With the immense power bestowed upon consumers by the Internet and an ever expanding means of communication, consumption and interaction, companies have been forced to rethink their branding and business models. In today’s ultra competitive marketplace, luring customers from competitors requires more than the dominant product-centric or company-centric model.
In most boardrooms today, growth strategies are driven by finance – a function which doesn’t necessarily have the customer as their primary focus. Even companies who are lead by strong research and development capabilities don’t always have the real needs of the customers as their top priority either. These companies make what they are able to, and then leave it to marketing, distribution and sales teams to push products on consumers.
Customers demand that brands provide an experience that makes them feel special in return for their loyalty and they expect those companies to come to them for input. If not, customers are becoming increasingly vocal and public in offering their feedback.
A customer-centric philosophy is an ideology – a value system where a company’s alignment of operations, production and internal controls are centered on consumers. Customer-centricity emphasizes long term interactive relationships by focusing on service, satisfaction and engagement – often in radically new or different ways. These activities include crowd sourcing, co-creation, social science and data-driven design.
In the last decade, CEOs have been ranking customers higher and higher on their list of factors that drive change in organizations. CEOs now place consumers second only to the C-suite in terms of their strategic influence. As a result, tomorrows CEOs, CMOs and CIOs recognize that they need help from the consumer to determine their path forward and are dissolving traditional barriers to engage them. Business leaders must understand the major benefits of customer-centric philosophies if they are to become consumer-driven.
Why customer centric?
There are 4 strategic reasons why businesses should aim to be customer-centric, and they must ensure that customers are taking centre-stage in all decisions:
Clarity: According to more than 1,500 global CEOs, the biggest challenge they face is complexity. However, less than 50% of these CEOs feel prepared for change, citing a lack of customer insight as their biggest deficiency. Coherent strategy requires clear direction. Customers are the only ones who can provide answers by understanding their present and future needs.
Design & development: The holy grail of customer-centric strategy is to anticipate what consumers need before they realize they need it. In a world of abundant choice, the purpose of branding is to guide consumers a midst a dizzying array of alternatives. True innovation can be the most powerful differentiator of all. With a customer-centric approach, product development and design will be more in tune with the needs of customers, enabling sustainable competitive advantage through consistent innovation over time.
Sales & marketing: Customer insights are enabling organizations to improve the timing and positioning of their marketing. Businesses now have the ability to predict customer needs by recognizing patterns in their behaviors, and then tailor their brand communication, advertising and promotions to when buyers are most receptive. Other types of engagement can also allow for spontaneous and viral responses. The best advertising does not necessarily come from hired ad agencies and other marketing partners, but from empowered audiences.
Profitability: Ultimately, businesses are not charitable organizations – they exist to make as much money as possible. With data analysis and big data, leaders now have the ability to identify micro markets within their previously well-defined customer segments. Leaders can identify customers who matter the most in terms of dollar-value and propensity to renew, and better align resources to maximize business and brand opportunities. Boardrooms must get fully behind customer-centricity and emphasize customers in all strategic decisions when setting business directions, focusing on choices and allocating adequate resources. The outcome of these efforts will be enhanced revenue and profitability as leading key performance indicators.
Elevating marketing: The CMO and CIO as a team
To create a truly customer centric organization, the Chief Marketing Officer (CMO) and Chief Information Officer (CIO) roles must become much more prominent than they are presently in many global companies. Marketing continues to be an isolated silo within many organizations. Their traditional domain – the tactical 4P framework which includes pricing, place, product development, and distribution – began to be taken over by finance, engineering and operations departments. As a result, marketing has often become relegated to selling the products manufactured by the company’s product-centric approach. At the same time, boardrooms and executives have become much more insulated from the voices of their customers. Today, marketing plays a role in leadership and innovation in only 39% of global firms as marketing focuses more on short-term sales than long-term corporate health and brand equity.
Together, the CMO and CIO roles are poised to lead brands through this change if they embrace new responsibilities and are given the leadership authority and prominent voice within the organization to do so. Marketing must become more than advertising, and be elevated to the boardroom alongside a renewed strategic focus on technology.
The Value of a Brand Depends on the Customer
One of the most important things to understand about a brand is that its value is highly individualized. A customer might grow tired of a brand, or more enamored, independent of how other customers are responding to it.
Yet most marketing managers speak about the value of a brand as though it were solid and monolithic, and they measure brand equity with a summary metric of brand strength. It’s a perfect example of what’s been called the “flaw of averages.” The value they arrive at is true for practically no one—and hardly a useful management tool.
Put Your Brands in Their Place
If you accept that the goal of management is to grow customer equity, not brand value, and that brand value is only meaningful at a highly individual level, then you will likely manage your brands in a profoundly different way. Our work with leading companies crafting customer-centric branding strategies suggests seven directives that go against the grain of current practice.
Make brand decisions subservient to decisions about customer relationships.
