Increase Revenue Through Strategic Coupling
How to Grow With Current Customers: A Case Example
In Sales and Marketing, we spend a lot of time pursuing new customers and new channels of growth. But we frequently lose sight of the sales potential right in front of us. Our best customers are often our current customers. And for this reason, we should always treat our current buyers with special care. Unless you’ve done something to make them unhappy, the fact is, people buying from you today are typically going to buy from you tomorrow. For evidence, look at your favorite food store, vehicle dealership, or online retailer. In some instances this is simply brand loyalty. But in the B2B space, brand loyalty often takes a back seat to things like cost, quality and dependability. So how, then, can we build repeat customers in this area? To answer this, we will use an example from the aircraft industry to introduce something we like to call strategic coupling, which is a way of growing your business by leveraging your current market share.
What is Strategic Coupling?
Strategic Coupling is a term we use to describe a mutually beneficial arrangement between a customer and a supplier or provider of a service. We often focus on the short-term business goals and the current effort, but fail to realize that a bigger business arrangement may make more sense. Let’s take a look at the aerospace industry for an example.
The Aircraft Industry: An Example
The aircraft manufacturing business is an industry in which products and hardware are often highly specialized to a given customer application. Unlike the automotive industry in which the millions of cars produced each year benefit from economies of scale, airplane components have limited volume and are therefore very expensive. Moreover, after government approval of a firm’s products to enter commercial service is granted, being displaced by a competitor becomes a very expensive and time-consuming task. (In the Strategy world, this is known as a barrier to entry) Consequently, once a supplier is on an aircraft platform they’re typically on it for life. If you were to look at this from the perspective of the strategist Michael Porter and his Five Forces, you would conclude that customers in the aircraft manufacturing industry have fewer alternatives and are therefore more dependent on their suppliers. For these reasons, customers are often very cost-conscious, as they are at the mercy of their supply base.
“Our Best Customers Are Often Our Current Customers.”
Opportunity Emerges When Your Customer Needs Help
Just recently, I saw an example of strategic coupling in the aerospace industry. In this instance, a certain customer and supplier had a long history of working together, and shared a fairly good relationship. The customer had raised concerns about price of the supplier’s current product and contracts for several months. Eventually, the customer formally approached the supplier for assistance to reduce cost, going so far as to admit they were struggling to meet their profitability targets, and needed the supplier’s help. Given that the customer had limited ability to seek an alternate source of supply without incurring tremendous cost, the supplier had the upper hand. As existing contracts were in place, the supplier could have done nothing and maintained their currently business.
Simultaneously, though, a new project had recently been announced by the customer and was being solicited for bidding. Here in lies the supplier’s opportunity. In response to the customer’s cost reduction request, the supplier expressed support and willingness to reduce its prices in exchange for exclusive bidding and sole-source contract rights on the new program, to which the customer agreed. This arrangement is an example of strategic coupling – a win-win by both supplier and customer. By reducing prices of current product under existing contracts, the supplier was able to secure years of new business. Moreover, the customer was able to reduce their current costs and increase their profitability.
Strategic Coupling: Finding Mutual Value With Your Customers
Though the context of this example is relatively simple, the strategic aspect of this situation reminds us that we must consider the relative position of our firm in relation our customer. Our current customers are buying from us for a reason, so it’s worth continuing to give them a reason. Further, by finding ways to capitalize on the value we provide we can strengthen our relationships for future business.
NOTE: The simple analysis here refers to Porter’s Five Forces. If you’re looking for more on this topic, Robert Grant goes into this at length in Contemporary Strategy Analysis
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