Courage to Build a Customer-Focused Organization

Something’s eating at the heart of old-school western business, and it isn’t just a hangover from the tough economy or recent financial sector excesses. Not that long ago, iconic brands were faltering, commoditization was rampant, margins were plummeting, planning horizons got stuck quarter-to-quarter, suppliers and distribution partners were bickering, and opportunities for growth were increasingly being sought in greener pastures overseas. But like children swept up in a messy divorce, it’s the ultimate consumer’s buying experience that got caught in the middle.

You see, now that the dust has settling on the great 21^st Century economic malaise, the basic game is still be the same. Winners will still be those who delight end customers by breaking with the pack and offering them distinctly better experiences than others are. But in today’s hyper-connected world, providing better experience alternatives means making a difference in more than just your product’s features and its price.  It involves re-thinking every aspect of how your end customers learn about, find, evaluate, choose, buy, own, use, update, and share, maybe even talk about, your product, service, or solution. This is distribution.

More than ever, what customers say they crave most are better buying and ownership experiences in the distribution channels available to them, not lower prices or bigger selections. And this fundamental dynamic holds true whether your end customer is in a mature, western market or a growing emerging one. Good times or bad, customers choosing among options will always discriminate on a complex range of variables, and only a certain segment makes their decision on the single dimension of price (unless all the options are identical!). Even in tough economic times, consumers make careful trade-offs around dimensions like durability, safety, usability, personalization, returnability, installation and much more when comparing prices. This is as true in Iowa as it is in Beijing, Mumbai and Rio.

And dramatic advances in internet and mobility technology mean that new improvements to your end customers’ experiences are being pushed further and further downstream into your distribution activities and partners. The net result is that all these touch point experiences will come together to either reinforce or destroy your customer’s experience with, and therefore perceptions of, your brand. And your future.

What customers say they crave, then, are more authentic interactions at every touch point in the experience-creating channels for your offering. They  want to be treated as individuals, not abstract members of segmentation schemes. Future innovations in distribution channel experiences simply can’t be described in the arcane language of ‘customer satisfaction’ research and ‘buyer insight’ studies.

Creating competitive advantage through your distribution channels comes from looking harder and more creatively at white spaces in your industry. White spaces in distribution, once spotted, may seem hard to reach or dangerous to explore. Some members of your management team will want to turn away from such daunting prospects, calling their retreat a “return to fundamentals.” The familiar may indeed be more comfortable (i.e., “doable”), but treading on old ground will typically do little to help your company change the actual experiences your customers have downstream in your channels.

This is where Frans Johansson’s thinking becomes helpful. Johansson, author of the fascinating book The Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation, synthesizes medical, mathematical, and business research into a fresh perspective on converting natural fears of white space unknowns into managerial terms. He views white space as opportunities that arise in the margins, or the unknown, where two or more industry players or marketplace activities intersect.

Using this perspective, you can start to see your supply chains and your distribution channels as simply a stapling together of one industry intersection or activity after another, all the way from components supplier to assembler to wholesaler to retailer, and with all sorts of other ancillary industries such as logistics added in at different points along the way. Often, managers in under-performing chains or channels experiencing intense cost reduction pressures, inadvertently start regarding these intersects as necessary evils - the inefficiencies and loss of control that a company must endure in order to avoid doing all the customer experience work itself. But more powerful and enduring gains in the marketplace can be made if instead you view every one of these intersects as a white space opportunity, and see that orchestrating all of them in fundamentally new ways is the biggest opportunity of all.

Classic prospect theory teaches us that, without even realizing it, managers often take bigger risks in relatively safe environments than they are willing to take in hazardous ones. It is not so much that managers cannot live with uncertainty; the real problem is that they and their organizations fear losing. In the relative comfort of one’s industry, it is easy to do badly but it is hard to lose entirely. There may be some off years, some bad quarters, and the odd product failures, but the chances of going out of business are fairly low in the medium term. The long term, as they say, is another story. And the day of reckoning may be here for many companies.

