by Kate Pavao, May 2014
Putting customers are the center of your business may keep them buying your product, even if it’s at a higher price. In fact, 86 percent of buyers said they would pay more for great customer experience.
But according to Niraj Dawar, professor of marketing at the Ivey Business School and author of Tilt: Shifting Your Strategy from Products to Customers, there is much more to gain by listening to your customers—and understanding what they actually want. Your customers are actually key to unlocking innovation and creating true competitive advantage.
Here, Dawar talks to Profit about why customers matter more than you think, and how to make sure you are truly putting them at the center of your business.
Profit: Why is it important right now for executives to think about tilting their business strategy to consumers?
Dawar: A number of things are happening, particularly in the last 25 years or so. The big difference is the majority of costs for many companies today won’t reside in upstream activities, which includes logistics, supply chain, and even new product development and R&D. Instead, the costs will reside in the downstream: customer acquisition, retention, and satisfaction—in the interaction with the customer. It’s no longer a question of, “How much more of this stuff can I sell?” The strategy now becomes driven by a very different question, and that question is, “What else do my customers need? What else can we transact on the basis of the relationship that we built with these customers? What else will they buy from us?”
You should really ask the question ‘Why do our customers buy from us rather than from our competitors?’ If you can answer the question—and build consensus around it—then you are starting to get at the heart of your differentiation and competitive advantage.
Profit: How does innovation happen when companies focus on the downstream?
Dawar: At U.K. retailer Sainsbury, buyers asked the question, “Why do people in the United Kingdom consume far less wine than consumers on the continent?” In fact, at that time, consumption of wine was about 25 percent lower. They found that consumers were avoiding the wine category, but not because they didn’t like wine. Instead, it was because it was intimidating to them, in terms of choosing the right wine for the right occasion, understanding the names in the labels, understanding which years were good or not, and more. There’s a whole lot of complexity built into the wine category, and that was why consumers were staying away from wine.
So Sainsbury decided to present the wines in a very user-friendly way. They sent out wine experts to buy a limited selection of wine that were reasonably good. Then they were able to color code the wine so customers knew which were light or heavy, and so on, and then inform them about the pairings and so on. As a result, they were able to get consumers much more comfortable with the wine category, and wine sales went up dramatically.
The story illustrates that you don’t necessarily have to have a better product. The value created by Sainsbury wasn’t in the upstream. It wasn’t about a better wine or a better manufacturing process or sourcing process. The choice context was what was inhibiting consumers, so to encourage consumption, Sainsbury had to make wine buying and consuming much easier.
Profit: How can smart companies use big data to learn more about their customers—and drive new business?
Dawar: Big data projects tend to be driven inside companies by the IT folks, which makes them technology focused. If they were driven by marketing folks or by the C-suite, then you start to get to the strategic question about what kind of value big data can add. Companies should be asking themselves questions such as, “How can we use big data to create new sources of value with customers?” The answer could be as simple as, “Through big data, we understand what kind of information to store and what’s happening in different parts of our market.”
Niraj Dawar is professor of marketing at the Ivey Business School and author of Tilt: Shifting Your Strategy from Products to Customers.
Connecting, relaying, benchmarking, mirroring, and predicting are ways to use big data to create downstream value and downstream competitive advantage. For example, by looking at how a new product did in Market A, we can help consumers in Market B.
Profit: How do you convince leadership to move to a downstream, customer-focused approach?
Dawar: Convincing the boss is always step one, so it’s valuable to rank the activities so the CEO realizes not all activities that a company performs contribute equally to value or competitive advantage. Then the CEO can see that prioritizing the downstream is important.
Profit: Where do you go from there?
Dawar: You should really ask the question “Why do our customers buy from us rather than from our competitors?” If you can answer the question—and build consensus around it—then you are starting to get at the heart of your differentiation and competitive advantage. And you can start to build on that advantage and start to make sure that everything else we do is aligned with it.
Kate Pavao is a frequent contributor to Profit.