Commercial Due Diligence – Gaining Clarity
Commercial due diligence is an objective look at the strength of a target company’s customer base.
Commercial due diligence is an objective look at the strength of a target company’s customer base. In addition to speed and accuracy, an effective commercial due diligence project should provide insight that produces exceptional value – in the form of specific improvement opportunities that improve customer value and loyalty, new or expanded revenue opportunities, potential new products and services, and potential strategic moves that may strengthen competitive position or identify acquisition opportunities.
In designing a due diligence initiative, it is vital to gather deeper information than just performance. This includes attribute importance, competitive performance, and loyalty.
Performance measurement allows a determination of the relative level of satisfaction with a company’s efforts on key product and service attributes. It answers the question of whether or not current processes are delivering against customer expectations.
Understanding Importance allows prioritization of attributes and, subsequently, the allocation of resources to those items or areas that matter most to customers. It is tempting to focus on areas that are rated low in performance. However, that misses an important aspect of the performance dynamic. As an example, sales call frequency may be rated low, but customers are satisfied – they are seeing the sales rep enough, even though he or she may not come by very often.
Competitive performance places rating data in a real-world dynamic. It is almost always the case that in gaining clarity people make a decision based on a binary choice – “Do I prefer A or B?” Even if there is no direct competitor, a user will usually compare performance to a substitute product. This comparison is vital to understand as it ultimately leads to an understanding of the strength of the relationship. In particular, if survey responses indicate that the customer perceives he/she is getting better value from a competitor and are more satisfied with a competitive product or service, they are in danger of reducing their volume from the survey sponsor.
Lastly, loyalty is a measure of the likelihood of future purchases. Although measuring intent is extremely challenging, the method that has received lasting use is the Net Promoter Score (NPS). This is measured by response to a single question, “What is the likelihood that you would recommend “XYZ business” to a business associate or peer?” Results are tabulated using a simple formula and the results can be compared to national data for hundreds of other companies. The NPS can also serve as a dependent variable to identify key drivers. It is typical that fewer than five attributes explain almost all of the variability in loyalty responses.
Incorporating these three criteria – in addition to performance – helps a commercial due diligence initiative to result in meaningful and actionable information that leads to immediate opportunities for improvement and revenue enhancement.