Product-centric companies are focused on making the best product for their customers. The have a product-oriented organizational structure (i.e. organized around the different types of products and services it delivers) and are focused on creating value through cutting-edge products, useful features, and new applications. Their competitive advantage is product expertise. However, there are cracks in this product-centric approach.
Technology-enabled product development is leading to commoditization. Technology-enabled information flow is leading to smarter customers. Technology-enabled delivery is leading to retail saturation. Globalization and deregulation are also fostering increased competition to the product-centric approach. Further, customers today want “end-to-end solutions,” which may require products/services from multiple vendors.
Customer centricity is a strategy that aligns a company’s development/delivery of its products/services around the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm. Customer centricity requires the company to be willing and able to change its organizational design, performance metrics, and employee/distributor incentive structures to focus on this long-run value-creation/delivery process. For example, the “employee of the month” should be measured not by how much they sold that month (backward looking), but instead by how much they increased customer life-time value (forward looking). You want to encourage salespeople to build long-lasting relationships—not just close sales—even if they’re not getting anything out of it right away. Success arises through enhanced (and/or more efficient) customer acquisition, retention, and development.
You also want a customer-centric organizational structure. Ideally the entire org chart will be built around the different types of customers the company has and the different ways the company will extract profits from them. The competitive advantage (vs. product centric “product expertise”) that stems from customer centricity is “relationship expertise” with respect to focal customers. Customer relationship data can’t be commoditized.
Customer centricity does NOT suggest that “non-focal” customers should be ignored or “fired.” To the contrary, it is important to have a healthy proportion of such customers to add a high degree of stability and robustness to the overall customer base. Think of these customers as cash in an investment portfolio. Taking this idea further, there is a paradox of customer centricity: the more that a firm tightens its central focus on a select group of customers, the more it needs its “non-focal” customers to stabilize the overall mix.
In taking a customer-centric approach, you should ask yourself the following questions:
- Who is the customer? Can your organization come up with a single, consensus answer to this question, or can you at least reconcile the roles/relationships of the different potential customers?
- What are the major barriers to account for? Develop a comprehensive list, ranked by the importance/difficulty of each barrier (i.e. data, regulatory issues, cultural differences, etc.).
- What resources can you utilize to overcome these barriers? (i.e. financial—invest in data systems, cultural—hire the right people, etc.)
- What are competitors doing in this area? Is it better for everybody to be customer centric or only you?
- Does it make sense for your organization to become customer-centric? If so, what should be your immediate goals and medium-term expectations?