C-CUBES™

COLLABORATIVE FOR CUBES™ BREAKS DOWN PRICE ELASTICITY.

To remain profitable, companies must have pricing power. They must have the ability to raise prices while maintaining relatively stable unit sales. And at the 100,000-foot level, where CEOs are looking to examine the financial outcomes of their actions, B2B companies struggle to increase pricing power.

The concept of pricing power is associated with price elasticity, or price sensitivity. The more price-sensitive a consumer, the more negatively the consumer will react to an increase. Companies with higher relative pricing power find customers react less negatively to a price increase. Thus, they are able to maintain stable unit sales when they enact an increase.

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COLLABORATIVE FOR CUBES™ HELPS TARGET PROFITABLE NEW CLIENTS.

All customers are not the same. Some generate only one-time business. Others can help grow a firm organically through repur- chasing, recommending the business to peers, inviting bids on new business, and offering positive word-of mouth. Customers who engage in these behaviors are “multiplier customers”: they help firms multiply their business growth.

Multiplier customers who offer peer recommendations and repeat business are especially critical for industrial business-to-business (B2B) companies that offer specialized products and solutions to meet complex customer needs and for whom the cost of customer acquisition can be high. Without multiplier customers, B2B companies see increased customer acquisition costs, may have lower sales per customer, and fail to deliver the desired financial results.

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COLLABORATIVE FOR CUBES™ RESEARCH OFFERS WAY OUT.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a powerful metric used to evaluate the profitability of a business. Because of its nuanced approach to earnings, it is a different metric from cash flow.

At the 100,000-foot level, many boards and CEOs of business-to- business (B2B) companies rely on EBITDA as the key to evaluat- ing the current and near-term health of their companies. Efforts to manage EBITDA typically focus on production factors that fall within the realm of finance and operations. Indeed, managing a firm’s operational expenditures is seen as key to managing EBITDA.

While managing EBITDA via operating expenses can be effective, the focus of such an approach is strictly inward-looking. Over time, the focus becomes cost cutting, efficiency, and lean production. Research shows companies focusing on efficiency succeed at delivering higher long-term value to shareholders, but surprisingly, a 2005 study showed companies that combine an efficiency focus with a customer focus deliver even higher long-term value to shareholders — up to 1.5 times higher.

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COLLABORATIVE FOR CUBES™ FINDINGS SHOW RIGHT WAY TO GROW.

Increasing sales in a way that also increases margins is not easy for business-to-business (B2B) companies. Often business suppliers and their margins are far lower than their customer-facing counterparts. And at the 100,000-foot level, where CEOs are looking to examine the nancial outcomes of their actions, B2B companies struggle to expand margins even as their sales increase.

B2B clients, unlike retail consumers, often have leverage on pricing. Many B2B clients are larger in size than their suppliers, and purchasing departments can exert substantial pressure when negotiating contracts. The ability of a B2B client to lock prices can also limit a company’s opportunities to expand margins. In ationary pressures can compound this effect.

A disadvantage on pricing is one of the reasons many B2B suppliers nd themselves stuck in the “value trap.” Feeling pressure to improve product performance by adding more and new features, B2B companies see their costs increase. But because of their clients’ leverage on pricing, they are unable to pass on the rising costs, and their margins erode.

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COLLABORATIVE FOR CUSTOMER-BASED EXECUTION AND STRATEGY.

Recognizing customers are the ultimate source of cash flow and financial value, firms continuously invest in strategic priorities and execution activities designed to satisfy them. It doesn’t always go well. Many times, businesses are confused about the specific strategic areas in which they should invest. Other times, they debate the execution levers that should be the focus of their investment.

Ultimately, every activity, decision, and strategy can be justified as an attempt to satisfy customers. As a consequence, companies often find themselves embroiled in a variety of misaligned strategic initiatives and execution activities they believe are helping customers. Customers see it differently—they see a company that is unfocused, inconsistent, and not satisfying their needs.

The Collaborative for Customer-Based Execution and Strategy (Collaborative for CUBES™) framework helps align a company’s strategy and execution at all levels in a way that not only satisfies customers, but also achieves the desired financial results. Collaborative for CUBES™ provides guidance, based on rigorous, proprietary statistical analysis, to define strategy outcomes, develop strategic priorities, identify execution levers, and translate the execution levers into concrete, actionable, ground-level reality.

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