Competitive Advantage of Customer Centricity

At the forefront of every CEO’s mind is the question: “How do I make my company achieve a superior financial performance?” Superiority, whether measured in terms of profits, earnings and sales growth, returns on capital, investment or assets, is a relative concept. In this context, it means doing better than the previous quarter, the industry average, or rivals. Of course, it is every CEO’s dream to build a track record of consistently achieving a superior financial performance. To do so, a company must produce products and services that uniquely benefit customers in the most cost-effective manner. Amid intense competition, companies that possess a sustained competitive edge generate superior financial performances.

As hard as it is to create a competitive edge, everyone likes to win and some smarter organizations are finding new ways to do it. Call it passion or drive. Whatever it is, constantly trying to top a previous success is the hallmark of the most competitive companies in the increasingly competitive world of business. But what do we really know about winning? Why are some people so hungry to reach the top? Rupert Murdoch, CEO of News Corporation, puts it this way: “Competing is not about winning. It’s about making preparation, overcoming the fears to fail, and nurturing people to reach their highest potential. Winning is just simply the result.” He adds: “Competition is enjoyable. It’s the reason for being in business. You have to like to win. I have always liked to do more than my father and it drags me into many businesses. But maybe it is in my genes.” In a slightly different view, Xerox former CEO Anne Mulcahy says: “Competition gives you a focus. Lots of times you need a mission, a bull’s eye that keeps you focused, and competition can do that. A passion for winning when it’s focused on a strong competitor provides a lot of incentive and passion and pride for people.”

Every strategy eventually runs its course, having traversed its cycle of applicability. As the competitive landscape changes, a strategy that once proved successful may no longer yield the same outcome, so a new way must be found to compete in order to sustain superiority. Often an existing strategy is brought into question when a company repeatedly fails to achieve what it set out to accomplish. This can be traced to the organization’s inability to address relevant strategic issues and mobilize the entire workforce to execute key strategic initiatives. A factor oft-cited as contributing to this failure is vision barrier—management’s inability to articulate clearly how a strategy will be executed. According to two separate surveys conducted over the past several years, fewer than 10% of employees reported that they understood their company’s strategy, not to mention the majority of them failed to understand how what they do contributes to the success of the company’s strategy.

As this new century unfolds, creating a sustainable competitive advantage will become an increasingly tough proposition for today’s businesses. Whatever advantage a firm has, others will find ways to nullify it or take it away. No matter what strategy you use to make your business stand out, your competitors can always find ways to move closer. Differentiating your products—be it Intel’s chip technology, Wal-Mart’s new store formats, or Starbucks’ offering of a premium cup of coffee in an inviting environment—is often not enough as imitators can quickly match these innovations. The same goes for inventing new markets, as companies have to honestly ask if there is any market that their competitors cannot and will not move to in the pursuit of profit. So, all of these leading companies, each dominating its field, are facing new challenges to maintain their positions ahead of the pack while growing profitably.

How a company should compete best is central to providing a roadmap for moving the company forward. Such a roadmap is, in essence, a competitive strategy. Traditional strategy development process applies tools and concepts like mission (defining the company’s purpose), vision (inspiring future results) and value statements to guide the company’s strategy development. However, due to changes and competition, a company cannot thrive by its internal guidance. Analytical tools, such as industry trends analysis, SWOT, competitive analysis, and internal capability assessment, are used to navigate the company through the dynamic business landscape to reach a new performance plateau. These analytical tools address different angles of strategy formulation. However, a logical linkage of analysis results that shows how a company has been competing has yet to be established. Many believe that such a linkage can never be made since strategy formulation is more art than science. Under the proposed customer-driven strategy formulation, clearly articulating a roadmap for moving the entire company into the future requires management to address the four strategic elements: who are the target customers, what is the company value proposition, how will profit be made, and what will be the proper scale and scope of business operations?

Marketing is viewed as an investment that produces an improvement in the drivers of customer equity. The day-to-day challenge facing managers is to ensure that their marketing spend produces reasonable returns. In my view, the field still lacks comprehensive models to link marketing spending and customer action. A number of customer-management authorities have developed customer life-cycle planning with conceptual notions of customer journey. Prospecting first-time customers for an initial purchase is the first step of the journey. The next rung is making sure that first-time customers become satisfied customers, proceeding on to build a relationship with satisfied customers to increase the chances of them making repeat purchases, spreading the word about the company, and staying with the company over the lifetime of the relationship (see Fig. 6.1). This means a firm must first think of customer management as an end-to-end process that begins with improving customer perceptions of the company that, in turn, induces customers to take a journey with the company which will eventually see the relationship terminated for one reason or another.

As a continuation to the case on a commercial bank presented earlier in Chap. 4, a top management team was assembled to put together a new business plan for the board’s approval. The team realized that the bank’s CCID (Current Customer Identification) had grown to more than one million customers. But its customer base was highly concentrated—out of the one million CCIDs, auto loans, savings and deposit customers accounted for more than 90%. Consequently, focusing on segmenting hire-purchase, savings and deposit customers should capture the bulk of the bank’s customers. The team had no time to conduct market surveys on customer buying value because of a tight deadline. It was assumed that the frontline staff (especially sales staff) had the bulk of customer information and their knowledge should be leveraged. The team then brainstormed to come up with a few alternatives to segmenting the existing customers. These alternatives were put forward to a select group of sales staff for their feedbacks. The team concluded that, at least for now, the bank could segment its customers based on their business interactions, which are driven by their financial maturity. Seven segments were proposed:

As new sources of value creation are getting scarce, many leading companies are looking beyond the four walls of their operations for new sources of value creation. By looking downstream, leading companies begin to realize that long and lasting relationships with existing customers presents a promising source of profit that is difficult to imitate. Many firms are rushing to learn more about their customers with the use of Customer Relationship Management (CRM) to sell more products to existing customers. Looking upstream, leading companies are looking to suppliers as new sources of value creation.

While some manufactures are realizing that competing on product features and prices alone no longer delivers a sustained competitive edge, for many of them delivering solutions under the customer-centric framework remains an elusive goal. More manufacturers are now exploring ways to provide customer satisfaction that goes beyond the functionality of their products to include services. This stems from the fact that neither better-built products nor physical production and distribution channels can in themselves create sustainable competitive advantage—they are too easily duplicated, reversed-engineered, and cloned or produced offshore.

In today’s turbulent marketplace, nothing is more important, difficult or perilous than keeping customers happy. Most companies measure customer satisfaction, implement quality improvements, and take steps to improve after-sales service. Although these measures would seem to make a company more customer-focused, in fact they are attempts to become more market-focused. Companies that focus on the market try to make products that appeal to a broad audience rather than meet specific needs of individuals or a small group of customers. Today it is imperative that companies meet increasingly diverse customer needs at the lowest possible costs. But this has become increasingly difficult to do without sacrificing one for the other and ending up stuck in the middle. The problem is that mass-produced standardized goods cost less, while customized products are more expensive.