Businesses, and in particular, consultants have a habit of catching onto a word or concept and squeezing the life out of it. ‘Fad surfing’ a good friend of mine calls it, borrowing from a book¹ entitled such. So everything is about ‘innovation’, then it is all about ‘collaboration’ and so on. This is not to deny the importance of both of these topics, but merely to illustrate how thoughts suddenly emerge and capture a large part of our day to day agendas. Right now, it seems that it is all down to ‘customer care’ or ‘customer focus’, or ‘customer centricity’, or even ‘customer intimacy’ as the answer to ongoing commercial success.
And indeed it might be.
As we move, tentatively, into a post pandemic world (or more accurately, a world where we have worked out how to live with the virus), I believe the relationship with customers will shape many of our operating models.
I have long been a fan of basing a business model around the needs of customers, but not as the only path to success. Way back at the end of the last century (!), Treacy and Wiersema published their book ‘The Discipline of Market Leaders’² and suggested that there are only three ways to achieve market leadership:
Through operational excellence: achieving a high level of convenience at lowest possible cost
Through product leadership: pushing product development continuously into the realm of the unknown, untried and highly desirable
Through customer intimacy: building customer loyalty through relationships, recognising and responding to individual customer needs
At this point, we will all be craving examples and arguing whether Apple is product led, or customer intimate, or whether Amazon is purely about operational effectiveness. But the truth lies in the need to achieve some sort of level of performance in all three dimensions. No good if you have a world beating product but no way to attract customers, or you are unable to achieve production at a price considered reasonable by the market.
At the risk of jumping on the current bandwagon, or do I dare say catch the current ‘fad wave’, I want to explore one of these dimensions. I do so for two reasons:
For the first time in the many generations of business, when production has been divorced from local communities, the customer is now at the centre of lasting competitive advantage, and
There is potential for one simple term to be interpreted in a variety of ways and there is a real danger that a stated desire to focus on customers may not be matched by organisational commitment.
To the first point. Why is customer intimacy on the agenda for so many businesses right now?
With the digital age comes the battle for the last mile to the customer and with it the reshaping of supply chains. There was a time when you had a product and you took it to market and it succeeded or failed based on a cocktail of product features, perceived benefits to the customer, price and some sort of service promise. But that has all changed now.
I have just bought some printer ink and, having tried to buy from the original equipment manufacturer (OEM), loyalty being a personal influence on my buying patterns, I find the ink out of stock, but in plentiful supply from Amazon. So, Amazon has managed with consummate ease to insert themselves into my supply chain. They have taken charge of the ‘last mile to the customer’ and will soak up any spare margin that otherwise may have been available to the OEM.
And on a much larger scale, how much engineering expertise is acquired through EPCM (Engineering, Procurement and Construction Management) contractors? Based on their ability to interpret the needs of the customer they are able to extract margin that would otherwise be available to the engineer who has proudly developed the technology needed for a successful project.
Of course this has always been the case. Brokers exploiting the imperfections of the marketplace is not new news. But the extent of this activity is what has changed. Owning ‘the last mile to the customer’ provides an opportunity to access a global market to ensure the lowest possible cost for a specified level of performance. Our digitally enhanced market places mean that we can source from anywhere and create a margin purely from being an access point for a customer. The digital marketplace will be making it difficult to achieve a sustainable competitive advantage through ‘operational excellence’ and, to some extent ‘product leadership’ and so we turn to ‘customer intimacy’. How can we make sure that our business can achieve direct contact with our customer so they prefer to deal with us directly and are prepared to spurn the intermediary?
And when we have achieved direct contact, do we know what to do with it? I am amazed at the number of organisations that are prepared to sub-contract ‘the last mile to the customer’. Deliveroo and Just Eat commoditising my carefully built brand through a single customer experience. Or ‘customer service’ being sub-contracted to a remote call centre, armed only with a script and little guidance on discretion.
This takes us to the second point. Do we really need to be customer centric to be able to achieve the returns we need to sustain our success? Can we survive and thrive through continuing with our product leadership or operationally excellent business models. This is where it will help to be precise on what we each mean by customer centricity. As I started writing this note, I was distracted by an exchange between two colleagues who were both facing service issues with their broadband suppliers. Both organisations would claim (through significant investments in advertising on television and through other media channels) that they are customer service orientated and yet both failed to provide the service needed by each of my colleagues. Relatively simple technical issues needed to be resolved, but the combination of remote call centres, poorly trained operatives following a prescribed text and lengthy waiting times through the process cost both organisations ongoing custom. The final chapter for one, was a weak offer to reduce the price (offer rejected) and for the other, the observation that ‘they wish they had known they had been a customer for 18 years’!
