue to converge in the future. The recipes for success of the digital world are also implemented with full force!
* Thomas Beducker is Partner and Global Head of Technology & Industrials, Daniel Bornemann and Grigori Bokeria are Partners at the Global Practice Technology & Industrials at Simon Kucher & Partners in 53113 Bonn, Tel. (02 28) 9 84 30, www.simon-kucher.com/de, firstname.lastname@example.org, email@example.com
This article was first published by MM MaschinenMarkt.
Original by Melanie Krauß / Translation by Alexander Stark
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