In a world of hyper competition and commoditization, it is necessary for companies to find their “sweet spot” i.e. where your company meet customers’ needs in a way in which your competitors cannot. But how do you know what your customers need?
Most companies realize that they can not just “push” out their products to the market, but just reacting to the “pull” from the customers could also lead wrong. As Henry Ford said, “If I had asked my customers what they wanted, they would have said a faster horse”. Being customer centric is a way to balance these extremes and to be able to respond to customers’ real needs, not just what they say they want. Genuine customer centricity is “providing innovative solutions to customers’ unique problems”.
Many companies claim to be customer centric, but when Ranjay Gulati, professor at Harvard Business School, started looking at over a hundred of those companies, he found that only 12 really deserved that categorization. These 12 companies were customer centric in a truly value-creating way, which could be seen in their stock performance from 1999 to 2009. While S&P 500’s had a negative return of -0.6% during that period, the 12 companies collectively returned 134% to their shareholders. If you look at sales growth over the same period, it was 233% for the 12 versus 10% for S&P 500!
So why do so many companies fail? Well, most companies don’t really know their customers or markets well enough to anticipate behaviour. Professor Gulati gives five reasons why they fail:
Oversimplifying the process of knowing the customer. They think customer centricity is about CRM or customer service or listening to the customer or customer segmentation. These tools are merely starting points, which give relatively superficial insights that don’t approach an understanding of customers’ thought process.
Not realizing that customers’ attitude toward products change constantly depending on the choices they have, and their private price/value calculations.
Not realizing how fluid what customers value can be. In dynamic markets, the line is constantly shifting between product/service attributes that are purchase motivators and factors that are basic expectation that can be demotivators if absent, but whose presence don’t drive purchase decisions.
Fixating on their own products/services. Most companies pursue customer insight through the lens of their own offering. They ask narrow, product-focused questions instead of broader, open-ended questions that would give them better understanding of customers’ real struggles and challenges.
Lack of humility and curiosity. Humility is necessary to admit that one lacks answers and curiosity is needed to pursue broad, open-ended lines of questioning. There has to be genuine interest in customers as people to empathize with their struggles.
So, how do you avoid these pitfalls? For starters you need the right people. In Bearing, we often talk about the 10 personas that are needed to drive successful innovation work, and two of those are at the core of customer centricity; the Anthropologist and the Caretaker.
The Anthropologist brings new learning and insight into the organization by observing human behaviour and developing a deep understanding of how people interact physically and emotionally with products, services and places. By keeping an open mind, and a genuine interest in people, they have an ability to “see” what others don’t notice. They don’t ask questions like “How do you like the lettuce?” but instead they observe how a family shop for food, how it is stored, prepared and served and what happens to the leftovers. It is insight like that that led to the invention of pre-chopped, washed and bagged salad (with a considerable higher profit margin than the included ingredients).
The Caregiver delivers customer care in a manner that goes beyond mere service. Good Caregivers anticpate customer need and are ready to look after them. When I visit my local bike shop, I know I will get great service. They know me and my bikes, how much I ride (or little this past year) and what type of riding I prefer. They always offer advice on new products or parts that need replacing. Sure, I could get the parts cheaper from some on-line store, but the customer care I get at the local shop is worth more than that. The Caregiver is not only giving good service. Their interaction with the customer is also an important way to gain insight into how your products or services are valued and an early indicator of if customers’ attitudes are shifting.
Even with these personas present there are still hurdles to pass to become truly customer centric, but without them you will most certainly fail.