MANAGEMENT/ LEADERSHIP SPECIAL.......................... Step Back

Step Back 

Leaders need to stop thinking about the product — and start thinking of the customer

    For all the lip service paid to customer orientation and customer-centricity in companies today, they remain surprisingly product-bound. Walk into any planning meeting or listen in on hallway talk between managers and you’ll find products squarely at the centre of conversations. In fact, the very structure and processes of their businesses belie their productcentricity: they have product divisions and product managers, profitability is generally measured by product (not by customer), budgets are productbased, incentives and bonuses are tied to product volume moved, and the managers’ hopes and aspirations are pinned on product innovation and the new product pipeline.
    It’s time to go beyond the talk, and take a hard look at the meagre results of our customer centricity efforts. The benefits of customer-centricity are not just happier customers. In a world where products and features are quickly replicated by competitors, and where production scale advantages count for naught because everybody is buying components and ingredients from the same massive suppliers who pass along their economies of scale, differentiation in downstream activities – those related to interactions with customers -- is one of the few means of building lasting n advantage.
    Three types of companies have a particularly difficult time tilting their strategy toward customers. First are companies in industries that have always been productobsessed, such as technology and pharmaceuticals. Here, expectations of developing the next big blockbuster encourage firms to make large investments in R&D, new product development, and factories. But most new products fail. And many fail because the companies have poorly understood customer needs. And many of those that succeed are not the ones with heavy investments in R&D – they are the ones that have understood and shaped customers’ criteria of purchase or made it easy for customers to buy.
    A second type of company that remains wedded to its products is the commodity seller – the company that believes that because it operates in the bulk iron ore or generic chemicals business, it does not need marketing because it cannot differentiate itself anyway. These companies find themselves under severe cost-cutting pressure that leaves little room to make investments. Both R&D and customer initiatives are starved.
    Finally, there are firms that are stuck at the far upstream of a value chain. They are suppliers to suppliers to suppliers of companies that sell branded goods. These companies have convinced themselves that regardless of what they do, their non-product differentiation efforts will never be noticed or attract any form of premium, whether in higher prices or greater customer loyalty. They may dream about moving up the value curve, but their efforts to do so have been adhoc and fruitless.
    Regardless of their different starting points, all three types of companies could do better by getting a better grip on what customer-centricity really means. A starting point is to ask the following simple questions: (1) why do our customers buy from us rather than from our competitors? (2) why do customers buy from our competitors rather than from us? And (3) why do some potential customers buy neither from our competitors nor from us?
    To answer these questions, it helps to widen the lens through which we look at our customers. Too often, businesses focus on the point of sale, because this is where the money changes hands. But stepping back from the transaction allows us to examine many more moments of truth: how customers come to know of our products and about competing products, how they consider, choose, buy, and pay for their purchase, and how they store, use, and dispose of the products. Looking at the entire breadth of interaction helps uncover costs and risks that our customers incur in buying or consuming our products. If you’re a brewer, these costs and risks can be as simple as the cost (effort, time, and resources) that a consumer incurs to buy and chill a beer before drinking it, and if you’re an enterprise software developer, they may be as complex as the time and risks of integrating a new organization-wide software system with the existing IT infrastructure.
    Reducing these costs and risks offers an opportunity to break away from the product arms race that you and your competitors are engaged in. It allows you to create new forms of value for the customer.
    Innovations in the downstream, in the marketplace, are even more important than innovations in the upstream, in products and production processes. Most companies today have well-honed capabilities in developing new forms of value in the upstream: think of all the well-established, step-bystep processes defined by stage-gates and milestones that guide pharmaceutical firms in developing a new drug molecule, or that automobile companies use in designing a new car model. But when it comes to systematic processes for creating new forms of value in the downstream, there is no R&D lab, no R&D manager, no R&D budget, and most importantly, no R&D process. Truly customer-centric firms are those that are building systematic processes for creating new value in the downstream.

NIRAJ DAWAR, 51,
is Professor of Marketing at the Ivey Business School, Canada. He did his PhD from Penn State and Post Graduate Diploma in Busines Management from XLRI, Jamshedpur. His work has been published in Harvard Business Review and MIT Sloan Management Review and leading academic journals in marketing.
His most recent book is TILT
Shifting Your Strategy from Products to Customers, Harvard Business Review Press, November 2013

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