Most people do not like change, especially if the existing state of affairs is yielding good results and benefits. As a result, people or organizations get stuck in what I call, “if it is working and profitable, why fix it mode”. But let’s go back a couple of decades when the fax was thought to be the most efficient and fastest way of communicating. We can also go back to most recent years where the Blackberry was known as the “smartest” phone. These innovations were great and they enabled the introduction of better and faster innovations. However, can you imagine if we had stopped innovating at that point? After all, the fax and Blackberry were and still are working. If we had stopped pushing the boundaries can you imagine the opportunities we would have missed?
There is another side to the story. Those organizations that differentiated or differentiate by products and services only have experienced enormous competition from other players because it has become easy to copy and improve products and services. It has become very difficult to find a product that is unique. If it there is one – it won’t be unique for a long time. Technology has enabled organizations to copy innovations eroding competitive advantage that is product based. We have witnessed this dynamic in the phone industry with companies such as Apple and Samsung. The number of products that these two companies have produced over the last 6 years or so is unprecedented; inspired by the “copy and improve phenomenon”.
This brings me to the discussion of the day: a balanced comparison between product centricity and customer centricity. Peter Fader, a marketing professor at Wharton Business School, claims 99% of the world’s businesses are based on the product centric model. This model has been in existence for many decades and it has worked pretty well. A product centric business model focuses on the products or services more than it does on the customer. This business model is based on “creating a product, marketing a product, selling a product and repeating” the process over and over.
The premise of product centricity is embedded in the following principles:
- Strategic advantage is based on the product and the expertise behind the product
- Departments and teams are arranged according to products
- Staff are rewarded based on ability to develop new products or sell existing ones
- The long-term motivation is about product portfolio reinforcement and finding new ways to consistently expand the portfolio
- The brand is perceived to have greater value than the customer
- Profits are maximized through volume and market shares - driving shareholder value
- It takes a an inside-out approach
As previously mentioned most organizations are product centric and have achieved much success. Walmart, Coca-Cola and Apple are examples of companies that have benefited from product centricity. (Note: It can be argued that Apple is moving towards being customer centric).
It Can’t be Business as Usual
Though product centric yields success and is “working”, it’s quite clear that the model is no longer adequate in the current environment. Product centricity is being disrupted in so many ways and from different directions that its sustainability has become questionable. This follows that companies that primarily focus on differentiating themselves through products and services are more vulnerable now than before. I highlight some of the current challenges that pose a threat to product centricity below:
- Globalization and loss of geographic advantages
- Technology advances and the rapidity with which they are being created and copied
- Deregulation leading to extraordinary competition
- Power shifting into the hands of customers
Given the rapid change in the world economy, it’s clear that there is an opportunity for a business model that is based on deep understanding of what customers want, when and how they want it and what they are willing to give in exchange. This model is customer centricity. It requires a new paradigm shift, a reframing of the mind and a radical way of doing to achieve better and sustainable results. Peter Fader states that customer centricity must focus on the right or most valuable customer for strategic advantage. The aim is to make more profits in the long-term.
Doug Leather defines customer centricity as “the eco-system and operating model that enables an organization to design and deliver a unique and distinctive customer experience.” I define it as “a strategy that requires the entire business engine to be laser-focused on the customer, works in collaboration and makes the customer central to all business decisions creating sustainable value for the organization and the customer.” The basis of customer centricity is grounded in systems thinking – implying that the management of customers should not be treated in part or independently, but as part of the entire organization. This implies that for an organization to achieve customer centricity, it must develop interconnectivity and integration across all business functions.
Like product centricity, customer centricity has a set of principles from which it is based:
- All strategic advantage is based on the “right” or “profitable” customer
- It is based on the fundamental understanding that not all customers are created equal
- Value creation is two dimensional: customer and organization
- A system and end-to-end operating model offering differentiated customer experience
- It’s not driven by shareholder interest only, but Triple Bottom Line and the “Higher Purpose” philosophy
- Customer centricity takes an outside-in approach
It is very important to understand that customer centricity is not customer service or being customer friendly. It is much more.
The Business Case
As viable as the customer centricity model is it has its own challenges and people are skeptical about it. For starters, a lot of organizations question why they should transition to customer centricity if product centricity is “working”. In addition, customer centricity and its implementation are very complex. Making the transition could mean losing money in the short term, thus eroding the shareholder value. Lastly, many find customer centricity hard to measure and quantify in financial terms and, as a result, there is an unwillingness to transform.
The good news is customer centricity’s benefits outweigh its challenges. And as stated before, the product centricity business model is no longer viable and its sustainability is under threat. I; therefore, encourage organizations to make the transition even if it means borrowing only some of its principles. Customer centricity benefits outweigh those of product centricity. Customer centricity is a catalyst for:
- Profitability and sustainability
- Value creation for both the customer and organization (win-win)
- Organizational resilience and relevance
In the long-term, customer centric organizations outperform organizations that are not. Companies such as Dell, IBM and Wells Fargo have been successful through customer centricity. The world economy has transformed and the customer has become too demanding and powerful to ignore customer centricity. Customers have to be treated as strategic imperatives to improve business performance. Subsequently; it cannot be business as usual for a company that wants to remain competitive in the 21st century. But at the same time it must be realized that not all organizations can and should transition from product centricity to customer centricity. For example if a company is in an industry with low profitability the complexity and effort of being customer centric may not yield any benefit.
Roadmap to Customer Centricity – Tips
The difficulty in implementing customer centricity has been one of its major hindrances. In this part of the article I provide some tips on how you can start your customer centricity journey. However, more tips will be provided in a subsequent article.
1. Leadership commitment and buy-in: Leadership must be totally customer focused and not simply offer lip-service. For example, sufficient financial resources must be invested into the customer centricity transformation initiatives. A Chief Customer Officer could be appointed to ensure a customer culture is defined, articulated and reinforced in the organization.
2. Identity the right customers: Know and make the most of your most profitable customers. Build your business structures around these customers. This does not mean ignoring your other customers; it simply means you will treat your customers differently because they are different.
3. Vision, Strategy and Planning: All these components must be customer focused. They must be clear, practical and executable. Plans must be measured and leadership must install measures to ensure the vision guides employee mindset.
In closing I would like to ask if your organization is in the “it is working and profitable, why fix it mode?” If so, how much longer do you think you could sustain the status quo? Product centricity is good, but customer centricity is even better. And maybe your industry falls in that low profitability category, and adopting customer centricity will not offer the desired competitive advantage? If that is the case, you could borrow some of the customer centricity principles to improve how you manage your business and your customers. Stretch your boundaries the possibilities are many.