Customer strategy is the only strategy. Product and producer-driven strategies are dead - though they haven't altogether died. Few businesses, even in retail, let alone sectors further removed from customers, have reinvented themselves to achieve a truly customer-centric business system. Such a system starts with the customer, reworks all processes back from the customer, and aims them towards achieving excellence in the customer's eyes.
The wondrous results are clear from studying a business like Dell Computer, which can accomplish wonders of customer service. Order a PC over the Net, and you may be told to allow four days for delivery. The computer has been configured to your precise wishes, but you suddenly recall next day that you have forgotten to order the necessary feature for an ISDN telephone line. You ring up, and get the same operator. No problem: the computer hasn't yet been loaded onto the factory. The PC arrives on your doorstep, precisely as ordered, in two days - not four.
Considerable and very clever technology is required to delight customers so thoroughly. That technology is available to everybody else, in fact. But to make the most of the hardware and software, you have to manage differently. Look at Michael Dell's recommendations from his book:
• See the big picture
• Run with the suggestions your customers provide
• Always think bottom line. But not just yours
• Go beyond selling, and make yourself valuable as adviser
The object of such a customer-centric system is to deeply understand the customers. Then you can give them what they want, how, where and when they want it, at a profitable price that they are happy to pay. All the rest of marketing won't make up for failures on these key strategic elements. Not only must the technology support the service, and the product support the promise, but quality must support the value proposition, and HR policies must support the customer focus. That's key: remember the Sears research which showed that a 5 unit increase in employee attitude drives a 1.3 unit increase in customer impression, which drives 0.5% increase in revenue growth
ACHIEVING BREAKTHROUGHS
Incremental improvement, however, is not enough. You can make breakthroughs, like Dell, by the excellence of your systems. But they must be focused on insights into what consumers 'want'. How do you know what that is? You ask, of course, using quantitative and qualitative research. But that will not provide enough answers. What customers 'want' is partly what they 'say', partly what you say that they want. All successful consumer businesses achieved their original breakthroughs by telling customers what they wanted before the customers knew themselves. Effective strategy leads the customers in directions which they then desire, and go on desiring.
Any industry provides plentiful evidence of this powerful truth. In IT, nobody was calling out for personal computers or the World Wide Web, any more than they screamed for mobile phones, VCRs, digital cameras, or browsers. Visionary scientists, engineers and managers saw the technical possibilities, developed them, and brought them to a market which these pioneers in effect created. The great brands, from Gillette to Benetton, likewise sprang from entrepreneurs who gave no thought to 'gaps in the market'. There was no market when they formed their ambitions.
Listening to the customers, hearing 'What they say' is still vital, just as Michael Dell says. Their perceptions are the essential guide to setting and meeting quality standards and achieving excellent and vital customer retention.My own consultancy, Strategic Retail Identity, talks to people in unstructured, anonymous interviews to investigate the 'perception gap' between what top managements believe to be true, and what their 'constituents' actually think (customers, employees, managers, suppliers, opinion formers). The perception gap is always great - far too great for any kind of comfort.
CONVINCING RESEARCH
The research in this area is convincing, ample and not to be ignored. Customers who rate your service 'excellent' or described themselves as 'very satisfied' are six times more likely to buy from you again than those who think that service 'good' or who are just 'satisfied'. Those are Xerox figures, but AT&T research is just as cogent. If the customers think your service is excellent, all but 10% of your market share is secure - without any need for promotion. A 'good' rating, however, sees 40% of the share depart.
Having listened to what customers say, several planks of a customer strategy fall into place. But you will not expand market share without getting 'what you say' right. How do you find out what to say, where to lead the customer? To know the future, you must understand the present. The bigger the perception gap, the less you know about the present (and still less the future). The usual course, extrapolation of the past, is no answer. Managers who live in the past will die there.
Certain aspects of the future are ineluctably inherent in the present. Demography is a clear example. All the people who will be 21 in 2020 are already alive. The low birth rates of the present mean falling populations in the new Millennium. According to statistics assembled by Paul Wallace for his book Agequake (Nicholas Brealey), 'populations in Europe are poised to plunge on a scale not seen in the Black Death in 1348'. Moreover, 'for the first time in human history, the old will outnumber the young'.
