A recent conversation with a friend set my mind to consider the changing nature of customer-supplier relationships. In my experience, such relationships have evolved from win-loss to become more win-win. At the end I’ll suggest a way they can become even more customer centric.
In the beginning…
Suppliers succeeded when customers bought. Companies sold products and services. The company won when it made a sale. And the customer lost – unless/until they could realize the promised benefits and value. This isn’t to say that all customers lost through this arrangement, only that they bore the risk of the purchase. As recently as 15 years ago, this was the relationship between customers and suppliers – companies simply sold their products and services. In the software market, customers paid a large upfront fee to license the software and then paid an annual fee to receive technical support and upgrades.
Suppliers succeed when customers realize value. This model, where suppliers tried to ensure customers were getting value from the products and services they had purchased, shifted some risk from customers to suppliers. Software companies add the concept of Customer Success Managers to help clients accomplish their objectives knowing, of course, that their success rested with their customers’ success(es). In this model, companies amortized (smoothed) the large upfront fee over a number of years. Suppliers benefitted only when/if customers paid over a longer time horizon.
Vested outcomes – suppliers succeed when customers succeed. I’ve written about this model before. Again, risk shifts away from customers and is shared by both the customer and the supplier. The main improvement over the previous relationship is that rewards also shift and are shared by supplier and customer alike. So, if the “pie” gets bigger, everyone wins. In a vested outcome model, we expect to see tight alignment between customer needs and supplier capabilities.
I expect speed to value to become the next battleground. Speed to value is already a place where companies compete, but I expect it will gain more prominence as customers challenge suppliers even more. It isn’t customer-centric enough to shift risk and share rewards. Suppliers and customers will want to reduce the time they are exposed to risk and accelerate reward realization. In the software market that might be achieved by improving user experiences to make them more intuitive. Or from a supplier perspective they might want to be more selective of the customers they hire so they don’t waste time chasing deals that are unprofitable.
The pivot point is that supplier-customer relationships have changed in ways that are less lopsided and more mutually beneficial. This development can only be a good thing. The more closely aligned suppliers are with customers, the more likely they are to help one another succeed. And when that happens, more opportunities arise.