Your Customer’s Business Model

In B2B markets buying decisions are exclusively made based on value to the business.  The actual process may be tinted with the emotions, bravado, and irrationality of consumer life style markets but, at the end of the day, the buy is based on what value your product or service brings to my business.  To be successful in this environment, you must understand your customer's business model.

Equipment sales can be driven by a number of dynamics including dealer networks, retail sales, online sales, and more.  The majority of construction equipment, large tools, and similar products is through rental.  Companies that approach rental with the same thinking as dealers or retail lose to those who truly understand rental.

For rental companies, large, medium, and small, business is driven by Rental Return On Invested Capital.  In the simplest form rROIC is the amount of income from a piece of equipment minus the maintenance cost divided by the cost to acquire it.  The rROIC equation shown is the key detail for this concept.

How important is this to rental?  Major players monitor this for every piece of equipment, type of equipment, and supplier.  The rROIC number for your equipment drives your customer's next purchase.  A high rROIC may allow individual rental store locations to purchase your product when they need it while very low numbers may require corporate approval for an annual buy.  Wouldn't you love to provide equipment with such value that anyone can buy it any time?

Look closely at this equation and give some thought to what it means.  Will your new product command a higher rental rate?  Why?  In general rental rates are driven by productivity aspects not comfort or aesthetic features.  Does your product cost less to maintain?  Can you charge less for it or help with a higher resale value?  Far too many companies ignore this dynamic building in nice-to-have features with no value in rental.  Those who understand the rROIC equation focus on developing products and features that drive factors in the equation in their customer's favor.

Every business market, channel, and customer has a specific way they make money.  Your product has to address that value chain in the exact way they do in their business.  The only way to do this is to deeply understand their business, create an equation, like the rROIC, and then develop and deliver products that address this need.

Companies who are in tune with their customer's businesses typically:

  • spend a lot of time with customers
  • develop relationships where customers share exactly how their business works
  • train their marketing, sales, engineering, and product management teams on how their customers businesses
  • develop products, services, and channels that directly address customer business needs
  • focus on cost and how it drives price in everything they do
  • rank potential projects, new products, and programs based on the return to their customers

Is this you?