You can see that if China continues with its policy of one child per couple, it will take a short time, historically speaking, before the population of 1.2 billion is reduced to a single, mateless person. You can safely predict that the Chinese law will not last. The predictions which Wallace derives from his demographics likewise need no crystal balls. Many are already present and proved. For example, pharmaceutical and biotechnology industries are growing fast, small businesses are flourishing as never before, private pension funds are expanding rapidly, and so is the leisure industry.
That is a powerful factor in the phenomenal expansion of traffic on the Internet. The latter is becoming a prime medium for entertainment of all kinds, opening up a gargantuan market whose potential has barely been tapped. Video shops, music stores, TV channels, video games, cinemas, magazines and so on are all in the line of fire. In addition, cyberspace is creating new entertainment media all its own - such as the chat sites.
The Net also offers suppliers ways of cracking what in many industries and nearly all services is the biggest strategic problem: differentiation. The customer cannot differentiate for you. Yet what can management do when virtually all the key elements in the value proposition are the same? That is as much a problem for supermarkets as for banks. In fact, you can achieve lasting marvels by internal differentiation, such as Dell's processes.
Competitors either won't follow internal differentiation, or will follow late, probably providing further proof of the Law that says they never catch up. Even so, you still need an external Unique Selling Proposition to consolidate your market position. The internal, Web-based abilities of a Dell or an Amazon.com in books can become an external USP. But there is only one winning choice: to be different and better. Being better at the same thing is not enough. IBM's followers in mainframes often made better machines at better prices. It didn't help.
Being similar on all counts also leads nowhere, while being worse is plainly hopeless, even if you have achieved some degree of real differentiation. Most companies have not. When the Royal Society of Arts was doing the investigation that led to the 'Tomorrow's Company' report it found that none of the chief executives visited could name anything that made their companies distinctive. Most customer strategies fit this pattern: they are not unique. They are me-too.
MOVING IN STEP
All industries tend to move in step in the same direction. Only look at the banks. All over the West, they merge, they downsize, they make the same bad loans, they sell the same kind of insurance. they sell the same kind of investments, they advertise in much the same way, they sell much the same mortgages, they close branches, they proliferate 'products'. What do they do for the customer that differs from anybody else's provision?
It is blindingly obvious that only contrarians can hope to win differentiation. They can also gain a lead-time that can last for years, if not for ever, thanks to competitors who refuse to believe that contrarian strategies will work - or are working. This provides a most powerful reason for the earliest possible entry into the world of cyberspace marketing. Not only may Internet Protocol (IP) technology provide instant differentiation, but it also offers the prospect of lasting competitive advantage - if the offer is kept fresh by the constant innovation and extension which Web technology encourages.
Me-too companies cannot hope to escape the need for differentiation by heavy brand advertising. Branding minus differentiation equals nothing. Of course, retail branding is very important, and often neglected: the business is the brand - even if it sells no own-brand products. The retail brand embodies the total perception of all the company's audiences. But just as the product must support the promise, so the business must support the brand: otherwise, decline can be sudden and sharp. Analysis will spotlight the defects: IP technology can cure them. The quotes are from SRI investigations into supermarket chains:
• 'They are understaffed, Always so busy. Everybody gets irate. You have to wait for ages' (Shopper). Better information, checkout and pricing systems will speed shopping and free staff for looking after customers.
• 'Senior management doesn't speak to the staff. We're invisible' (Branch employee). An Intranet with internal Web pages can provide both updated information and communication and interactive response from staff.
• 'They could save themselves a fortune if they used us properly ' (Supplier). Extanets can effectively make supplier and customer one, collaborating all the way from initial design to delivery.
• 'The Head Office is completely hierarchical. We should push responsiblity down the line' (H.O. manager). The Intranet gives head office clear visibility of all units, whose managers can easily access the information they need to accept their delegated responsibility in a flattened management structure.
