Throughout history, many commercial successes have base their strategy on a great product. The accuracy of certain designs and their practical application in wide-range environments has led entrepreneurs, small, medium, and large companies to success on the market, generating millions in profits. Post-It notes, mobile telephones, or tissue paper (originally sold under the brand name Kleenex) are some notable examples developed throughout the last century, in which the preliminary work on an idea and a project played a decisive role in what would later become true blockbusters.
There are numerous examples that illustrate why a product’s technical superiority has prevailed for decades as a starting point over other key aspects of the sales relationship. One significant case is the ink pen. Conceived by brothers Laszlo Josef and George Biro, it attained its popularity thanks to allied air force pilots during World War II. While fountain pens leaked at high altitudes, this new invention worked without a problem in whatever the situation was. The product’s popularity was almost ended by later problems with the quality of ink, but the modifications made by the American Fran Seech and the subsequent commercialization under the name Paper Mate, undertaken by the Frawley Pen Company, overcame doubts and proved to the world that the pen was a great idea.
From this perspective, the key to sales lay in having a winning product. That is to say, an object or service whose benefits were such that its commercialization would only depend on its availability and circulation. Therefore, the Marketing actions necessary to achieve these results would be geared towards demonstrating the product’s qualities.
However, there has been more than enough proof over time that in the market game, there are many other factors worth keeping in mind, but which are not always equally attended to. Even in the Paper Mate example, not everything was so rosy. In fact, it was consumers’ rejection of the initial model of the pen, especially among the collectives who could have the most interest in it - such as banking or education – which came close to sinking the invention. It’s not always enough to have something exceptional to sell; it is becoming more and more important that the offer provide an added value and satisfy a market need.
For years the product has been considered as the basic element of the sales action, followed by its promotion. That is to say, Marketing actions aimed at communicating its existence and achieving its sale. However, on the other side of the transactional relationship, the customer has been waiting, as a passive subject that reacts positively or negatively if the combination of product, price, promotion, and positioning (the famous “4 P’s” of Marketing) is the right one.
However, recent decades have brought about a series of significant changes that have forced a re-thinking of the traditional plan. For one, the number of offers on the market has increased so spectacularly, that it is no longer enough to have a winning design in order to generate sales. Competition is very high, which causes companies to frequently resort to two factors in order to shift the balance in one direction or the other: price and variety (product specialization). On the other hand, consumers, who are exposed to a greater amount of offers, as well as to more information for comparing quality and price, exercise growing pressure on manufacturers and service providers that not everybody can resist.
The worsening of competition, together with the appearance of a new customer profile, which is much more demanding, educated, and selective, makes it vital for companies to face a great challenge: the shift of their organizations from the obsolete focus on the product towards a new, much more stimulating focus: the customer. An agent with whom we must have a dialogue, to whom we must listen and whose changes we must know how to observe.
The customer becoming the answer to efficiency problems in traditional Marketing paradigms is due to several determining aspects. The first one is the customer’s ability to provide organizations with valuable information, with which they can adjust their offers more appropriately for the market needs, as well as specific information about a product’s or service’s operation in order to adopt appropriate strategic decisions.
The so-called “information society” has brought with it a new way of facing business. The different communication channels available to those responsible for strategic decision-making generate a daily volume of information so great that it becomes difficult to process it optimally.
In Spain, 73% of Marketing and Sales directors feel “overwhelmed” by the information they receive from their customers, so that 44% of them admit that if they had had the appropriate information at the right time, they would have changed decisions they made, since they were made based on incorrect information and hypotheses.
The general perception of information overload must not hide the fact that the very information that is gathered in large quantities but with which nobody knows what to do, how to filter and analyze it, and how to take advantage of it later, is the best raw material for discovering fundamental aspects of the business. The information that comes from the consumer base defines the consumers individually and collectively, describes their tastes, their preferences, and what least attracts them about the company’s sales proposal. Even with the appropriate mechanisms and techniques, it allows us to anticipate the customer’s future behavior, as well as how to better form the offer that is launched.
