January 05, 2009
Customers, not Products
“Customer first,“ the presumptive battle cry of the marketer, is often no more than an empty threat. Companies, particularly in business-to-business, persist in thinking of products first, and in many cases customers last. As competition increases, the product-driven firm will find it increasingly difficult to achieve sustainable profitability. The differences between a product and customer-centric firm are evident in every aspect of marketing execution and strategy, from organizational structure, to metrics and incentives, to everyday marketing activities.
| Activity/Area | Product-driven | Customer-driven |
|---|---|---|
| Firm Organization | Product management, strategic product groups | Customer management, acquisition and retention organization |
| Metrics/Incentives | Short-term product sales, revenue, Accounting Profits | Customer Lifetime Value, retention rate, acquisition rate |
| Product | Rationalizing Product mix/support based on short-term profit optimization | Rationalizing product mix/support based on acquisition and retention efficacy, alignment with the core competence/value proposition |
| Pricing | Pricing for short-term sales, transactional pricing model | Pricing for acquisition or retention, transformational pricing model |
| Channels | Organize channel by product; hybrid channel conflict | Organize channel by customer; challenge of developing sales expertise across product line |
| Communications | Tactical, product-based segmentation and communications | Strategic, benefit-based segmentation and positioning |
It is not enough to simply claim to be customer-driven; all aspects of the firm must align with this goal. To truly transition to a marketing-driven organization, we must ask ourselves the tough questions at every level of the organization.
Firm Organization: It is impossible for a firm to truly function as a customer-driven business if the reporting structure is still organized around product lines? Products are a means of delivering our key differentiating benefit to our customers on a consistent basis; tactically, they serve the purpose of either helping us to introduce potential customers to that benefit (acquisition) or to continue to deepen our relationship with our customers around that benefit (retention). For example, the Apple iPod is a terrific acquisition product; it is the “gateway drug” that introduces potential customers to the benefits Apple offers. A customer who has “graduated” from an iPod to a Mac is a retained customer.
Metrics/Incentives: If we incentivize our sales/marketing force based on product sales we are encouraging our employees to potentially sell the wrong products to the wrong customers, or to sell our customers products they do not need. In the short run we may see a bump in sales; in the long run we will see a decline in our retention rate.
Product: Product proliferation and product rationalization continue to be challenges for product-driven organizations. This is because there is no long-term strategic reason for determining product mix based on profitability. If we assume that products are developed to deliver our benefit and help us either acquire or retain customers, we must rationalize our products based on how well they accomplish these strategic and tactical goals.
Pricing: What to do when we are trying to reach our quarter-end sales goal? Drop the price! Why are our customers increasingly price-sensitive? Because we keep dropping the price! Customer-centric pricing strategies recognize pricing as a function of perceived value. A disciplined approach to pricing will protect that value.
Channels: Channel conflict emerges when the same customer has access to the same product through different channels. The end result of this conflict is customer confusion and inefficient marketing. Just as the firm should be organized in a customer-centric fashion, so should the channel.
Communications: A common approach to segmentation is to segment by customer profitability, which leads us to the following value proposition: “buy my product because I make a lot of money from you.“ A value proposition consistent with sustainable profitability adheres to the maxim: “customers buy products because they value the benefits they provide.“ The only way to achieve this is to understand the customer.
Customers, not products. For a company to be truly marketing driven, the phrase “customer-centric” must be more than simply a cliché.
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