That’s why Johansson says it takes “intersectional courage” to work the white spaces between industries. Managers fear the unknown risks involved in tackling new space. Ironically, however, taking the plunge may be less risky for your company than continuing to operate in the old corporate confines of tried-and-true processes. Staying afloat in a tough competitive environment is not exactly risk-free. But for a variety of reasons, it can be hard for managers to make an accurate comparison between white space and normal business risks.

But here’s what you will likely find most frustrating on your journey: those whitespaces are more than likely hiding right out in the open. What makes such golden nuggets so hard to see is the dense fog of conventional wisdom and constraints-based thinking that the old generals in your business have long espoused, and which you are struggling to break free.  As new leaders, you must stop fighting their last war!

Of course, this is not a journey for the timid, the faint of heart, or the risk-averse. But as one senior leader recently said to me – “What’s our alternative? Follow the lemmings over the cliff?”. Maybe Woody Allen was right that ‘just showing up is half the game”. But what about the other half? And what about winning?

 

Richard E. Wilson is managing director of the advisory firm Chicago Strategy Associates, and a former clinical professor of marketing at the Kellogg School of Management and Director of the school’s Center for Global Marketing Practice. rick@chicagostrategy.com

Why CMOs Struggle for Influence

Why Verizon is Down 30%

Verizon’s FiOS strategy of taking super-fast fiber optic internet access to consumers' homes held great promise when it was unveiled. Internally at the company it was held up as the path to renewed marketplace dominance. It was going to be the platform Verizon would use to fight back AT&T and T-Mobile (remember them?) on the old carrier war front, and Apple, Nokia, Samsung, Dell, HP, Microsoft, and others on the new mobility solutions front. The company’s top-most executives, including its CEO, unabashedly trumpeted the super-fast, broadband service as savior of the old guard's future.

Things don’t seem to be playing out, and the question on the minds of next-gen Leaders at Verizon, as well as interested on-lookers, is why and what can be done about it. They might want to start by digging in with a more critical eye to that distant image, their end consumers.

Only a few short years ago I sat amazed as the head of corporate strategy at a top wireless player wagged a finger and exclaimed: “I sense you have a handset bias, but our data shows conclusively that consumers care first and foremost about their choice of telecommunications service provider, and only then about different hardware options”. As quaint and nostalgic as that view may sound, It illustrates well a pandemic problem in many of today’s long-established businesses.

It is extremely hard for died-in-the-wool veterans in any industry to give up out-dated notions of how their customers think and how well-suited their companies’ old business models are to today’s world. Certainly AT&T’s near total dependence on Apple’s innovative products must rub salt on the wound, even as it generates the core fear that drives such resistance to hearing important new truth.

In a world where customers are influenced most by exciting, innovative, often expensive, downstream hardware, applications, and retail channels, won’t the telecommunications carriers become more and more commoditized back-end providers? For Verizon, can they really build a sustainable, margin-rich growth platform by simply wiring consumers' homes with faster and faster broadband? What really sits behind Apple's, and AT&T's through coat tails, success? [Hint: think about how the iphone creates - relative to other companies' offerings in the field - actual, tangible, demonstrable shifts in end consumers' lives and mobility experiences. What used to be called "value" added before value became equated with lowest price].

At the end of the day, lost legacy players will always encounter forks on the road to reinvention, growth, differentiation, and profitability. But unless they have the luxury of monopoly, taking the path that refuses to acknowledge the voice of the customer is never the best decision.

Winning at Retail: It's the Consumer, Stupid!

In the rough and tumble world of bland consumer products offerings, thin-margin retailing, and global economic crisis, Diageo is breaking from the pack. Not rocket science here, but good,solid marketing and channel strategy thinking. They started with a basic question that other consumer market players facing horrific results would be wise to focus on.

How do we improve the customer’s experience?

Beer bought at grocery is usually consumed within a few hours of purchase. It’s also usually drunk cold. Diageo, the alcoholic beverage giant, has put those two facts together and come out with a new display space it calls a pod to act as a mini-liquor store right in the middle of a standard grocery aisle. How well it fits with grocers’ standardized formats (see photo), we will just have to see. At least one chain has already pledged to try it.