This means creating or strengthening the role of the customer segment manager and allocating resources to that function rather than to traditional brand managers. It may even make sense to go beyond segments and assign managers to specific customers, if they are big and important enough. In the business-to-business world, this is known as managing key accounts; companies like Ericsson and IBM assign account managers and give them broad authority in marketing to important customers. Consumer companies can also use the approach, organizing around customers or customer segments.
Build brands around customer segments, not the other way around.
Some products, like Viagra, are inherently directed at the needs and requirements of a particular customer segment. Others, like the Black Pride beer once sold actively in the African-American neighborhoods of Chicago, are generic products positioned for a specific segment. Procter & Gamble markets an extensive portfolio of soap brands, each targeted to a different psychographic or demographic segment. Its laundry detergents, too—Tide, Gain, Cheer, Ivory, Bold—are differentiated more by target customer segment than by product features.
Make your brands as narrow as possible.
Henry Ford may have sold the Model T to a broad cross section of consumers, but today there are men’s and women’s formulas of vitamins and distinct television channels for Latinos, African-Americans, women, golfers, senior citizens, and gays. As advances in technology and customer information make such segmentation easier, this trend is likely to become even more pronounced. And it should. If the customer is central, then the purpose of a brand should be to satisfy as small a customer segment as is economically feasible.
Plan brand extensions based on customer needs, not component similarities.
Many companies are guilty of brand overextension—usually because they evaluate extensions according to how similar the new product is to the old one. Instead, they should be thinking about whether the two products’ customers are similar. Clearly, it makes no sense to try to extend a brand to a dissimilar product with dissimilar customers.
Virgin, for example, has extended into a wide variety of unrelated products, including airlines, music stores, soft drinks, and mobile phones. What unites Virgin’s offerings is value pricing, high quality, and a hip, fun image that attracts a particular customer segment. This psychographic similarity in Virgin’s customers makes it possible for the company to create brand extensions that would not otherwise work.
Develop the capability and the mind-set to hand off customers to other brands in the company.
There’s absolutely no sense in spending disproportionately to hold on to a brand’s customer relationship if the customer is a more natural fit with another brand in the company’s portfolio. Brand managers need to know their customers well enough to tell when it’s time to hand off customers. In extreme cases, a company might even encourage some customers to abandon a brand to which they are loyal if another brand will better cultivate the relationships and increase customer equity. Brand managers need to know their customers well enough to tell when it’s time to hand them off.
Take no heroic measures.
Sometimes a brand becomes very unattractive to a customer segment. Reversing that impression might simply be too hard to do. By analogy, suppose you went on a summer vacation for two weeks, left the car at home, and returned to find that a skunk had jumped into it, sprayed, then died. Given your investment in the car and its replacement cost, you would labor mightily to get that smell out of the car. But we can tell you with some authority, it would be a lost cause. Now suppose such a lingering stench has attached itself to your brand. At what point would you cut your losses and invest in a new one?
Brands should never be scrapped frivolously, but companies should retain only those that have avid customers—not sentimental owners or overly aggressive brand managers. Retiring ineffective brands is easier to do if the marketing resources of the firm are controlled by customer segment managers, as we propose, rather than brand managers. If brand managers control the resources, they will persist too long with a brand that has lost its punch in a particular segment. To do any less would feel like a personal failing.
If brand managers control the resources, they will persist too long with a brand that has lost its punch.
Change how you measure brand equity.
A focus on customer equity doesn’t mean brand equity is unimportant. To the contrary, improving brand equity remains one of the most important marketing tasks. And that means it needs to be reliably measured and tracked. The task is greatly complicated—but not rendered impossible—by the realization that brand equity varies dramatically from customer to customer.
Overcome Your Blind Spot
The changes we’re suggesting will reverberate throughout an organization, shifting roles and responsibilities, budgeting processes, performance measurement systems, and more. This kind of broad-based reinvention is possible only when it also entails a fundamental change in perspective on the part of the executive team. People learning to drive realize quickly that they have a vulnerable area where their vision is hindered or obscured. For many management teams, brand is one of those blind spots. Executives must begin looking at the problem of brand management more deliberately and from the customer’s point of view.
In a customer-centered company, brands are important. But they are not all-important. Therefore, companies cannot be structured, staffed, and motivated to grow their brands, full stop. It is top management’s job to correct this focus, and only top management can do it. The first step is to develop a competent cadre of customer segment managers. The second is to hand them the purse strings. The third is to track and reward their progress using reliable metrics for customer and brand equity. Make these adjustments and you in turn will see changes—subtle at first, but substantial over time. Your people will understand that brands are only a means to an end, and the end is this: to create and cultivate profitable, long-term relationships with customers.
Understanding consumers is the key to future strategy, improved design processes, marketing effectiveness and financial profitability. Instead of the traditional product-centric business planning process, tomorrow’s sustainable brands must align their operations, production and key talent around consumers as their most important asset.
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