Written by Simon Davies
In order to survive and grow, organizations must build a sustainable competitive advantage in the marketplace. Competitive advantage comes from creating an attractive value proposition that is different from other players.
“Customer Intimacy” is a strategy that creates a strong differential advantage and engaged consumers. However, it requires a fundamental re-alignment of the organization to deliver.
Research demonstrates that fully engaged customers deliver a 23% premium in terms of share of wallet, profitability, revenue and relationship growth. However, rationally ‘satisfied’ customers – those that indicate ‘satisfied’ or ‘fully satisfied’ on questionnaires – behave no differently than dissatisfied customers in terms of loyalty, profitability and growth. (Manage Your Human Sigma, John H Fleming, Curt Coffman and James K Harter; HBR July-Aug 2005)
Many organizations make the error of thinking customer focus is a strategy, that providing good service and consistent quality, supported by rigorous surveys measuring satisfaction and needs is enough. It is not. This is merely an ‘entry ticket’, just like product quality and efficient operations. At best, it can give a temporary advantage if no one else does it, but it’s easy for competitors to catch up quickly.
There is a significant and fundamental difference between becoming customer intimate, as a way of building a differential advantage, and having a customer focus; summarized below:
Like any strategy, it is not one to be contemplated or pursued lightly. It requires trade-offs, focused leadership and an aligned organization to achieve it.
First the trade-offs:
The organization needs to select the market segments it wants to serve. A customer intimacy model requires higher levels of investment in understanding those customers, creating insight, and innovating solutions, so organizations need to be sure their targets have the means to pay for this.
Secondly, the value proposition needs to be established:
Not all customers are created equal and organisations must decide how they will segment their customer base and what they will offer to each segment.
Next, align the organization to deliver:
The whole organization must be configured to deliver the intended strategy. This is not just about putting good customer service at the ‘moments of truth’ where there are interactions (although this is important) but ensuring that the rest of the organization delivers on the promise.
The organization needs to be specifically designed in such a way that:
Power is placed in the organization to ensure customer needs and the customer's voice is front and center. This is not the sole preserve of the traditional ‘customer’ functions of Marketing and Sales, but anywhere that interacts with or gains feedback from customers.
While doing this, leaders must remember to get the basics right too. Good customer service and customer focus are not the difference but are ‘givens’ and must be executed well. Also important are efficient operations. It is too easy for costs to run away with higher and higher levels of service and customization. The answer is to be lean as possible - ruthlessly drive out things that are not to do with creating value or insight. Many successful organizations combine an intimate ‘front end’ with a very lean ‘back end’ operation so that the customer experiences the benefits of the customer intimacy strategy as well as the efficiencies of a lean operation.
Many organizations today are finding that their strategy has run its course. This is happening more and more in markets where multiple organizations have been following a product strategy and the where the market has become commoditized as the points of differentiation have become so small as to give no discernible value differential. In this environment, organizations then face the choice of competing on cost or following a customer intimate strategy.
Enjoy our blog? Sign up for our Free Monthly Digest.
(Originally published January 2011)
Simon Davies is a Senior Consultant at OTM. ON THE MARK’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 30 years and is a global leader in organization design consulting.