It is this precision that we will seek in the rest of this article. We have classified levels of customer centricity into five broad areas and attached a header to each. Others will use similar terminology to describe different activities, but this has worked for us! I should add that, for the purposes of these definitions we will assume sufficient competence in each of the other elements cited by Treacy and Wiersema: product leadership and operational excellence.
Level One: Customer support
Our customers come to us because we are technically the best available to our market. Or our investment in the brand has created a barrier to entry to our customers. Or difficult to replicate because of geography and our proximity to the customer. Or we are the most significant force in our market, we have defined the technical benchmark for our product range.
It might be that technical competence will be enough to sustain success, but many have been caught through lack of preparation for new sources of competition. The ‘customer support’ role will be purely that: to support customers as they seek the technical benefits from our product. Customer support will likely be there to resolve technical questions and deal with logistical issues should they be experienced during delivery.
In this case, it may be worth batting away the inclination to become more customer focused, but I would be quietly investing in ensuring that ‘customer support’ become skilled in really listening to customers so I would be in a position to spot a possible change in attitude towards us and to glean data on the emergence of possible new competitors.
Level Two: Customer care
We are clear about our offer and have well defined product ranges and routes to market. But we are experiencing levels of dissatisfaction from parts of the market and believe that we need to tap into customer opinions in order to understand trends and changing needs.
But we have no need, nor intent, to change the way we operate. It will be sufficient to adapt our products and routes to markets where we seem to be missing out on additional business.
Here it will be important to ensure that our marketing endeavours access, and process efficiently, feedback from customers and the market more generally to ensure that our products stay relevant and that we are in touch with any changing demands.
Yes, we listen to customers, but only to the extent that we need to so that we can maintain our established business model. There may be a need to manage the overzealous customer service desk, but at the same time ensure there is a way to hear the early occurrence of messages that suggest a change in direction may be needed.
Level Three: Customer focus
We have been in business for many years and our model enjoys excellent after sales revenues for parts and service. There is considerable loyalty to the brand and this is evidenced by impressive repeat business across all geographic markets.
Here is the emergence of real competitive advantage from listening to customers. For reasons that it will be important to understand, customers are loyal to the business because of repeated good experiences. Focusing on customers and listening to them can lead to additional business and increasing levels of loyalty. Their input won’t change what your business does, but may change the way it delivers.
I recall some while back talking to an engineering client that manufactured critical equipment for the mining industry. Failure would lead to outage with a financial penalty far in excess of the cost of the equipment. So, alongside the original equipment came a service promise. Competitors were approaching with cheaper options, but they held on through service levels and a commitment to product development designed to minimise outage through improved metallurgy. A really good example of customer focus: taking our business model and making sure that it meets the customer’s real (even if unspoken) need.
Despite the lack of any need to change the business model, this is the first level that may require a significant behavioural shift. There will be a need for the organisation to develop an agile response to customers’ changing needs. No good an engineer coming back from a customer having identified a problem only to be met by an unresponsive (or under-resourced) product development/engineering function. If we are to be customer focused, we will need to ensure the whole organisation is available to back the customer.
Level Four: Customer centricity
It may be difficult to distinguish this from Level Three, but I believe the difference lies in the scale of change that will be required. Customer centricity becomes essential where little or no competitive advantage can be achieved through product differentiation and price has become a dominant factor in a customer’s buying decisions.
Two examples: one in building supplies and one in retail. In the former, we have what many would see as a commodity product, but is actually a technically advanced product that has better energy conserving features and is lighter and easier to install. But the end user wasn’t seeing the benefits because of intermediating distributors. For the business to become customer centric, it needed a fundamental change to the whole organisation so that it could segment the market to identify and reach the end user directly, provide direct service support to them and ensure that the business’s production schedules could deal with the variety of different customer demands. Over a period of some years, it moved from large batch production to smaller delivery volumes more regularly delivered.
In the second, our retailer is having to come to grips with intense price led competition from major high street names and their home delivery capability. Their challenge is to build competitive advantage from their locations so they become a neighbourhood preferred supplier. It means an adapted range of products dependent on local demographics and a significant uplift in the service capabilities of the front line teams.
In both these examples there is a significant change needed in the way the organisation operates. In both the change needs to place the customer as a major influence in the way the organisation functions. The corporate pyramid needs to be inverted so that the customer and front line teams are at the top and the rest of the organisation is in support. Best to include a diagram at this point:
Not easy to achieve, so customer centricity really needs both thought and a mission critical need for change. It will mean a wholesale culture change to achieve the corporate attention needed for success. Not just something to be managed by the marketing department.
