What is this beast called “customer focussed strategy”?

I came across this post by Becky Carroll and it got me thinking and I’d like to share that thinking with you.  This post is rather long, technical in parts (though I have made an effort to keep it simple and short) and will only be interesting to strategist or those of you who have an interest in strategy.  If you don’t then I suggest you go read something else.  If you have the interest and/or open to making the effort to learn something new then please read on.

Is ‘customer focussed strategy’ the same beast as ‘customer strategy’?

If you read Becky’s post you will note that she does not define  ‘customer focussed strategy  She actually defines  ‘customer strategy’.  And this is her definition: “Put simply, a customer strategy is a proactive plan for how we want to acquire, retain, and grow our customers! “

When I examine this topic, from my viewpoint,  then the following occurs to me:

  • ‘customer focussed strategy’ and ‘customer strategyare two different beasts – they are not the same beast;
  • a strategy is a strategy and a plan is a plan – they are not the same beast.

Exploring the creature ‘strategy’

There is no shared agreement on the creature ‘strategy’.  Different authors and speakers describe it differently.  Some people (me included) consider this to be word that the speaker uses when he wants his topic to be given respect and consideration from those that wield power, influence and patronage. So let’s go back to the roots of strategy – the military.

Picture the following situation.  The place is ancient china and the period is the Warring States Period.  China is split into Qin, Chu, Han, Wei, Qi, Yan and Zhao – seven warring states.  Lets further assume you are the key advisor to the ruler of Yan a relatively weak state.  And your lord wants you to come up with a strategy that gives him enough time to build up his military forces against possible invasion by the states of Zhao or Qi.   So the political objective is to buy time.  And you have to develop a strategy to do just that.

Lesson 1 : strategy is a cognitive (thinking based) response to an important (usually political) objective. 

Lets continue with the analogy.  As the strategist you ‘strategise’ – you discuss, you observe, you study, you play mind games – and come up with some options.  Option 1: you can cement an alliance with the state of Zhao or Qi – thus making yourself stronger and less likely to be attacked.  Option 2: you can get Qin to start a war against Zhao and Chu against Qi – this will keep Zhao and Qi busy and buy you that time.  Option 3: you can ‘buy’ the key advisors to the states of Zhao and Qi and get them to convince their lords to wage war on each other.  Option 4: you can buy key people in Zhao and Qi and get them to sow discord within Zhao and Qi so that you instigate civil war and so forth.  The options are limited only by your ‘intelligence’ (your understanding of the ‘terrain’ in its many facets) and your mental agility to come up with creative and workable options.

After discussion and consideration you may choose Option 1 or 2 or 3 or …If  you did that then, in my books, you are a novice strategist.  If on the other hand you are a seasoned strategist your strategy will be some kind of clever combination of these options.  Why?  To take into account both the fact that all information is incomplete; the facts on the ground can change quickly;  the principle of synergy; and its a good idea to have a back-up plan.  Notice that at this stage you have not developed a plan of how you are going to implement your strategy.

Lesson 2: a good strategist makes use of creative thinking, analytical thinking and synergestic thinking; he also uses his intuition based on his experience of men, armies, maneuvers, battles etc.

Lesson 3 : strategy requires an in depth understanding of self, of other and the facts on the ground.  If you have a sufficiently inaccurate map of the ‘territory’ then are likely to come up with a strategy this is inappropriate, is easily seen through or simply isn’t implemented. 

Lets switch from the military to business and explore this domain

In general the business objective is some combination of growth, profits and profitability.   Business strategy is the cognitive process for mapping/exploring the terrain; thinking up, exploring and evaluating options; and placing your bets on certain options as opposed to others.  What might these options look like in the business world?  Let highlight a few:

  • Expanding into new geographical markets;
  • Buying up competitors thus reducing competition and driving up prices;
  • Buying up promising start-ups (e.g. Cisco)
  • Expanding into adjacent  existing markets (e.g. from computers to computer, printers and networking devices);
  • Expanding into non-adjacent but profitable markets (e.g. GE with financial services);
  • Creating new markets entirely by seeing the world differently and/or using emerging technologies  (e.g. Apple ipod/itunes, Amazon);
  • Ramping up the marketing and advertising spend;
  • Selling unpromising or unprofitable businesses;
  • Ramping up new product development so as to refresh the product quicker and more often (e.g. car industry);
  • Getting a bigger share of your customers wallet (e.g. Tesco, Amazon, Ebay);
  • Attracting new customers by building a reputation for doing a great job of looking after your existing customers (e.g. Zappos);
  • New business model (e.g. Virgin, Skype, IBM) ……

Once you have made your choice of these options then you have your business strategy.  Now we are in a position to take a look at the creature ‘customer focussed strategy’.

‘Customer focussed strategy’: a business strategy focussed on building mutually profitable relationships with customers? 

Is it possible ‘customer focussed strategy’ is a business strategy.  Specifically, a business strategy that seeks to deliver the prime business objective by focussing on cultivating mutually profitable relationships with customers?

