Manufacturing Matters Keynoter Touts Return on Customer

By now, Don Peppers probably hates the term business guru, but he's probably stuck with it.

Peppers, a keynoter at the April 20 Manufacturing Matters! Conference hosted by Wisconsin Manufacturing Extension Partnership, is the best-selling author of several business books but he's also the originator (with props to his partnering business strategist Martha Rogers) of perhaps many more business concepts, including the importance of playing offense, not defense, and measuring return on customer, or ROC.

Both are linked to a well-established trend that is completely out of the hands of manufacturers, and really all businesses, but one they should be prepared for because it's not going away. Actually, any business organization that has been on the wrong end of a scathing online critique is perfectly aware of the social media trend of crowd service, or customers talking to customers, but they are not necessarily responding to it in the right way.

Peppers' stay-on-the offensive message suggests a hierarchical structure is not the best model for this trend, where 90% of the time the person answering one customer's question is another customer. This has some fairly important implications for businesses, including the importance of having some say in the process through the recruitment of "super users."

Not paid shills, mind you, but top customers who are more interested in being rewarded with status than insulted with money to answer questions. Peppers calls these bottom-up phenomena the beginning of the non-monetary economy, symbolized by free open-source web servers and browsers, where trust and credibility trump everything else.

"This is going to have an impact on the economy that far surpasses the invention of the Internet itself," he said.

And manufacturers should not kid themselves, for crowd service carries even more weight with business-to-business customers as it does with the B-2-C variety. Why? Because in Peppers' view, B-2-B products are more complex, more difficult to use, and they have wider applications and variability than most consumer products.

"It's not for every business because sometimes your customers are not engaged enough to really want to do this," Peppers noted, before adding that competitors also will be interested in online feedback. "There are nuances in terms of the complexity of products and involvement of customers in the product, but crowd service may ave more relevance in the B-2-B space."

Relevant because it's going to dramatically undercut the traditional, hierarchical business model, which companies with strong innovative cultures are beginning to recognize. The irony is that Pepper advocates staying on the offensive, which suggests intricate organization, with the inherently slopping process of innovation.

"There is inherent conflict between those two things," he acknowledged. "In a recession, the tendency is to hunker down into the operations mode, to try to suck costs out and be smoother and so forth. They may not pay as much attention to innovation as they ought to."

Customer Innovation

That's not very wise, especially with global competition more intense than ever. Wisconsin manufacturers have no choice but to innovate, not necessarily to always drive product innovations but to improve processes and fashion a more resilient business culture. Next week, they will gather at the 13th annual Manufacturing Matters conference in Milwaukee, which usually has some type of global competition theme.

This year is no different, and the reason manufacturing still very much matters here is that Wisconsin, despite attempts to diversity its economy since the last "Great Recession" of the early 1980s, still has among the highest percentage of its jobs linked to manufacturing.

Peppers doesn't think that's a bad thing because it speaks to Wisconsin's strengths. Prior to the conference, he interviewed representatives of a few likely attendees, and was impressed with the level of thinking they do with regard to their approach to customer relationships. Peppers touts the concept of "return on customer," or ROC, which is based on the theory that only customers create value.

With the information content of their products increasing, manufacturers and other businesses have a great opportunity for innovation that is customer focused. "I encourage manufacturers to visualize business in terms of bundling — think of all things you can do with respect to customer needs," he explained. "You can step back from the product you are selling and servicing and think carefully about the customer's life is like, what their business is like and what they want to do."

One prominent example is the Australian based explosives manufacturer Orica, whose customers include quarry and mine operators. They use explosives to break up rock, but they need a certain grade of crushed rock. If it's too fine, they have wasted their money, but yet it has to be crushed finely enough to be hauled by trucks. Many different factors come into play when determining the right granularity, including the geology of the site.

Since most mine and quarry operators lack the expertise in blast mechanics to form precise calculations, Orica created a database of blast parameters from hundreds of customers around the world. So instead of merely selling you explosives, they sell you crushed rock after managing the process for you. Mine operators appreciate this because it's efficient and it gives them a floor price, Peppers said, while Orica gets a continuing share of that company's business because it converted its bundle from product-selling to service-providing.

This problem-solving approach is what's needed to maintain customer loyalty. "Business customers are notoriously disloyal," Peppers stated. "No customer wants to be beholden to a supplier for any length of time, so this innovation is essential to maintain customer loyalty in the business-to-business space."

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