Vimal Kumar Rai
Managing Partner
Uncertainty Calls for Greater Customer-Centricity
Why businesses should focus on being customer-centric in a market full of innovation and disruptive technology, competition, and uncertainty.
These are interesting times. The world is moving towards mass adoption of new technologies like artificial intelligence (AI), machine learning, and automation. They are very likely to have some significant impact on the way we live our lives and also disrupt how businesses operate, with the traditional sustainable advantages of many companies coming under threat. On top of this, we seem to be in a perpetually unending period of economic uncertainty that has been barraged by the pandemic, war, and record inflation, putting undue pressure on businesses. All this confuses the decision-making process for some customers who now have more choices than ever before in the market.
Uncertainty coming from innovation and disruption in business is not a new phenomenon however. From the dawn of automobiles and its disruption on the way the world has embraced mobility for thousands of years i.e., horses to cars and aircraft, to e-commerce taking over the retail industry on a rapid and massive scale, history tells us that innovation and disruption is not just something to be expected, but in fact, the norm.
When faced with such constant uncertainty and change, companies often resort to cost-cutting measures as the first means to a healthier bottom line. While these can be useful in the short-term if done carefully, cost-cutting often also happens indiscriminately – wrong expenses are cut and no new investment are made towards other priorities that may align a company’s offerings better with the market. After all, innovation and disruption typically impact a business in terms of its products, services, and topline revenues. Cost-cutting therefore is, at best, a short-term fix to an on-going, structural challenge. A significantly better, if unintuitive strategy, is to actively innovate and invest in products and services that deliver upon newly emerging customer needs and preferences.
During the height of the pandemic when people could not physically visit its restaurants, Chipotle in the U.S. invested in high-margin drive-thru pickup lanes that they (creatively) called “Chipotlanes”. These lanes exist strictly for mobile pickup orders, allowing customers to not only feel safer during the height of the pandemic, but also receive their order in a short amount of time.
IBM is another example; they posted an $8 billion in quarterly loss in the early 90s. Due to increased competition, the company made the bold decision to switch focus away from the very thing that its company had been well-known for – hardware. IBM instead invested in professional services with software and IT consulting, as well as research. Because of the high demand in IT advisory services caused by a rapidly innovative market, the move brought the firm back to profitability and sustainably increased its brand power and reputation over the next decades.
These examples highlight the success of diverting resources into services that align better with the needs of customers and the market – we call this customer-centricity.
Why should businesses be focused on being customer-centric?
We believe that businesses should always be focused on being customer-centric, but especially so, when faced with external pressures. Disruptive companies often succeed in the market because they are solidly customer-centric. Aside from introducing a new innovation or idea that captures the curiosity of the market, they fulfil a need or set of demands for consumers that existing providers do not. Customer-centric companies typically do the following:
1. Provide value that consumers sometimes didn’t even know they wanted (ex-ante)
Think iPod vs other existing MP3 players, or Airbnb vs hotels.
2. Provide better value through greater convenience
Think Netflix vs Blockbuster, or Toys R Us/Radio Shack vs online retail stores.
3. Provide significantly upgraded user experiences, even if at a higher cost
Think iPhone vs Nokia or Samsung, or Google vs Hotmail/Yahoo/AOL.
4. Provide similar or better perceived value at cheaper cost, often opening up new markets in the process
Think Low Cost Carriers vs legacy Full Service Carriers in many air travel markets.
When companies fail to be customer-centric, they often make the major blunder of trying to play catch-up instead, hoping to close the gap in the value map with competitors. This is often a mistake. From the customer’s perspective: When there are two products of similar design, features, or price (nearly identical value maps), price becomes the only differentiating factor and one that many companies think would have the power to dictate the decision of the consumer – reduce prices and customers will quickly flock to your product.
Not only is this often inaccurate, but when the only arsenal that a business has to win customers is price, it is not a sustainable competitive advantage and often a race to the bottom over time.
Customer-centric companies, by contrast, are able to command higher willingness-to-pay (WTP) due to their extreme focus on value proposition congruence with their market. Focus on customer-centricity pushes companies to ask the question “What sets us apart from our competitors and what value do we provide to our customers that others don’t?” Or, better yet, “What will make our customers cheer for our products instead of others?” Customer-centric companies utilize their resources to first and foremost create value for their customers, with high margins usually trailing the firm afterwards or better, create loyal customers that will stand the test of time.
