This article originally appeared on Forbes.com.
CEOs of industrial companies hear it from their customers every day: Why can’t they deliver service as convenient as Amazon, as transparent as Uber, and as innovative and well designed as Apple? They may have brushed it off the first few times they heard it, but at some point most executives begin to understand: Customer expectations are rising.
Even in oil, gas and chemicals, where the business model has relied on a traditional sequence of drawing hydrocarbons out of the ground, then processing and selling them, the expectations of commercial and retail customers are evolving to match what they experience online.
Over the past 10 to 15 years, oil, gas and chemical companies have focused on achieving operational excellence: improving the productivity, performance and safety of their assets and personnel. It’s been time and money well spent, delivering millions of extra barrels of oil and gas recovered, higher utilization of assets, and improvements in worker safety.
With these gains captured, executives are focusing on a new prize: commercial excellence, the design and delivery of practices that maximize profitable revenue. Commercial excellence programs improve pricing, salesforce effectiveness, product mix, customer selection and distributor management.
Until recently, most executives in these industries have not prioritized improving commercial efforts, partly because the potential prize was uncertain. That’s changing as executives realize the tremendous value available.
Commercial excellence aspires to bring the same scientific approach to the customer side of the business that operational excellence brought to operations. By encouraging executives to learn more about who their best customers are, what it costs to serve them, and how satisfied they are, they can improve customer loyalty and unlock new value. Retail and commercial businesses often see earnings rise by 20 to 25 percent as a result of focusing sales efforts on the right customers, and they can further enhance margins by optimizing cost to serve and improving price realization.
A comprehensive commercial excellence transformation program sets out to create value in several ways. One chemical producer in Southeast Asia identified the potential to raise profits by 11% through 15 initiatives implemented over two years, including:
- Identifying the most promising customers and focusing sales coverage, pricing strategy and technical service support on them
- Shifting volumes toward more profitable applications and regions
- Optimizing pricing by product and customer
- Restructuring the salesforce and improving management processes
- Selecting and managing distributors more rigorously
- Improving cost-to-serve ratios through collaborative shipment planning
- Building new capabilities among marketing and sales staff
Better pricing is one of the fastest ways to see results. Although pricing is often transparent in commodity industries, a producer’s competitive position can vary significantly based on size, location, product properties or fungibility.
Value can also come from collaborating more closely with customers. Another chemical producer started to work closely with its largest customers to plan shipments well in advance. This forward planning allowed the consolidation of shipments to multiple large customers, generating cost savings of 15% on a key product.
Measures like these can help bank early gains, but a deeper understanding of customers’ needs and preferences will take the program further. One company was pricing two products at the same level, even though one was more expensive to produce. Sales teams insisted that if they adjusted prices to reflect actual costs, clients would go to a competitor. But when the teams asked clients what the products were worth to their business, they discovered they were willing to pay even more than the company had expected, provided it could deliver some additional benefits.
Leading energy and chemical companies follow a few common steps to unlock the commercial potential within their organizations.
First, they recognize that few companies are fully tapping the commercial potential of their customers. Leaders can start by assessing how they serve major customers and how they could deliver more value. Identifying the most profitable customers shows where to focus—and frequently identifies unprofitable segments where companies can justify spending less time.
Second, suppliers need to respond to rising customer expectations in a cost-effective way. For example, if customers say they want an app to track their shipments in real time, suppliers might try to learn more about what they really need. It may not be cost effective to build and provide a custom app. But the customer might be satisfied with text-based updates when shipments reached specific checkpoints in their journey.
Third, few companies have all the skills, data and analytics necessary to raise their game. While the marketing team often has a wealth of untapped insight at hand, bringing it together requires reconsidering the customer experience through design thinking, employing new metrics for customer advocacy (such as the Net Promoter Score) and tapping advanced analytics to combine internal and external sources to gain an advantage in the marketplace.
Finally, leaders work to create the kind of culture that not only meets customers’ needs, but also builds loyalty over the long term. Commercial excellence is a multiyear journey that unites senior management, operations, the supply chain, sales and marketing in a common effort to improve the customer experience. As with operational excellence, only a concerted, sustainable, companywide effort can hope to achieve the results necessary to build strong customer relationships in an era of rising expectations.
Dale Hardcastle is a partner with Bain & Company in Singapore. Andrea Ioannilli is a Bain partner in Kuala Lumpur. Jason McLinn is a partner in Chicago.