It Only Takes a Few (And Maybe Only ONE)!

Is having FEW, but LARGE, customers a bad thing?

Well, it turns out the answer to this question is a little tricky. And, like any good business school student will tell you, "It Depends!".

Today we are taking a look at a unique aspect of Business-to-Business (B2B) markets: Customer Concentration.

B2B companies, unlike their Business-to-Consumer (B2C) counterparts, are typically characterized by a significantly smaller customer base in terms of number of customers. But it doesn't mean that B2B firms are small. It just means that the volume is concentrated among fewer customers (much fewer in many cases). In fact, B2B firms with relatively few customers are some of the largest companies in the world.

In the B2C marketing world, demand from any single consumer is largely capped at how much a consumer can "consume" (i.e. I can only eat so much yogurt as one person, no matter how much I like it, and I DO like it!).

But in the B2B marketing world, any single customer can buy as much of the product as their market share (and appetite for growth) can handle (i.e. a retailer can buy as much yogurt as they can sell - it's virtually unlimited!).

This characteristic of B2B markets presents some unique opportunities and challenges that can profoundly impact the strategic direction and success of B2B firms.

Let's consider Boeing, a global aerospace giant, as a prime example. Boeing primarily sells aircraft to commercial airlines, shipping/transportation companies, and government defense organizations. Yet, in the United States (a major market for Boeing), just FOUR airlines (American, Delta, Southwest, and United) represent nearly 80 percent of the demand for flights (and airplanes).

The airlines, on the other hand, who are selling to individual passengers, have MILLIONS of customers. This vast difference in customer count demands a fundamentally different approach to business.

First, the benefits and opportunities of such an arrangement.

Benefits/Opportunities:

• Deep Customer Relationships: With a smaller customer base, B2B companies can cultivate deeper, more strategic relationships with each client. This allows for improved customer familiarity, technological innovation, and unique product offerings, all of which drive customer "stickiness".
• Higher Customer Lifetime Value: Due to the high value of each individual sale (a single Boeing aircraft is typically a multi-hundred-million dollar investment) and long product lifecycle, the potential for repeat business and long-term revenue streams is substantial. This encourages a focus on customer retention and building enduring partnerships.
• Sales and Marketing Efficiency: Because B2B customers are few and tend to stick around, sales and marketing teams can become very efficient with messaging and positive customer interactions. For example, the Farnborough aerospace show in the UK only happens every two years, but virtually ALL airline customers are present in one place.
• Stronger Brand Equity: Serving a select group of high-profile customers can significantly enhance a company's brand image and reputation. Boeing's association with major airlines and global defense forces reinforces its position as a leader in the aerospace industry.

Second, the drawbacks and challenges of this environment.

Drawbacks/Challenges:

• Vulnerability to Customer Concentration Risk: Reliance on a limited number of major customers can expose a company to significant risks. If a key customer encounters financial difficulties or shifts its purchasing strategy, it can have a devastating impact on the company's revenue and profitability.
• Reduced Market Reach: A smaller customer base can limit market penetration and overall revenue growth potential. Expanding into new customer segments or developing new product lines to reach a broader market can be challenging and may require significant investments.
• Increased Competitive Pressure: With a smaller pool of potential customers, competition for each client can be fierce. B2B companies must continuously differentiate themselves through superior product offerings, exceptional customer service, and strong value propositions to maintain a competitive edge.

Navigating the B2B Landscape:

While these drawbacks/challenges can be significant, there are a few things EVERY B2B firm should do as part of their planning and commercial strategy, including:

• Diversify Customer Base: While maintaining strong relationships with key accounts, companies should actively seek to expand their customer portfolio by entering new markets or targeting new customer segments. At one point in my career, ONE customer represented 40 percent of our business. This was a real challenge. Only after we became serious about adding new customers were we able to reduce the risk and business stress. There is no balance that is right for every B2B firm, but firms should continually seek to diversify customer mix for negotiating power and risk mitigation.
• Focus on Customer Retention: Implementing robust customer relationship management programs, providing exceptional after-sales support, and continuously seeking to improve customer satisfaction are crucial for long-term success. When you have large customers who continue to order month after month, it can become easy to become complacent. B2B firms should cultivate an attitude of continually "winning the business" and "delighting the customer" in order to maintain and grow customer relationships.
• Invest in Innovation: Continuous research and development are essential to maintain a competitive advantage and develop innovative solutions that address the evolving needs of customers. It's easy to assume that your B2B products will never need to change. But, in my experience, the moment you notice your customers asking for innovation, it's too late. They have already started to look at options. B2B firms should be taking innovation to their customers, NOT waiting for customers to ask.

In conclusion, while the B2B landscape presents unique challenges, such as customer concentration risk, it also offers significant opportunities for building strong customer relationships, fostering innovation, and achieving high margin sustainable growth. By carefully considering these factors and implementing effective strategies, B2B companies can thrive while serving few, large customers.

I'd love to hear your thoughts! Do you agree with the points raised in this article? What are some other key considerations for B2B companies with few, large customers? Share your insights in the comments.