What I applaud is that Diageo isn’t going brewers’ standard route: splashier ads placed in more media. It’s looking for real differentiation at the point where consumers (and retailers) benefit directly. If its bet pays off, Diageo could boost participating retailers’ store magnetism considerably. If you as a consumer need to buy ten grocery items, one of them being beer, where will you shop today?

An business question left unexplored in the Wall Street Journal story is who is funding the innovative Diageo merchandising solutions. At over $10,000 a unit and many valuable square feet of floor space, it’s certainly worth running some numbers to estimate value-added and value-derived for each partner. Diageo and its partners should share costs just as they already practice with co-op advertising.

Here, though, the costs and the benefits are tangible.

Side-by-Side

Yet another story of electronic medical records this morning in the New York Times. What intrigues me most about this one is the accompanying photo. It shows a doctor and patient reviewing her data on screen side by side.

Side by side. That is a huge shift in the relationship.

I don’t know how your doctor deals with you but mine walks into the examining room with a paper file folder of records he keeps on me and scans his notes. Sometimes he tells me what he’s reading, sometimes he doesn’t. Either way, it’s privileged information – privileged to him. He would never think of showing me what he’s written, and I would never think of asking for it. It’s his.

Pretty soon, his records will be mine. And not only his but the case histories on me compiled by all my doctors, hospitals, and (hopefully this is pretty far out) my nursing home, pacemaker, motion sensors, and other smart devices. I’ll have a password and some sort of editing powers. Sure, I won’t be a doctor but I won’t be just the subject of his investigation either. I’ll be the chief administrative officer. Doctors will be coming to me, to my database, for the most complete – the best – information on me.

Which reminds me of something I heard from web guru Andreas Weigend. Andreas was chief scientist at Amazon when Amazon was putting in place the amazing business/technology model that has captured the high ground in retailing. In the past, Andreas said, consumers came, hat in hand, to companies. They searched for what they needed then snuck a peek at the price tag.
In the future that will change, dramatically. And not just for medical records, but for all kinds of business transaction. “Make me an offer,” Andreas says, is going to be the consumer’s opening gambit. “I need a 46-inch plasma HDTV that turns itself off at night,” the consumer posts. Companies submit their bids. Search work shifts to the provider. Power shifts toward the consumer.

That’s huge change, basic to any business. If you’re an executive, take another look at the guy in the scrubs above. Imagine he’s you. I need to think more about this but here are some implications. In a customer-centered business world, companies that offer the most complete, most narrowly targeted package will win.

This will require unprecedented levels of cooperation between providers in the end-to-end distribution system. And the provider in the best position to take charge and design that customer-specific solution will no longer be the retailer. It will be the manufacturer.

Fighting the New (Marketing) Wars

Most reporting about the government's auto industry bailout describes highly conventional restructuring plans: limit executive pay, eliminate “golden parachute” severance packages, sell corporate jets, reduce debt, make wage and benefit cuts, close factories. Not surprising, given the stranglehold that old-school financial engineers have had on corporate strategy.

And as military historians point out – current generals are best prepared to fight the last war, or Harvard philosopher George Santayana: Those who cannot remember the past, are condemned to repeat it. As the New York Times reported after former President Bush announced the first round of auto company cash infusion: “a visibly relieved (GM head) Rick Wagoner added he had no plans to step aside: Do you think I would have gone through the past two months if I didn’t want to stay?” It is folly to hope current auto executives and their cost structure-obsessed management consultants will lead what’s truly needed: a market-focused revolution that catapults these dying companies into the new consumer markets era.

Outside-in transformation – fighting the new marketplace wars - happens only when an industry taps new thinking, fresh ideas, and courageous strategy. It means letting go of familiar levers - efficiency, scale, acquisition, discounting - in favor of more vigorous and defensible long-term advantage through differentiation.

It's time for marketing engineers to pick up where the number crunchers have failed.