The road to business success is rough. The business literature is crammed with descriptions of processes that would challenge the top executives while leading their companies to success. Commoditization, innovation, globalization, disruption, and others—we've heard it all. Simultaneously opportunities and threats, these processes can blur the leaders' visibility, making it hard to set and/or manage the right direction for their companies.
So what is to be done? How can leaders and their organizations see clearer through this foggy business environment? How can leaders find a solid ground amid this informational storm? The answer is relatively simple: deeper customer insight.
Achieve higher knowledge
The first step in getting closer to the customer is to go beyond his needs and understand the mechanics of his problem-solving behavior.
Although its necessity has become more obvious in recent years, the quest for a higher degree of customer knowledge is not new. The past decade, for instance, has been characterized by advances materialized in concepts like "customer experience" and "customer status." Both concepts identify that in addition to the obvious customer's need, which can be addressed with a particular product or service, there are other complementary needs, which are also of high importance to the customer.
The sum of these needs form a system or cluster of needs, which is usually referred to as "customer experience" or "customer status." For ease of understanding, just think about the experience of buying a pair of jeans and that, in many cases, additional needs like accessible parking and friendly personnel seriously influence the entire shopping experience.
Unfortunately, despite these valuable breakthroughs in the understanding of the customer, its value beyond the sales and marketing departments was never really clear. But, recently, we have managed to move forward and cross these boundaries by identifying the mechanics of the customer's problem-solving behavior, which revealed a direct relationship between that behavior and the foundation for a healthy vendor strategy.
We discovered that the customer's life is characterized by a continuous quest to address issues. Each customer, based on his knowledge at a particular time, possesses a hierarchy of issues.
It starts with the very important ones, which due to their uniqueness cannot be addressed by existent solutions in the marketplace, but which can be simplified through "disaggregation." This process of disaggregation continues until the resulting issues can be addressed by solutions existent in the marketplace. At this level, the issues can be also referred to as needs, in the traditional sense, because the customer is deliberately seeking to address them.
As an exemplar of this disaggregation, think about a young person's "cool wardrobe" issue, and notice the subordinated issues that may include "cool jeans" and "cool sneakers." (Although a subjective term, we use the term "cool" here because it almost invariably refers to a premium product, or a product that commands a premium price.)
We also observed that as the customer accumulates more knowledge related to an issue over time, he will downgrade that issue within the issues hierarchy, replacing it with another issue that presents a higher grade of uniqueness. As an issue evolves along the hierarchy, so does the associated solution that addresses the issue. This process represents the commoditization of that particular solution.
A few centuries ago, ownership of a pair of pants was for the most part limited to the noble class. The "pants" issue was a status issue, and it was positioned high within many individuals' issues hierarchy. Today this issue is very common, and therefore positioned low in the issues hierarchy. Other status issues, like the "cool jeans" issue for some individuals, have recreated its initial high position of centuries past.
Make knowledge relevant
After getting a grasp on the mechanics of the customer's problem-solving behavior, it is important to make this knowledge relevant to practice. Therefore, we have identified three basic aspects of the process of setting and managing a company's direction that can benefit greatly from deeper customer insight:
1. Choosing the right strategy
Using the model described in the previous section, we can now make the connection between the customer and the vendor's strategy. On the one hand, the unique character of the issues positioned high within the customer's issues hierarchy is that they require the vendor to adopt a consultative approach. On the other hand, the common character of those issues that are positioned lower is that they require convenience, speed, and price. Therefore, depending on the position of the issue associated with the vendor's offering, the company must choose one of the two dominant approaches, consultative or transactional.
For example, when it comes to jeans, in most cases we are talking about a simple transactional approach. But there are also cases of companies that through constant innovation, style, and quality have managed to address a slightly higher-level issue, which we've been referring to as "cool jeans." One such company known for the coolness of its products is Diesel.
