The Third in a Series of Four Voice of the Customer Case Studies
By Anthony Bahr
Going into a deal, investors are commonly sold on the notion that value will be created via cost synergies associated with the integration of the buyer and the seller. However, it is well documented that only a small fraction (about 20%) of post-close value creation can be attributed to the synergistic effects associated with a deal.
Revenue growth, which accounts for roughly 60% of post-close value creation, is the true driver of new value. But unlike cost-cutting, growing revenue is usually a cost center – often rendering customer retention and expansion to be overlooked in many integration strategies built on improving margins.
In our previous article, we demonstrated how the Voice of the Customer (VOC) methodology can be used to conduct due diligence and mitigate the risk associated with customer concentration in B2B deals. Now, in this third in a series of four case studies, we’ll explain how the same methodology can be used to not only mitigate risk, but also accelerate post-close value creation.
Our client, a strategic acquirer that manufactures commercial paper products, had recently completed a bolt-on acquisition intended to expand its product portfolio to include corrugated boxing.
The integration strategy was primarily focused on reducing fixed costs by centralizing operations and distribution channels. While the integration plan did include strategies to expand the customer base and increase revenue, these tactics were year two initiatives which, in retrospect, our client admitted where “underdeveloped and underfunded.”
Three years after the acquisition, margins had improved; still, the combined financial results of the company fell considerably short of expectations. In response, our client commissioned a VOC engagement that was designed to kickstart revenue growth by addressing the following objectives:
- Improve market share by measuring and identifying opportunities to improve customer loyalty.
- Increase win rates by mapping the path to purchase in order to focus marketing and sales communications on the most compelling decision criteria.
- Stress test a potential price increase by benchmarking perceptions of the company’s prices against those of key competitors.
To generate the insights needed to address these objectives, 30 interviews were conducted among the company’s top customers (the 20% of customers which generated roughly 80% of revenue). All of these interviews were held over the phone and, on average, the conversations lasted 30 minutes.
In addition, a self-administered online survey was used to increase the overall sample size and secure responses for second- and third-tier customers.
As interviews were completed, transcripts of each conversation were provided to the client on an ongoing basis. Once all of the phone and online responses were collected, the data was aggregated, coded, and synthesized. Key themes and recommendations were outlined in a management report, which included an in-depth analysis of the findings in total, but also across a variety of segments (product line, sales region, customer tier, and legacy vs. acquired customers).
The VOC results uncovered that:
- The company had a somewhat loyal customer base. It’s Net Promoter Score (NPS) – the industry standard metric for measuring customer loyalty – was +32. Such a score tends to be indicative of a company that is performing well on the fundamentals, but does not offer a best-in-class customer experience. Firms with a score of +32 tend to be maintaining, not growing, market share.
- Contract administration was a major pain point. Customers said the process took significantly longer than competitors, and there were often errors in the paperwork which resulted in delayed delivery times.
- One of the most important purchase criterion was having options available in the buyer’s preferred paper brightness. Our client happened to have a broad range of brightness options, but it was not promoting this differentiator in marketing and sales materials.
- Sustainability, while not a primary purchase criterion, was considered a tie-breaker. Customers, when evaluating two similar bids, often selected the vendor which was perceived as having the more environmentally sustainable product.
- The company received very strong scores on “price for the value”, which suggested that there was room to increase prices without diminishing the value proposition. Furthermore, the company’s prices were perceived to be lower than those of key competitors.
Based on these findings, we made the following recommendations:
- Invest in an electronic contract management system to speed up the process and improve accuracy.
- Revise marketing and sales materials to promote the company’s broad range of brightness options and sustainability initiatives.
- Raise prices between 4% and 6%.
A year after these recommendations were implemented, topline revenue had grown 13% and gross profit margins had remained relatively stable. And, when we re-measured customer loyalty, the NPS had increased from +32 to +41 – a score indicative of a company that is gaining market share.
Look for our final VOC case study in the November 30th edition of the ACG NYC newsletter. In the meantime, feel free to contact Strategex if you have any questions about the process or the benefits of conducting a VOC for your organization.
Anthony Bahr (firstname.lastname@example.org) is a Vice President in Strategex’s Voice of the Customer Strategic Practice. Through the VOC process, he provides deep insights into a customer’s level of satisfaction and loyalty, as well as competitive positioning, innovation pathways, pricing optimization, etc. Ultimately, his work enables clients to transform research findings into actionable growth strategies. Anthony holds a BBA from Loyola University Chicago and graduate degrees from the University of Oklahoma and University of Chicago.