Beyond References: What Your Reference Customers Really Want

By Steven T. Nicks
Phelon Consulting Services

Each reference professional I speak with, or so it seems, inevitably asks the same questions: “How do we create value that might make our customers and internal stakeholders want to participate in our reference program? And how do we articulate that value?” The answers to these questions are never simple to begin with; they are further complicated by the fact that industry-wide demand for references is ever increasing. It also doesn’t help that any given target reference customer is only willing to act as a reference for a very limited number of vendors.

So what can you do? What “real value” will transform your company’s program into one that customers are glad—and even eager—to join? And once you discern and create real value, how do you articulate it to those who need to know about it most—customers and internal stakeholders? That’s what this article is about.

Customers Don’t Want Incentives
First let me reiterate our firm’s position that reference incentives do not, in your customers’ eyes, equate to real value. Incentives change the nature of what should be a mutually beneficial and balanced relationship to one in which customers perceive and expect to be “compensated” for their time. Our experience shows that reference incentives and tangible rewards propagate a demand for even more compensation. Customers say, “I did that for you last quarter and you gave me an x percent discount (or x free education hours). What are you going to do for me this time?”

Prospects are also skeptical of references if incentives are part and parcel of your program’s repertoire. Our research shows that a significant number of prospective buyers–more than half—place less value on a reference when they know incentives are offered. And if you don’t think they’ll know, think again. Robert Urwiler, CIO at Macromedia, advises IT buyers to ask all reference customers this question: “What is your or your company's relationship with the vendor, and have you or your company been compensated or given preferential treatment in return for this reference?”¹

And if that’s not enough, reference incentive programs mean more budgeting and accounting issues, like predicting reference demand and muddling through revenue recognition issues, as well as more people and resources to manage and track who did what when and who’s owed what when.

Our advice? If you haven’t created an incentive program for reference customers, don’t start now. If you do have an incentive program in place, we suggest that you create a new value proposition for your reference customers and plan to phase out the tangible rewards over the next year or two.

What Do Your Customers Really Want?
If incentives aren’t the way to create program value, what is? Phelon Consulting’s independent research coupled with research conducted on behalf of several large enterprise technology vendors confirm that while customers do recognize your need for referencable customers, they do not need incentives to act as a reference for you. What customers really value—what they really want—are overall positive relationships with their enterprise vendors.

We have identified three key broadly appealing benefits your reference program should offer to its participants.

• The ability to network with peers : More than anything else, technology buyers tell us they are eager to connect with their peers in other companies—and they love vendors that help them do so. Create an exclusive network or host exclusive networking events to make your value proposition more powerful and encourage loyalty.
• Visibility into and influence on the product roadmap : Reference customers tell us they want the ability to influence the direction and features of the products they use—and that such influence increases vendor satisfaction and therefore will make them more likely to continue acting as references. While other organizations in your company may already be interfacing with your customers for this purpose, positioning and formally tying visibility and influence as an added value of your reference program may give it a competitive advantage.
• Access to executives : Don’t underestimate executive access as a powerful program benefit. Time and time again, reference customers tell us access is something they value. Use this knowledge to your advantage by creating a formal executive program for key reference customers. If such a program already exists within your company, attach your program to it.

Additionally, through conversations with IT decision makers—your target reference customers—we have identified several key factors that influence customer referencability. While these factors may be outside of your direct control, they are within your sphere of influence:

• Length of the vendor-customer relationship
• Robustness of product features
• Benefit to cost ratio of your products or services
• The quality of your technical support

While this may seem familiar, you need to do more than just nod your head and forget about it. As a customer referencing leader in your company, it’s imperative that you build the necessary relationships to both educate and influence individuals who can affect those factors. One tool that will help you kickoff and maintain those relationships is the value proposition.

“What’s in it for me?” “And me?” “And me?”
What exactly is a value proposition? And why does your reference program need one? A value proposition is a clearly articulated statement of the benefits afforded by your program. It solidly positions you to explain your program, create targeted marketing messages and grow your reference customer base. A sound value proposition also helps you stay focused on the larger relationship picture and avoid getting caught in the trap of operating from the “what do I get for this activity” perspective.

Defining a value proposition can be a daunting task. We recommend to our clients that they begin by segmenting their reference customers into logical, manageable groupings—not too many—and then by crafting a value proposition for each group. A segmentation model might isolate your ten most critical reference customers into one group, x number into a second and the remainder into a third group. Segmentation is for internal-eyes-only so segment in such a way that will help you create more meaningful value propositions for each customer group.

Also recognize that every reference is an individual with unique needs, wants and desires (think solution selling!). If you’re trying to target a key potential reference or if you lack an inventory of references for a particular product or service, craft customized value propositions specifically tailored to those individuals. The more you know about your targets and the more you try to create real value for them, the more successful your efforts will be.

Where the Battle is *Really* Won—or Lost.
Providing the appropriate value to various customers groups is just half of the battle. Without internal support for your new value-adds, they will most certainly flounder. This is why you must also reach out to internal groups that may champion the benefits of your program—in languages they understand.

Take sales, for instance. I’m sure I’m not the only one who’s heard sales ask, “What’s in it for my customer anyway?” Sales, as a group, tends to be interested in programs that benefit their customers and improve the vendor-customer relationship because it helps them sell more. So use this to your advantage.

Create a messaging document that outlines the key four or five points you need to communicate to each audience to help you continually reinforce your value proposition. Use this document each time you create collateral or communicate about your program. And because memory tends to be selective and short, continue to remind people how your program benefits customers—in their terms.

One other key point to keep in mind is to test your value proposition. Start with key sales reps. Does the message resonate with them? Also speak with some of your key reference customers. Explain to them what you’re trying to do. See if they like and understand what you articulate. If not, adjust your value proposition accordingly.

And in the End…You, and Your Customers, Win
While there’s nothing wrong with an appropriate thank you gift, avoid incentive programs. Focus on the overall relationship—not on the individual activities—and be part of creating an overall, mutually beneficial vendor-customer relationship. Be open with your customers about what you need from them and why. Help them realize that you want to invest in their success, but that in order to continue to innovate and offer outstanding products and services, you need them to invest in your success as well. Clearly articulate a value proposition for customers and internal groups so you can remind them why they’re spending their valuable time helping you. And be confident that the impact you have is far reaching. Our research has clearly shown that customers believe reference activities that provide real value have made them overall more satisfied with their vendor-customer relationships.

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Steven Nicks is a Partner at Phelon Consulting. He brings over 15 years of experience helping companies build and successfully deploy strategies and the technology necessary to support them. Mr. Nicks, formerly a Principal at PricewaterhouseCoopers and Senior Consultant with Ernst & Young, has helped companies understand their customers and developed innovative approaches to strategic decision making and communications.  He may be contacted at [email protected]

“Sweet Deals or Bitter Meals? A Win-Win for Customer and Vendor” by Robert Urwiler, Feb. 1, 2004 Issue of CIO Magazine