2. Solving the 'approach-or-offering dilemma'
Another very important practical aspect of our theory is the effect of commoditization on strategy. While a solution is commoditizing, the associated issue evolves along the issues hierarchy, moving through different stages of the customer's problem-solving behavior.
This means that, in time, the customer's problem-solving behavior relative to a particular issue will change. Hence, the vendor's approach corresponding to a particular solution should change over time. So, in order to be successful, the vendor must choose between (a) maintaining the same approach over time while altering his offerings portfolio and (b) changing the approach while maintaining the same offerings portfolio. We refer to this situation as the "approach-or-offering dilemma."
Going back to the "pants" issue, in the past, most pants were made to order, which can be easily considered a consultative approach. Today, the average pair of pants is produced in series and sold in malls, illustrating the transition that took place over years from a consultative approach to a highly transactional approach.
In the jeans world, it is interesting to examine how Levi's jeans company has failed to properly deal with the approach-or-offering dilemma, being caught by surprise by the commoditization of its aging jeans portfolio. It lost its status of premium brand to much younger companies like Diesel that are constantly innovating, introducing new models, and retiring old models each year. More so, forced to compete in highly commoditized spaces, Levi's has slowly moved from quality to quantity in an attempt to make up for shrinking margins.
3. Identifying opportunities and threats
In the previous section, we described how each customer possesses a unique hierarchy of issues at a particular time. Although this knowledge is important in understanding the theoretical model, identifying all the issues within a hierarchy is unnecessary.
The uniqueness of each customer, and therefore the uniqueness of their issues hierarchies, makes such an attempt irrelevant (if not foolish). But, it is very important for the vendor to single out the clusters of interrelated issues surrounding each issue that is addressed by his solutions.
These clusters also have to be shared by a number of customers large enough to constitute a marketplace. Once detected, they would allow the vendor to identify potential opportunities for expansion of his offerings portfolio, as well as potential threats posed by the solutions' commoditization or by the introduction of new solutions by the competition.
For example, some of the potential customers of a jean company may be looking to address their "cool jeans" issue. But, as mentioned earlier, this issue, among others, is subordinate to a higher-level issue, "cool wardrobe," describing a cluster of interrelated issues. Having an awareness and understanding of this cluster of issues will enable the vendor to identify potential opportunities for expansion of his offerings portfolio by adding "cool shoes," for example.
This approach has been taken by Diesel, which not only added new clothing lines to its existent jean portfolio but also successfully introduced its own line of footwear and accessories.
Engage the organization
As expected, a deeper customer insight can generate great results even when only a few members of an organization make use of it. However, the results have the potential to be far more powerful when the entire organization is engaged in the process of getting closer to the customer.
When attempting to transform an organization that strives to employ a deeper customer insight, training the employees to think and act for the benefit of their customers, internal and external, is just the first basic requirement. A higher level of organizational transformation demands that the company's structure be enhanced with communication channels that would allow a free exchange of customer knowledge within the organization and between the organization and the marketplace.
But the most valuable initiative, and the highest level of organizational transformation in the process of employing a deeper customer insight, is the creation of a distinct department (even if only virtual) that would collect, analyze, and make decisions about the customer knowledge that flows throughout the company and the marketplace. This cross-functional department would employ the leadership team as well as other key people from the organization who would share their unique insights about the customers.
In general, the jeans marketplace is a commodity market, where buying decisions are made on price. Most jeans companies employ a highly transactional approach. In spite of this, as mentioned earlier, there are a few innovative jeans companies like Diesel that manage to maintain a premium brand status.
The source of their success resides mostly in the "coolness" of their products. But for this "cool" to actually be cool, these companies have to employ a higher understanding of their customers. They know what is in, they know what is next, they set trends, and they also know what is out.
In conclusion, successfully setting and/or managing a company's direction in these turbulent times can only be achieved with a strong foundation into deeper customer insight. We call this Customer Issues Centricity.
Note: The concept discussed in this article was first introduced in my white paper "Strategy, Redefined," published at RedefiningStrategy.com in June 2004.