Customers and Strategy Part 2 of 2: Customer Centricity vs. Customer Vultures
In my last posting I talked about the weakness of current business strategic thinking when applied to issues like climate change, using the current issue of Harvard Business Review as an example.
The same HBR issue offers two object examples. One views customer-centricity as about the customer. The other exemplifies the customer focus of a vulture. It’s a snapshot of old strategy vs. new strategy in action.
First up—in this corner, the Vulture guys.
In How Valuable is Word of Mouth, by Kumar, Petersen and Leone, the authors critique the popular metric of Lifetime Customer Value—typically calculated as the present value of lifetime purchases by a customer. They suggest adding referrals, and introduce metrics and financial formulae to do so.
There are the usual MBA tools: 2×2 matrices with cute psychographic names, NPV calculations, and formulae featuring summation signs, multiple independent variables and exponents.
My aim is not to critique their point—it is to note the language and the mental frameworks of the article. When it talks about “value,” it means—but of course— the value of a customer to the seller—but not the reverse. And the term “value” is purely financial. In this mindset, a customer is truly nothing more than a financial variable to be tweaked and optimized for the seller’s ends. Some flavor:
“Understanding how much value a customer brings in [from purchases and referrals can help companies target their marketing…enabling them to achieve superior marketing ROIs and reap the full value of all their customers.
“A year’s projected business gives a number that is normally half of a customers full lifetime value.
“If the cost involved in acquiring type-two referrals exceeds the cost of alternative acquisition methods, type-two customers can be a liability.”
The authors launched a 1-year marketing campaign to test their ideas. What do they consider of “value” to the customers? Discounts on subscription fees; financial rewards for referrals; direct mail offering up-sell and cross-sell opportunities. Price, price and price.
Did it work? “Extending the campaign to 1 million customers would increase their total value by almost $50 million.” In other words, it works very well. For the vultures, I mean marketers, that is.
Second Up—in this corner, Customer-Centricity for the customer’s sake.
In the HBR Interview, a CEO: can you guess the company?
“Some of the most important things we’ve done over the years have been short-term tactical losers
“We don’t make money when we sell things; we make money when we help customers make purchase decisions
“We’re not always asking ourselves what’s going to happen in the next quarter, and focusing on optics
“In the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it—in the new world that inverts.
“Whenever we face a “too-hard” problem, we ask what’s better for the consumer?
“Years from now, I want people to look back at us and say that we uplifted customer-centricity across the entire business world. If we can do that, it will be really cool.”
Here’s a hint: it’s a publicly traded $13B company—up from $150M in 1997. Its stock price has tripled in the last year. Yet only a few years ago, analysts were calling it Amazon-dot-toast. That’s right; meet Jeff Bezos, CEO of Amazon.com.
It’s a stark contrast. One approach values customers only as means to the seller’s own ends—and only financial means at that. Customers are to be managed in the short-term, through—of course—price discounts and price promotions. What else do customers want, after all, besides price?
This is the classic form of customer centricity as a vulture: slick, smart, and born of an ideology that defines competing with one’s customers and suppliers as an integral part of business strategy.
The other approach builds businesses, communities and economies around customer relationships. The time-frame is long—Bezos probably agrees with the dictum “be a good ancestor.” Its cornerstone is not competitive dynamics, but relationships.
The slowly emerging strategic ideologies of the future belong to the Jeff Bezos’s of the world, not the tweak-optimizing marketers or the competitive strategists. In a connected world, a knee-jerk belief in dog-eat-dog is no longer the “obvious” choice. It makes strategic sense to think big, long-term and customer centric. For the customer.
Just ask the folks who bought Amazon at 32 last year. Beat the heck out of the vultures.