Category Archives: Customer Strategy
Jeff Bezos and Amazon have been in the news courtesy of Bezos latest letter to shareholders. If you have any interest in what constitutes a customer-centric orientation then I throughly recommend that you print out this letter and read it. If you are up for creating a customer-centric organisation then I recommend that you read this letter every day.
Annette Franz on Jeff Bezos and Customer Experience
Annette Franz over at CX Journey has a written an enthusiastic post referring to Jeff Bezos as a CX dream come true!. I recommend reading it, and I share one particular part of her post with you:
As a leader, Mr. Bezos shows that he’s both the customer and the employee champion. Reading through the 2012 letter again, the following traits and qualities come to mind – all of which are certainly descriptive of a customer-centric culture:
- Best interest of customers
- Not being opportunistic
- Customers ahead of shareholders
Do any of those describe your organization’s values and culture?
Bruce Temkin on Amazon and the customer-centric blueprint
Bruce Temkin says that Bezos letter describes Amazon’s customer-centric blueprint. Bruce picks up on Bezos strategy of making investments and sacrifices today (to benefit customers) knowing that some of these will pay of in the long term. There is one particular paragraph from Bruce’s post that I share with you here as I say it goes to the heart of the customer-centric orientation (bolding is my work):
Bezos understands the value of Amazon’s most critical asset, customer loyalty, which I’ve defined as the willingness to consider, trust, and forgive. That focus is what put Amazon.com on the top of the retail sector in the 2013 Temkin Experience Ratings. Great leaders focus on building that customer loyalty asset with the knowledge that it will generate the best returns for all stakeholders in the long run.
My take on Jeff Bezos, Amazon and the customer-centric orientation
I say that the core of authentic customer-centricity is a relentless ongoing commitment to creating compelling value for customers. What does Jeff Bezos say? Here is an extract from his 1997 letter (highlighting is my work):
From the beginning, our focus has been on offering our customers compelling value….. we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store, and presented it in a useful, easy-to-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and recommendation features. We dramatically lowered prices, further increasing customer value.
But we are not in 1997 and Amazon is now the gorilla of the online space not an upstart, a revolutionary. So lets take a look at the present situation. I say the real test of authentic customer-centricity is what you do when you have arrived, when you dominate the marketplace. I have worked with many large successful organisations. Again and again I have seen these organisations ‘squeeze’ the customer and take ‘advantage’ of the customer’s trust or the customers weakness to maximise profits. Has Amazon fallen into this trap? Here are two paragraphs from the April 2013 letter:
When you pre-order something from Amazon, we guarantee you the lowest price offered by us between your order time and the end of the day of the release date…….. Most customers are too busy themselves to monitor the price of an item after they pre-order it, and our policy could be to require the customer to contact us and ask for the refund. Doing it proactively is more expensive for us, but it also surprises, delights, and earns trust.
In 2012, AWS [Amazon Web Services] announced 159 new features and services……. AWS Trusted Advisor monitors customer configurations, compares them to known best practices, and then notifies customers where opportunities exist to improve performance, enhance security, or save money. Yes, we are actively telling customers they’re paying us more than they need to. In the last 90 days, customers have saved millions of dollars through Trusted Advisor, and the service is only getting started. All of this progress comes in the context of AWS being the widely recognized leader in its area – a situation where you might worry that external motivation could fail. On the other hand, internal motivation – the drive to get the customer to say “Wow” – keeps the pace of innovation fast.
Why has Amazon bucked the trend here? Why is Amazon not exploiting its dominant position? Why is Amazon not extracting value from its customer relationships to maximise short-term profits and drive up the share price?
My answer is that Bezos is not playing the profit maximisation game. I say that he is playing “maximise service not profits” game and as such he has built a culture and management doctrine that drives the appropriate thinking and behaviour. Here’s what Jeff Bezos say in his l2013 letter:
One advantage – perhaps a somewhat subtle one – of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience – importantly – even in those areas where we are already the leader.
I say there is value in simplicity. I say that there is value in exceeding customer expectations. I say that one of the best ways of exceeding customer expectations is to give customers more than they expect. I say that customers expect companies to play dirty and take advantage. I say a sure route to delighting customers is not to do this and instead treat people right. What does Jeff Bezos say?
To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.
In amidst all this content it is easy to miss what really matters: the context. So let’s just take a look at the context. Between the 1997 letter and the 2013 letter, a span of 15+ years, there has been consistency:
- Leadership: Jeff Bezos continues to be in charge
- Focus: creating compelling value for customers
- Strategy: take calculated risks, innovate, invest today to create value for customers and look for payoff in terms of customer loyalty and market leadership in the longer run
- Management doctrine: the fundamental pillars of the management doctrine are set-out in the 1997 letter.
Harley Manning: You should never put the customer experience ahead of profits
According to Harley Manning of Forrester, the answer to the question “When should you favor customer experience over profits?” is “Never! In his post Harley recounts the following:
After some preamble about the pressures his company was under to increase revenue and profits, he asked, “Given that, when should we put aside the need for profits and fund customer experience projects instead?”