On the other hand, the customer has become the element that holds the key to a company’s success or failure, according to whether or not they go to the competition to consume the products or services of a rival from the same sector. Obtaining new customers, retaining those you already have, and above all, guaranteeing their satisfaction level in order to encourage them to try new services, are all part of the new objectives for current companies.
The biggest barrier companies confront in optimally facing this challenge are the economic circumstances of the market. Obligated to stick to the ruling of the results, every three months companies present shareholders and partners with a balance sheet of their activities. This will determine aspects such as dividend distribution, the fluctuation of stock prices on the Stock Market, and consequently, the maintenance or alteration of strategic plans in order to adjust them to the market situation and meet previously established goals. Market law has imposed the adoption of short-term strategies designed to disguise figures as you go, but at the same time it has led companies to leave behind the basic element on which they should base their decisions.
Apart from the problems derived from business logic, there are two other fundamental aspects to putting the customer at the center of the business strategy. On one hand, many organizations’ lack of ability to know their own consumers, obtain information on them, and analyze it appropriately. On the other hand, the belief that the customer cannot be thought of as a quantifiable element for the company; that is to say, an asset whose value can be precisely determined in market terms (benefit and profitability). As we have seen earlier, the consequence is the adoption of means aimed exclusively at strengthening sales.
We have dramatically entered a new phase in which we are faced with the decision between the product and the customer. The most convenient trend in recent years has been opting for the product as a cornerstone in companies’ strategies. It has been that way to such an extent, that almost all corporations have installed the controversial figure of “product
manager”, who is responsible for the design and launching of new products and services onto the market, on which the company’s future growth can be based.
The problem lies in that the product itself is no longer important; the brands and their perception are what companies value. The segmentation and specialization of the offer have reduced the number of new products, although it has increased its diversification.
The focus on the product is still strong in many companies such as financial or insurance entities, in which departments are still divided according to services offered (Life, Home, Multi-risk, Travel…). Few companies have considered the need for a “customer manager” or “segment manager” who assumes the task of approaching and studying the customer in order to design an appropriate sales strategy that doesn’t depend exclusively on what is offered or on promotion in sales channels.
The product manager is responsible for analyzing, planning, and developing new products, as well as controlling the image and results of the company’s other products or services, and testing their efficiency before launching them. The challenges of a “customer manager” would be similar and intimately linked to those tasks. The “customer manager” would have to analyze current and potential customers, as well as plan and develop strategies aimed at improving customer relationships, identify and retain the most profitable ones, and determine new sales initiatives from the information the market provides. From this point of view, the product is not an area that is foreign to customers, but rather one that depends on them in every way.
An orientation towards the customer is necessary when trying to achieve profitability. But in order for this orientation to work, it must affect the entire organization. A good example is the one found in telecommunications companies, in which there is usually a commercial re-organization based on the customer’s size and value. In contrast with other types of companies who organize their structure according to their different products, these companies divide their market into three large areas: Residential, Companies, and “Soho” (“Small Office Home Office”). Establishing this previous division is without a doubt an encouraging first step. What is important in the end is detecting what customers are the best, and not the income they provide without paying attention to the spending they originate. For this reason, it is imperative to take the step from an organization focused on the product, to a true “customer centric organization”.
The classic “Marketing mix” has come up short over time. It is necessary to add the new element represented by the customer to the previously mentioned factors of product, price, promotion, and positioning. Philip Kotler, one of the world’s greatest marketing experts, and father of this famous sequence of words, proposed expanding it in this sense, aware that market evolution required the introduction of a new element that better represented reality and the consumer’s power on the industry. Even more important for Kotler is determining the value of each of the elements that form part of the business chain.
Defending the customer as an organization’s sales strategy focus has had much support. In this sense, the definition of the concept of the “balanced scorecard” in 1992 by Robert Kaplan and David Norton gave solid backing to the consumer’s importance in designing a successful strategy. Both of them warned of the importance of adding value by orienting the company towards the customer. That is to say, aiming for their satisfaction.
For Kaplan and Norton, the customer had to be at the same level as the other perspectives in the organization. Since the customer is a factor that can increase a company’s competitiveness, the company must analyze its customer base, starting with a correct segmentation, and then determining the value and quality of each one of the segments. With that end in mind, they must take into account a series of indicators such as customer service and the company’s image, as well as the results derived from adjusting what the customer wants to what is offered. From this relationship, we can obtain information as important as customer satisfaction level or a company’s market share.
