"Customer is King - Customer centric organisation”
These catch phrases and concepts easily roll off the parlance of current management speak as if they are somehow new or game breaking. In reality they have been around since there was a provider and a customer exchanging value.
Current developments in customer understanding reflect the increasing sophistication of information technology to enable “customer insights” - software tools, communication technologies, and “big data”.
We explore the shift from the traditional view of customer value to the changing landscape of customer relationships, the need for a new approach, and the implications for your business.
Traditional view of customer value
Many organisations – big and small – think about customers in terms of the value they bring to the organisation. This view is effective in how it drives a focus on customers with the highest potential to create value. It can be used to justify the significant effort required to determine the value customers create – usually calculated by the full cost to serve customers vs. relatively simple revenue models.
Some organisations react to understanding the value customers create by increasing service levels for high value customers, in the hope of garnering increased loyalty and therefore repeat value occasions.
Some create more complex revenue models whereby customers exchange direct value (cash) for each service/level of service or product attribute provided. And some organisations go beyond the direct exchange of value to reward customers for indirect value contributions such as referrals. These responses to the understanding of customer value are based on the premise of an equal exchange of value – we offer you a fair deal.
The changing landscape
There are a number of issues with this approach, indicated by competitive punishment being meted out by more astute market participants. Between the Global Financial Crisis (GFC) and the relentless march of internet and smart devices into the marketplace there are plenty of reasons to believe markets are changing, thereby impacting organisations that fail to “move with the times.”
As a result of the GFC customers need to get more for their money. Limited economic growth opportunities on a personal and organisational level drive a “more for less” mentality. Equally, the march of communications technology is shifting relationship influence. The apparent ease with which organisations can communicate with current and potential customers has made customers wary.
Additionally, customers’ ability to scan markets and compare offers has created more astute customers. Customers are in greater need, have more power, and are prepared to use it.
The need for a new approach
The main issue with focussing on the value customers bring to the organisation (and making appropriate adjustments) is that it is a static construct. It assumes customers will behave predictably, can be categorised by their behaviours, will react to specific stimuli, and will reward what has been designed for them.
Organisations pull these levers and when successful believe they have built a machine with predictable inputs and results. But this view, whilst never quite accurate, is now under increasing pressure from empowered customers.
Great organisations have always thought about customers as people; with needs. They have understood that by meeting customer needs – or even by demonstrating the effort to understand their needs - they will create a relationship of trust. Through this trust customers will willingly exchange value with the organisation – such as money, time, referrals, and loyalty.
Most importantly, customers will share their aspirations and creativity, pointing the way to product improvements and new product offerings. They will share their life’s journey so the provider organisation can stay current with “the market”. They reflect the needs of their customers and therefore are trend setters. These organisations are not blindsided by communications technologies, fashion or trends.
Like a good listener, to “get” customer needs an organisation must be attuned to those needs. Traditional segmentation along channels, demographics, or products is not likely to create the insights required, nor convey the intent of the organisation to “get” the customer. These segmentations drive organisations to speak in their own language, rather than listening to customers who speak in the current language of the market.
This is a challenge for organisations new to “outside-in” understanding. They may not have the necessary antenna for picking up customer needs – the language, signalling, value types, and channels of communication. Even if there is a cadre of good listeners in the organisation, translating customer needs to actionable insights may be difficult due to the way the rest of the organisation is wired.
Creating a needs-based service
So how can your organisation create a needs-based service model? First of all, you need to decide who your customer is. If targeting intermediaries, your focus should be on delivering a suite of products and services that reinforce your company’s value proposition to your clients.
Expensive but ineffective trust substitutes such as brand campaigns should be reviewed, plus any other overhead spend that suggests trust but fails to deliver the customer relationship.
If end customers are the target, the business should be focussed around customer need:
- The organisation needs to reflect its target customers – it needs to be natively attuned to its customer base. This includes customer facing elements plus other functions such as marketing, product design, and risk assessment. Collecting insights is very different to successfully integrating them into the service products of the business. Without active listeners throughout the value chain the task can be daunting.
- Insights must be gathered “outside-in” – achieved through customer panels, via CRM and loyalty tracking, active listening in social media, mining research related to social trends, etc. This takes time to develop and expertise to execute – and is different than traditional consumer research. Part of the task is investigative – following the path that particular needs suggest in order to understand where the conversation might lead.
- Interpreting insights is another skill – translating customer needs into services, testing and re-configuring until the right commercial balance of risk and reward is achieved through the customer’s lens as well as the organisation’s. Supplementing the commercial offer with service elements that signal and reinforce the trust relationship is an additional consideration.
- Fixed cost investments to achieve scale economies (e.g. CRM systems, brand campaigns, loyalty programs) should be critically reviewed in light of customer needs analysis – in terms of the competing investment in gaining customer insights, the application of insights to refining the product suite and service models, and in signalling the organisation’s intent to exchange value with the customer.
- Customer advocacy inside the business traditionally pivots on stagnant segments – today’s customers are on the move and they need to be followed or the business will lose the thread of their customers thinking. Needs-based advocacy flexes with the ability of the business to meet needs, recognises new opportunities to reinforce needs through products, services and customer nominated touch points. This type of advocacy is more relevant, more productive and revels in creating shared value with customers.
- Success is measured in more than sales, profit and share. Symptoms of a needs-based focus include longer retention, more referrals, more product development at less cost, faster and less expensive product introduction, lower promotion cost.
So what does this mean for you?
Traditional methods of leveraging customer value are being surpassed by great organisations with a focus and capability to understand and integrate customer needs. Those businesses who can effectively orient themselves around consumer understanding will be the winners of tomorrow.
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