His question surprised me. And I clearly surprised him when I responded, “Never.” I let that hang in the air for a moment so it could sink in. Then I added, “You should never put aside the need for profits when you fund customer experience projects.”
I could see that people were a little confused so I went on. “You should only fund customer experience projects that will produce profits. That’s why you do those projects in the first place. And if you have other kinds of projects that will produce better business results, do them instead. But if you take the time to create the business models for your CX projects you’ll probably find that they’ll produce better ROI than most of the initiatives they’re competing against.”
Does Jeff Bezos agree with Harley Manning’s take on customer experience and profits?
As soon as I read this post by Harley Manning the following thought came to mind: what about Jeff Bezos and Amazon? It occurred to me that Jeff Bezos has consistently sacrificed short-term profits in order to attain the long term leadership. And how has he gone about attaining that leadership? By focussing on creating compelling value for the customer. And what is a key ingredient of this compelling value? The customer experience.
If you doubt my words then read the following post: 6 Things Jeff Bezos Knew Back in 1997 That Made Amazon a Gorilla. Here is one particularly relevant part of this post:
Bezos: It does fit into my view. Our first shareholder letter, in 1997, was entitled, “It’s all about the long term.” If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow—and we’re very stubborn. We say we’re stubborn on vision and flexible on details.
In some cases, things are inevitable. The hard part is that you don’t know how long it might take, but you know it will happen if you’re patient enough. Ebooks had to happen. Infrastructure web services had to happen. So you can do these things with conviction if you are long-term-oriented and patient.
When is it appropriate to favour the customer experience over profits?
There is no simple answer to this question. Why? First, one has to be clear that there are all kinds of profits. There are this years profits. There are the profits that will be made in the next three years. And if you are Jeff Bezos you are thinking about the profits that will be made over the next seven years. If you are Toyota you might just be looking out 20+years.
Second, there is the matter of what falls under the umbrella term of ‘Customer Experience’. Some, possibly like Harley Manning, see it simply as customer interaction management – how the customer is treated at various touchpoints along the customer journey. Others, like me, include the brand (as in reputation not marketing messaging) and the core product under the Customer Experience umbrella.
Where do I stand on this? My answer is “It depends!” What does it depend upon? It depends on you and your circumstances. Do you have the leeway to play the long-term game? Then I say make the short-term sacrifice and go for long-term market leadership. If you do not have that leeway then you have to follow Harley Manning’s advice. And in doing so you will leave open the door to the likes of Jeff Bezos – the disruptors. Which is great because progress relies on disruptors to shaky up things up and create ‘new value’ for customers.
Most of my work over the latter years has been around helping organisations to generate profitable revenues by doing a better job of addressing customer needs. In the course of my work I spend a lot of time with the folks responsible for marketing and sales.
One of the exercises that I do is to get the right people from customer touching functions such as marketing, sales and customer services in a workshop. And then I guide the folks through a structured SWOT type process for each significant customer segment.
The process starts of by asking the people in the room to identify what matters to the people in that customer segment. What are the jobs that these people are hiring the company’s ‘products’ to do for them? And what are the key outcomes that matter to the customers. This is terminology that is not typically familiar to the people in the room so there is some tension in the room. At some point someone in the marketing function will say “Aha, you are talking about customer needs!” and everyone relaxes.
Then the answers come. Almost always the top five tend to be: brand, product, quality, price, and service. Not particularly useful and I have learnt not to challenge people at this stage. So, I ask the people around the room to allocate 100 points between these five needs. This is where the fun starts . First, people really struggle to allocate weights to these five needs. And second, there tends to a lot of predictable disagreement. Marketers rate brand and quality highly. The Sales folks rate product and price highly. The folks from Customer Services tend to rate quality and service highly. And if there is senior, dominant, person in the room then slowly the people in the room come around to his/her way of thinking and weighting these top five needs. Notice something? How confident would you be that the people in the room are providing you with an accurate picture of what matters to customers?
Next, I ask the folks sitting around the large conference table to identify their key competitors. And once they have done so I create a grid. The columns are the company and its key competitors. The rows are the top five needs usually brand, product, quality, price and service. Now I ask the people in the room to evaluate how each of the competitors is doing in terms of meeting these five customer needs by giving marks out of 10. Once again the fun starts. People really struggle to come up with weighted answers. And there is considerable disagreement between people.
By the time we get to this stage the people around the room sigh a collective relief as if to say “Wow, that was hard work. We are so relieved that this is over and done with.”
At this stage I am hoping for someone to say “Going through that exercise has made me realise that I/we know so little about what matters to our customers. And how we compare to our competitors on what matters to our customers, as seen through the eyes of our customers. So we should go and get better answers by conducting research, talking with customers, talking with the people on the front line who actually are in touch with customers on a daily basis.” This rarely happens.