In my thinking and my work I have made it mean that ‘customer focussed strategy’ is a cognitive response to a long term growth-profit-profitability objective that involves the creation, investigation, selection and combination of business options to cultivate mutually profitable relationships with the customers that you have chosen to do business with in  .  Let’s unpack that a little bit more:

First, a ‘customer focussed strategy’ focusses in on fit and as such involves choosing which customers you will focus upon because they hold the most promise for a mutually profitable relationship.  This implies that you may take action to ‘harvest’ some customers and ‘divest’ other customers.

Second, it involves selecting options that build strong relationships with your customers over the longer termIt also means letting go of options that you have been holding onto tightly and which cause relationships to fray and stain your reputation.  As I mentioned in one of my earlier posts Zappos CEO pulled the plug on the 25% of the business – the part of the business that was cashflow rich when Zappos was fast running out of cash.  Why?  Because this part of the business was also the business that was generating dissatisfied customers through poor service.  To paraphrase Michael Porter strategy is as much about the options that you give up and forgo as it is about which options you select and focus upon.

Third, it requires the selection of options that build mutually profitable relationships. Which means options that create value for your chosen customers and which (in combination) give you a big enough share of the value that you create.

Fourth, your focus is on attaining the longer term growth-profit-profitability objective.  In military terms you are selecting the options  that hold the best promise of winning the war and reaping the benefits of peace.  Options that require short term sacrifices including losing/giving up valuable resources and losing various battles if you are to win the war.  The classic military example is Mao Zedong’s retreat when some 90% of his fighting force died during the long march.  The great business example that comes to mind is Zappos – which I mentioned above under point 2 (above).

Fifth, it is as much about the the thinking process that you go through as it is about any words on a paper document or tasks in a project plan.  Put differently what makes a ‘strategy’ strategic is the process and quality of the thinking (creative, analytical, synergistic).  In my view most business strategies are weak because they are mostly predictable.

Question for you

That is enough from me.  What do you think?

What flavour of customer centricity are you practicising?

I have been thinking that the term ‘customer centricity’ is totally meaningless.  Like strategy there is no shared agreement nor definition nor theoretical foundation for ‘strategy’.  So the coin of strategy has become debased – people in business use it whenever they want something to sound important.  I believe the same applies to customer centricity.

Thinking further I can distinguish various flavours of ‘customer centricity’:

Website personalisation (usually through a platform like ATG)

  • In this instance, customer centric means that we push content to you that either you have declared that you are interested in (preferences) and/or we believe that you are likely to find interesting.  The Amazon website is a great example of this.

Direct marketing on steriods

  • Within this school, the emphasis is on collecting as much data as possible on customers (demographic, psychographic, behavioural, transactional…) turning this data into targeting list – those customers most likely to buy the product that I am interested in selling – using data mining techniques to build predictive models.

Customer lifecycle marketing

  • Here customer centric means pushing out the right flavour of communication to the right customers at the right time.  And it involves taking a time perspective: where is the customer in his journey and what communication makes most sense. This flavour also relies on collecting lots of data on customers.  And it more likely to be practiced where an organisation has a broad range of products that can be sold to the customer.  It is also more likely to be practiced where the customer has to be kept ‘warm’ because of a relatively long interval between purchases.

Prroduct development / user experience design

  • Here the emphasis is actually on spending time with customers (or the people who we want as customers) to really get these people.  How they think, how they behave, what outcomes they are after, what gets in the way etc to design better products and better interactions between the customer/user and the product – in some cases the product is the website / virtual store.

Customer service

  • As customer service is viewed as a cost by many organisations, here customer centricity can mean “How do we recoup some of these costs by using inbound interactions to sell stuff to customers?” Or it can mean how can we get the most value from our contact centre agents by having them make outbound sales centred calls when they are not busy
    dealing with inbound contacts.  Often it means how can we reduce costs by getting the customers to do the work of agents: drive them to the website or the IVR.
  • The organisations that push the envelope here – very few –  view customer centricity as learning what drives calls to the contact centre and using this insight to effect change in the business operations that are failing the customer and thus driving demand into the contact centre.  They get this is win-win proposition: the company has a great opportunity to cut costs and improve the customer experience if business operations are redesigned.

Customer experience

  • This flavour has not yet crystallised.  Nonetheless, customer centricity here tends to mean a focus on interaction design in the form of ‘moments of truth’ and ‘experience as theatre / entertainment / engagement’.

I am sure that there are more flavours.  What I find interesting and which I wish to point out is that it can be argued that none of these flavours constitute ‘customer centric’.

It can be argued an organisation that is customer-centric is an organisation that is hell-bent on creating superior value (economic, interactional, emotional, social) for its customers.  It is an organisation that is willing to sacrifice short term gain if it is at the expense of customers (‘bad profit’) to create long term sustainable gain (‘good profits’).

Do you know of an organisation that is practicing this last  form of customer centricity?  If you do then please share with me.

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