The effective strategic response to the perception gap is simply stated. Be First, Be Fast, Be Fanatical. The battle, as ever, generally goes to the strong, and the race to the swift. The great change is that in today's and tomorrow's markets swift and strong have become synonymous. Big no longer automatically means best when the small, fanatical, fast pioneer can defeat the largest incumbent in almost any market. Fixed assets have become deadweights for companies faced by opposition that has nothing fixed, but which can still rapidly build and consolidate leading market shares - as with the 'infomediators' whose business-to-business exchanges had already reached $43 billion in the US in 1998. The forecast for 2003 is a gigantic $1.4 trillion.
ENTER FANATICISM
The exchange Websites simply publish details of all supplies available in a given sector (steel, paper, chemicals, transport, etc., etc.), charging a relatively small commission on the trades. Why would anybody choose the conventional route - dearer, more time-consuming and more cumbersome? Conventional suppliers are plainly under great threat from the Net. That is where Fanaticism comes in. It demands the exercise of self-challenge. If you don't challenge your customer strategy, somebody else will: a new competitor. Never stop looking critically at your business, and changing it - radically if need be. Stability is far less important when customers are volatile. If you don't stay with your customers, they will not stay with you.
Too many companies have yet to enter this new mindset and escape from the old one. They still try to serve the customers who they, the suppliers, want, how, where and when they, the suppliers, want to supply them, and at the prices they, the suppliers, want to charge. In conventional hands, the approach is obviously wrong. Paradoxically, however, that degree of customer control is what results from a successful, innovative, customer-leading, customer-centric strategy. The secret lies in the power and speed with which you generate and apply new ideas.Speed is needed as well as power under the rules of the new innovation game. The new rules mean that you simply haven't got time to take your time. Traditional internal processes, deliberate, thorough and slow, are too deliberate and too slow. If you really are customer-centric, you must be geared to rapid change and experiment. The revolutionary company constantly tries new approaches, develops those which work, and discards those that do not - a simple strategy, but highly effective against conservatives who prefer things as they are.
Fanatics look continually for evidence that they are not selling the right things, nor supplying them in the most effective way. They seek ways of becoming the lowest cost producer, while fully aware that they must match or excel their best competitor, not on price alone, but on every aspect that matters to the customer. They constantly open up wider markets, geographically and in applications. They change the direction of thrust to retain the edge which makes customers buy from them rather than from the competition. Above all, they revise and reform their strategies and tactics to ensure that in the years ahead, they will still be highly effective in all the above, vital ways.
Thus, according to Business Week, Dell has a new customer-service plan: 'Use the Internet to automate and customise service, in much the same way that Dell streamlined and customised PC production'. Non-corporate customers will get personalised Web pages under these plans which link 'communications links over speedy private networks and the vast Internet'. The company hopes to answer tricky service questions from customers 'with the lightning speed only the Net can deliver'. Every customer already has an individual file, which could be expanded for 'a new kind of direct-service model', in which company and customer are in continuous contact.
Cyberspace in such ways opens up whole new vistas of innovation which nobody can afford to ignore. The Internet opportunities, though, are very likely to be seized by newcomers, not by large established companies. Is this inevitable? It is if managements shy away from cannibalisation, put the demands of established business ahead of the new, and place present profit ahead of future payoffs. Being good, even very good, at serving the customers you already have is not enough. Existing customers will desert if you are not also satisfying the new.
DISRUPTED INDUSTRIES
Recent history is full of disrupted industries, where established companies faced by new competition have not just lost out, but disappeared completely. It happened in disk drives and mainframe computers, steel-making and earth-moving equipment. By and large, it has not happened in the front line of the new IT. Although companies like Compaq, Microsoft and Netscape have had nasty wobbles (the latter's caused by Microsoft, just as Microsoft's were caused by Netscape), they have shown a remarkable capacity to right themselves.
They have applied the power of zero-based strategy, the ultimate answer. Zero-based budgeting starts from the assumption that the company doesn't need the activity under scrutiny. Zero-based strategy starts from the assumption that nobody needs you or your business. The question is this: if you were a wholly new entrant in the sector, what would you do to win and retain customers - in effect, what would you do to beat yourself? That is a revolutionary mind-set. But it is also the way to win.