What the previous models tell us is that it is necessary to go beyond what has been done up until now: the customer has to become the element around which all of a company’s departments align, including such disparate areas as Logistics, Human Resources, Finance, and Technology.
Despite the fact that they are aware that this orientation towards the customer is becoming a priority, the majority of large companies are facing big difficulties in undertaking this change. It is understandable that companies anchored in the product for years, whose structures are entirely on this element, have difficulties in making a change of this scope.
The first step any company must make if they want to re-orient their entire strategy from the product to the customer is to assume that each customer can be evaluated by their current value, as well as by their capacity for a lifespan in the company. That is to say, their potential value.
These days, every large organization is capable of measuring their customer’s spending. Unfortunately, many of them do not go any further. Use of a product or service, spending frequency, profitability, transactionality, channelability, and the customer’s socio-demographic profile are some of the new parameters that allow us not only to know a consumer’s value, but also their potential evolution over time.
Bankinter has been able to implement this concept in Spain with remarkable success. This entity, the main multi-channel bank in the country, applies more than 1,000 specific variables to their customers that allow them, thanks to their experience and to the information they gather and process, to know not only what their customers are like, but also who the best ones are, and what the profile is for a good customer.
If it is possible to determine a customer’s value according to their habits, tastes, social and geographical position, or their quality of life, it is also possible to find out which customers are most valuable and which are less valuable, and design different Marketing, sales, and assistance policies for each profile.
Once at this point, a company can improve its resource portfolio. That is to say, it can assign the appropriate jeans to the most appropriate segments, increasing the efficiency of its sales policies and making its investments profitable.
When the situation is considered from this perspective, we see that in order to increase sales and generate more income, we must not try to gain more customers at any cost. In any case, we must attract those with a higher value, and, better yet, we must retain those we already have.
According to Daemon Quest estimations, churn rate fluctuates between 10% and 15%. This means that, in little more than 6 years, a company ends up with the equivalent of a renovation of the entire customer base. There are sectors in which these percentages are notably higher, and others in which they are lower. This however is not always a positive factor.
In the insurance and telecommunications industries, customers’ resistance to changing companies is very low, in part because of inconvenience and the difficulties this process sometimes entails. The problem is the, in the majority of cases, the customers that decide to leave the company never come back. Therefore, the possibility of recovering a good customer in the future is drastically reduced. Moreover, given that a consumer tends to communicate dissatisfaction before communicating satisfaction, these consumers automatically become transmitters of a negative image of the company, which affects the possibilities of turning to their direct influence environment in search of new customers.
A company cannot afford to lose its most profitable customers for the simple fact that it enters into their estimated customer loss. This absurd line of argument is part of the logic of the great majority of companies, who consider it normal that their control and administration departments have detailed financial scorecards, but do not consider the need for similar instruments for customers, aimed at knowing the true value of their portfolio. This would allow them to carry out selective obtainment tasks, optimizing the value of their accounts and generating greater value for the organization.
In order to stop this threat of customer loss and try to control the information they generate, many companies have relied on tools such as CRM (Customer Relationship Management) for their strategies.
It is fine for a company to invest in technology that optimizes their administration processes, as long as it doesn’t think that technology alone will be able to undertake the great organizational shift towards the customer that we spoke of earlier.
This explains the high failure rate associated with CRM implementation –it approaches 70% in Spanish companies, according to Daemon Quest’s estimations- , and the relative success of the implementation of ERP (Enterprise Resource Planning) solutions. What is the difference between one tool and the other? Many companies already know: while ERP providers have limited themselves to selling technology meant to improve administration processes, CRM providers have added the promise of cleaning up companies’ results accounts.
Currently, the majority of companies are aware that the change from structures focused on the product to structures focused on the customer does not depend only on software, as useful and advanced as it may be. The only way this “great leap” can happen is to aim the entire company towards the only objective capable of truly assuring success and profitability: knowing the customer.