And finally:
Level Five: Customer intimacy
Ordinarily you might be thinking this is the ultimate! And that the previous levels are all progressions to this point. But no, we reserve the ‘customer intimacy’ level for rather specialised enterprises.
Think about a bespoke tailor. You might end up with a suit, but that is not what you paid for. You could have sourced a suit for a fraction of the price, but what you paid for was the personal attention, the style advice, the prestige of a unique product and, probably the reliability of service over time.
A truly customer intimate business is likely to be best suited to a boutique existence purely because of the difficulty in scaling the model. It requires very experienced and customer orientated people right next to the customer and most organisations keep the most experienced away from the customer!
But let’s not give up too easily. I can see customer intimacy being an essential component for hotels, restaurants, care facilities, airlines, in fact anywhere where there is a need for experienced and senior people right next to an end user who has the capacity to influence ongoing spending decisions. Not easy to achieve and carrying a need to be able to trust front line people to make decisions on behalf of the company and commit to them contractually.
We alluded to organisational change in the previous examples. This is probably so fundamental that it needs to be in the DNA of the organisation and probably started with the founder. Expansion as a customer intimate business may require sourcing like minded people across all locations. Either a task for a very sophisticated talent attraction and development function or an appropriately focused franchising operation.
In conclusion, finding the right level of ‘customer…..’ is a strategic decision that needs to be driven by the particular need of each business and not through following the latest fad. But I see the customer as the last and most enduring barrier to entry. So worth spending time looking at how to capture the ‘last mile’ to your customers and building a culture to match.
We have compiled a few questions that we see as key in any post pandemic reset. They are attached and because they are general in nature, there is no right answer. They are designed to prompt an individual response dependent on the exact circumstances of each business.
The lasting impact of the pandemic will be a reappraisal of many of our relationships. It will be unwise to assume that customer behaviour will revert to pre-pandemic norms. Getting closer to your customers than any competitor, existing or new, will be an imperative.
Keeping customers in a post-pandemic world
Written by Peter Ward, Senior Consultant at Telos Partners 13 April 2021
Footnotes
¹ Fad Surfing in the Boardroom: Reclaiming the Courage to Manage in the Age of Instant Answers by Eileen C Shapiro. Published by Perseus Books.
² The Discipline of Market Leaders by Fred Wiersema and Michael Treacy. Published by Addison-Wesley.
APPENDIX
Our key customer questions for the post pandemic world
1. Has our customer landscape changed?
Different people buying?
Different needs?
New competitors?
2. Are you witnessing a change in customers’ desired relationship with us?
Customers’ behaviour continues to be driven by their immediate need for our product or service
Customers’ behaviour continues to be driven by an ongoing ‘trusted provider’ relationship that drives ongoing demand for our products or services
Customers’ behaviour is changing to prefer sourcing from a ‘trusted provider’
Customers’ behaviour is changing so that the ongoing relationship is less important
3. Has our pandemic performance impacted on customers?
Positive experiences that need to be continued?
Negative experiences that need to be addressed?
4. Are we clear on the source of our competitive advantage and the desired relationship with customers?
Our competitive advantage lies in product leadership or operational excellence, so which best describes our approach to customers?
Level One (support)?
Level Two (care)?
Our competitive advantage lies in being closer to customers, so which best describes our approach to customers?
Level Three (focus)?
Level Four (centricity)?
Our competitive advantage lies solely in producing goods and services uniquely fashioned around the customer, so does Level Five (intimate) capture the approach we need to take?
5. The pandemic has accelerated the digitalisation of our channels to market and often the expectations of customers. There is arguably an increased need for authenticity in our messaging to customers. Is our brand promise supported by the right level of attention to customers?
6. In support of our desired level of customer relationships, are we achieving ‘hygiene level’ performance in the business:
Are we producing products and services that are broadly competitive, if not distinctive?
Are our operations enabling us to deliver products and services at a reasonable level of cost and reliability?
7. Are we organised effectively to listen to customers and meet their needs?
Levels One and Two: are we resourced effectively to capture input from our customers?
Levels Three and Four: are we prepared to change the organisation to provide the emphasis needed to be distinctive through customer relationships?
Level Five: are we confident that our organisation will continue to be centred around the needs of the customer?
8. In conclusion, is there a need to explore
The authenticity of your brand messaging?
The effectiveness of your organisation to meet customers’ needs?
Additional resources to explore the development of competitive advantage through ‘customer intimacy’?