Instead, the people around the room have an air of assurance. They are visibly convinced that they know what matters to their customers. And how they compare to their competitors. It is as if the hard work of the exercise that I have taken them through hypnotises them into believing that the answers they have conjured up have to be true, are true.
So the biggest barrier to coming up with a powerful customer based strategy is simply this: ignorance and prejudice masquerading as knowledge/understanding of customers. The failure of people to say “We don’t know what really matters – jobs, outcomes, needs – to our customers. We don’t know how customers prioritise these jobs-outcomes-needs. We don’t know how our customers see us in comparison with our competitors. Let’s go and find out.”
Being a physics graduate I value an insightful theory that opens up new domains of enquiry and provides access to breakthroughs in performance. Now and then I come across a business author who nails it, who provide such a theory. It occurs to me that Clayton Christensen nails the essence of the customer-centric approach to doing business. And it just happens to be at the core of my consulting work. Let’s start.
Do you have a deep understanding of what problems customers are trying to solve?
Let’s start with a truth that is so neglected. When I say neglected, I am not saying that you have not heard this truth. I am clear that many of you will have heard of it – most likely it is a platitude. And that is the very reason that this truth is not taken to heart, not lived, not given life in the world of business. What truth? This is what Clayton Christensen says in his marvellous book How Will You Measure Your Life?(bolding is my work):
“Many products fail because companies develop them from the wrong perspective. Companies focus too much on what they want to sell their customers, rather than what those customers really need. What’s missing is empathy: a deep understanding of what problems customers are trying to solve. The same is true of our relationships: we go into them thinking about what we want rather than what is important to the other person. Changing your perspective is a powerful way to deepen your relationships.”
Why does this passage speak to me? It is my experience. Time after time in my consulting work I am struck by the truth of this understanding. A lack of empathy and understanding for the customer as a human being who becomes a customer of the organisation in order to ‘hire’ that organisation – through its people and ‘products’ – to get a job that matters, done.
What can we learn from IKEA?
IKEA is an incredibly successful discount furniture retailer. It has been in business for over 40 years, it has global revenues in excess of 25 billion euros and Ingvar Kamprad (the owner) is one of the richest men in the world. The success of IKEA is not based on secret formulas, intellectual property, nor barriers to entry. So why is it that nobody has successfully copied IKEA? This is what Clayton Christensen says (bolding is my work):
IKEA’s entire business model – the shopping experience, the layout of the store, the design of the products and the way they are packaged – is very different from the standard furniture store. Most retailers are organised around a customer segment, or a type of product….
IKEA has taken a totally different approach. Rather than organising themselves around the characterisation of particular customers or products, IKEA is structured around a job that customers periodically need to get done.
The “job to be done” as a source of innovation, growth and competitive success?
Let’s continue listening to the wisdom of Clayton Christensen:
Through my research on innovation ….. my colleagues and I have developed a theory about this approach to marketing and product development, which we call the “job to be done”. The insight behind this way of thinking is that what causes us to buy a product or service is that we actually hire products to do jobs for us.
We don’t go through life conforming to particular demographic segments: nobody buys a product because he is an eighteen to thirty five year old white male getting a college degree. That may be correlated with a decision to buy this product instead of that one, but it doesn’t cause us to buy anything. Instead, periodically we find that some job has arisen in our lives that we need to do, and we then find some way to get it done. If a company has developed a product or service to do the job well, we buy, or “hire” it, to do the job.
The mechanism that causes us to buy a product is “I have a job I need to get done, and this is going to help me do it.“
So if you are going to segment your customers then segment them by the jobs that they “hire” you for. Here, I want to point out that you can use this “jobs to be done” approach for all customer touchpoints. For example, what jobs do your customers hire your call-centre for? What jobs do they hire your website for? What do they hire your facebook page for?
Back to what we can learn from IKEA?
Having set out his theory, Clayton Christensen returns to IKEA and explains the cause of its success as follows:
IKEA doesn’t focus on selling a particular type of furniture to any particular demographically defined group of consumers. Rather, it focuses on a job that many consumers confront quite often as they establish themselves and their families in new surroundings: I’ve got to get this place furnished tomorrow, because the next day I have to show up at work. Competitors can copy IKEA’s products. Competitors can even copy IKEA’s layout. But what nobody has done is copy the way IKEA has integrated its products and its layout.
This thoughtful combination allows shoppers to quickly get everything done at once….. In fact, because IKEA does the job so well, many of its customers have developed an intense loyalty to its products.
What is the lesson according to Clayton Christensen?
He sums it up well and find me in total agreement:
When a company understands the jobs that arise in people’s lives, and then develops products and the accompanying experiences required in purchasing and using the product to do the job perfectly, it causes customers to instinctively “pull” the product into their lives whenever the job arises. But when a company simply makes a product that other companies also can make – and is a product that can do lots of jobs but none of them well – it will find that customers are rarely loyal to one product versus another. They will switch in a heartbeat when an alternative goes on sale.
I will continue the conversation around the ‘jobs to be done’ approach of doing business and creating superior value – for the customers and your business – in the next post in this series.