Customers are naturally loyal to products that provide actual or perceived value to them. Why aren’t Apple users scrambling to purchase phones that are sometimes significantly cheaper and comparatively (if not significantly) better in hardware and performance? Apple is a customer-centric company that commands high WTP due to their multitude of unique customer value propositions such as beautiful designs, a powerful ecosystem, and an obsessive focus on the details to ensure everything “just works”. All of these have created loyal fanatics who typically don’t even refer to the competition for comparison. When a company delivers this type of value, it creates a level of emotional loyalty that transcends pricing competition.
Customer-centricity is also an important driver in transforming a business into one that conducts its marketing efforts with value-based strategies in mind. Too often companies are focused on top-line revenues at the expense of creating real value to command higher WTP from customers. When the focus is merely on growth, attention will instead go towards “sell more” as a primary driver of activity. Focus merely on sales, and there will be too much emphasis on what will “sway” customers to buying your products. While these areas of focus are not terrible in the short-run, in the long-run customer-centricity to increase WTP would be a much better strategy.
So how would a business start to become more customer-centric?
To be truly customer centric, companies must go back to first principles and understand what the needs of their customers are, prioritise those needs, and then segment customers by those needs. This is the starting point of being customer-centric, a purely customer-oriented and rational view of the market which exists for us to serve.
With clarity on the common needs (or value drivers) of each customer segment, organisations can then better identify their competition, against whom they compete with to create and deliver the desired value of each customer segment. Uncovering and understanding true needs and value is not always intuitive, and sometimes the competition is not even from the same product category.
For example, a spouse who buys flowers for his/her partner is not fulfilling the need to have flowers in the house, but rather fulfilling the need to ‘show appreciation’ to their partner. They can find many other ways to fulfill that need other than just buying flowers, and once we realise this as a business owner then we may realise that our competitors may also be chocolate shops, or a shop selling scented candles or other gifts. The question then becomes “How can I position my value proposition and communication in a way that best fulfills the needs of those customers that would like to ‘show appreciation’ to their partners?”
A logical next step towards customer-centricity is to conduct competitor and company analyses. There are varying levels on how deep you can go with these activities, but initial questions should first be answered before going on a deep dive to decide on “where” and “how” your company can differentiate itself from competitors.
Competitor analysis provides you with an understanding of where and how your competitor plays. And most importantly, where they are winning.
Company analysis, meanwhile, helps you to reassess your own products and services so that you don’t “fall in love” with your own creations, allowing space for constructive criticism and really looking deep at where and how you deliver value and play to win.
Many companies that go back to revisit these first principles of customer-centricity gain valuable enough insight to then innovate around their core, to either augment their existing value propositions, or to build out new ones in the white spaces and adjacent markets.
Conclusion
A lot of this sounds logical and seems easy to do, and yet we are confronted time and again by leaders and organisations that do not have the bandwidth and skill-sets to develop their customer-centric muscles, whilst concurrently running the business. This is where Commercial Excellence Partners (CEP) steps in to help.
Customer-centricity can not only help to push them to focus on their value proposition within relevant markets, but also then differentiate their products and services from competitors. In times of disruptive technology and innovation, often the first approach that a business needs to do is to re-focus on customer needs and to then one-up its differentiating factor to win – or win back – customers.
Key Takeaways
- Sustainable competitive advantage can be achieved through being customer-centric.
- During challenging times for whatever reason, the right mindset for companies is to be customer-centric.
- One reason why disruptive companies achieve success is because they are customer-centric.
- Customer-centricity improves value proposition and brand power.
- Customer loyalty is a double-edged sword – swaying loyal customers from your competitors will be hard, but being customer-centric is always the best approach to steal market share or better yet, create your own army of loyalists.
- Customer-centric companies command higher WTP, which is a more effective arsenal than pricing and has the best potential outcome to achieve higher margins
- Value-based organizations should not merely play catch-up with competitors, but instead reevaluate customer needs and realign products and services to serve the market differently from the competition.