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How Defense Contractors Can Avoid Competing on Lowest Price

Defense contractors who systematically measure and monitor their customer engagement can lessen their dependence on lowest prices - and increase revenues and profitability.

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photo credit: Elvert Barnes via photo pin cc

 

When a defense contractor wins a contract, the perception is that the process was completely rational and non-emotional, unlike a consumer purchase. But in fact, the reverse is true.

When consumers make bad purchases (with the possible exception of houses or cars), the financial and emotional impact is not usually significant or long lasting. However, when a business-to-business (B2B) or business-to-government (B2G) buy goes wrong, whole careers and possibly national security are at stake.

Yet in a Gallup study of thousands of B2B relationships, it was found that most sellers don't leverage the emotional engagement of their customers.

22% of B2B customers are engaged, and only 13% are fully engaged

One reason for such a low level of engagement with customers, Gallup argues, is that most sellers think that they only need to address the buyer's interest in the product and  price.

 

Defense contractors should assess the level of their customers' engagement because there's money in it for them:

Fully engaged customers deliver a 23% premium over average customers in share of wallet, profitability, revenue, and relationship growth, while actively disengaged customers represent a 13% discount on the same measures, according to Gallup research.

Gallup describes their "customer engagement hierarchy" with five levels: 1) Rational Satisfaction, 2) Confidence, 3) Integrity, 4) Pride, and 5) Passion

A cornerstone of assessing engagement is determining the impact that you are having on your customer's success. According to Gallup... "impact occurs when the B2B company, through its products and services and the breadth of its interactions with the customer, produces meaningful change in the customer's business."

You will know when your company is having an impact when your customer's thought bubble says something like this...

This company knows my business and brings me new ideas. Our relationship enables me to create product innovations, new approaches to markets, and more efficient processes.

And the higher up you go on your customers' engagement hierarchy, the more you can move the relationship from price to advice.

Measuring your impact on your customers success is also a competitive advantage - it's based on information not easily obtained by your competition, and the impact can offset lower prices or discounts they might offer to steal your business.

The only way to know if your customers are engaged, and you're having an impact, is to measure it.

Gallup suggest a scorecard with these metrics, measured once a year, every year:

  • 12-month revenue from the account
  • gross margin
  • 12-month revenue growth
  • percentage of revenue from value-added services
  • projected share of wallet
  • customer engagement scores
  • impact scores
  • account team employee engagement
  • value of outstanding bids/RFPs

And to simplify the process further, Gallup suggests starting with measuring the fewest number of customers that represent 80% of your revenue.

Click here to read more about the study in the Gallup Business Journal.

What do you think? How are you moving away from competing largely on price? Please share your comments below.

douglasburdett
douglasburdett
The Principal and Founder of Artillery, Douglas Burdett is a former artillery officer and Madison Avenue ad man. He also hosts The Marketing Book Podcast, where he interviews authors every week about the latest in modern marketing and sales.

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