TILT: SHIFTING YOUR STRATEGY FROM PRODUCTS TO CUSTOMERS
AUTHOR: Niraj Dawar
PUBLISHER: Harvard Business Review Press
If you're trying to build lasting competitive advantage in the downstream, you'll need to define innovation much more broadly. The folks in marketing and even sales will need to take charge of innovating rather than leaving it to the geniuses in the new-product development department alone.
The starting point for any exercise to build competitive advantage in the downstream is to uncover the hidden points of pain in the interactions between you and your customers. Three questions help enumerate these points of pain: (1) What are the hidden costs that your customers incur in buying and using your product or service? (2) What are the hidden risks that your customers incur in doing business with you? (3) Why do potential customers not buy from you (in other words, what are the costs and risks that prevent potential customers from doing business with you)?
It is not unusual if both your customers and your own team are oblivious to the costs and risks that you impose on buyers, simply for doing business with you. If you're a brewer, these costs and risks can be as simple as the cost (effort, time, and resources) that the consumer incurs to chill a beer before drinking it. If you're an enterprise software developer, they may be as complex as the risks of integrating a new organization-wide software system with the existing IT infrastructure. As you answer the question, you may find that similar costs and risks are imposed on customers by your competitors. In fact, many of the costs and risks we impose on customers are industrywide practices, and because everyone imposes them, they are widely accepted and invisible. Invisible, but still costly. When was the last time you gave a second thought to how much effort your customers expend comparing your product with your competitors'? Where do they get the information? Which criteria do they use? How many other brands do they consider? How quickly do they arrive at decisions? If you can uncover the costs and risks the customer incurs in this process and find ways to eliminate or reduce them before competitors do, you will have the basis of a downstream competitive advantage.
Businesses rarely pay enough attention to the customers' costs and risks because these aspects of a transaction tend to be invisible to the seller too: they occur either before or after the transaction, when the seller is not yet, or no longer, paying attention. The sellers' attention still tends to be focused on a narrow sliver of the overall customer interaction where money changes hands. A more comprehensive view of the customer points of contact increases your chances of uncovering customer costs and risks that competitors have not spotted.
Furthermore, in many industries, customers' costs and risks are incurred downstream, in the marketplace, while the seller's field of vision is firmly anchored upstream, in making the product or making it better. Reducing downstream costs and risks releases significant and tangible value - so much value, in fact, that often the costs and risks incurred by the customer far exceed the monetary price the customer pays for the product.
A few years ago, a senior executive in the automobile industry, Wolfgang Reitzle, proposed a radically new idea. At the time, Reitzle was the CEO of the Premier Auto Group (PAG), the luxury-brand division of Ford. PAG sold cars to affluent customers around the world. The automobile market has always been segmented by the buyer's income and family size, and carmakers develop different brands or models to target each segment. The Chevy segment of consumers is different from the Cadillac segment, the Mini segment is different from the BMW 7 series segment, the Corvette segment is different from the minivan segment, and so on.
With its customers generally in the higher income brackets, PAG addressed their needs with brands such as Jaguar, Land Rover, Aston Martin, Volvo, and Lincoln. Many PAG customers live in urban enviornments, where owning more than one car is a hassle, mainly because of parking limitations. Furthermore, many of these customers are mobile, travelling frequently both for business and for pleasure. Reitzle realized that PAG and all of its competitors were selling a fairly rigid solution (essentially a metal box on four wheels) to customers whose needs varied from day to day.
In other words, Reitzle realized that the rigid metal vehicles that car companies sell provide only a partial solution to the customers' car needs, part of the time. A more flexible and complete value proposition could be delivered if automobile companies would consider devising a "mobility solution," Reitzle suggested, and see themselves as mobility companies. In essence, he suggested devising a contract that allows the customer the use of an occasion-appropriate vehicle at locations of their choice around the world. Customers could pay a premium price, say, $50,000 to cover a two-year period, to have the convenience of requesting any car in the company's stable, anywhere in the world, with a twenty-four-hour notice, provided they used only one car at any given time. They could have the convertible on weekends, and the city car or the limousine on weekdays, and the 4x4 on landing in Dallas or Dubai. This was a radical proposal in an industry whose identity is closely tied to its factories and its products and where customers' identities, too, are closely projected through the cars they own and drive.
More than most others, this industry views the world through the prism of its upstream infrastructure and its products.The starting point in the development of a mobility solution is the identification of the hidden costs that the car companies impose on consumers.
Reprinted by permission of Harvard Business Review Press. Copyright 2013 Niraj Dawar. All rights reserved.
Share risks and costs with customers
What was the motivation for Tilt?
For more than 20 years, I have been working with managers who claim to be running customer-centric companies. While probing into the history of various companies I figured they were actually centred around products. Tilt aims to bring customers back into the strategic conversations at companies.
What are the ways in which a company can build competitive advantage without splurging too much of its resources?
A company can reduce its costs and risks and that of customers at the same time. In India, Uniphose, a company that sells phosphorus to farmers across the country is a great example of this. Many farmers don’t buy phosphorus for their farms because the application equipment required is too expensive. The company provided the equipment to the retailer selling phosphorus who rent it out to the farmers. This business model turned out to be a win-win for everybody.
Hyundai managed to do something even bigger during the 2008 recession.Instead of slashing prices, Hyundai empowered the customers by allowing them to return their Hyundai cars if they lost jobs within a year. The company’s assurance worked — it directly addressed the buyer’s primary reason for holding back on the purchase of a new vehicle. Companies must use the available data on customer behaviour to create new ways of reducing risks and costs.
In one of his articles, management guru Dominique Turpin suggests that the role of CMO should be reinvented as CCO (chief customer officer). Do you agree?
Technology such as big data has exposed companies to new ways of understanding the consumers. Today managers are receptive to the idea of building competitive advantage by creating value for customers in ways that are not easily replicable. While this structured transition cannot happen overnight, it is doable.
professor, marketing, Ivey Business School in Canada & Hong Kong