Reverse Your Value Chain to Be More Customer-Centric

Customer-centricity. The concept, while not new, has become one of the most popular topics among today’s business leaders as companies explore ways to increase market momentum, customer share and new product adoption.  Why the renewed interest? Studies such as those by American Express reveal how important it is for companies to intensity their focus on customer-centricity.  The most recent Global Customer Service Barometer survey conducted by American Express found “just over six in ten customers agree that companies meet their expectations”.

Customer-centricity. It’s more than a buzzword. It represents a shift in perspective, especially for B2B companies. B2B companies tend to be more product-centric. What does it mean to be customer-centric vs. product-centric? And what steps should your firm take to become more customer-centric?  You may find Don Pepper’s explanation about difference between customer-centricity and product-centricity useful:

  • Product-centricity starts with having a product or service that responds to customer needs and then finding as many customers as possible who have these needs.
  • Customer-centricity starts with the individual customer and aims to meet the needs of that customer everywhere (all divisions), and as much as possible.

This is a significant shift when you consider that the majority of the Fortune 500 firms organize their top divisions around internal criteria (i.e., product groups, functional areas); operational functions are streamlined internally but cover multiple customer groups externally.

Customer-centricity. More than a platitude.  Research has found that customer-centric companies enjoy great customer satisfaction. And a Booz Allen study found that businesses that are successful at customer-centricity outperform industry peers two-to-one in revenue growth and generate margins 5%-10% above their competitors.The Internet has leveled the distribution playing field.  Price is often perceived as the determinant of value. Therefore, companies are left with only two ways to really add value: through their brand and their relationships with customers and prospects. Switching to a customer-centric system positively influences both.

How to Make the Shift

A different take on “if you build it, they will come.”  When you shift to a customer-centric strategy, you are building an organization that holds the informed knowledge of the customer and the marketplace at its heart. Your organization is aligned around customer commitments, customer relationships, and enhanced customer knowledge. This customer knowledge is power.  While your products might be able to be copied and your channels disrupted, how well you know your customers and your market gives you a market advantage. While the transformation from product-centric to customer-centric comes with a cost, the benefits you can reap are significant.

Making the shift to being customer-centric takes deliberate action. The traditional value chain is product-centric. It calls for designing, making, and selling the product or service—precisely in that order.  Shifting to a customer-centric position requires companies to “reverse the value chain.”  Reversing the value chain has enormous implications for your business activities and processes.

What It Means to Reverse the Value Chain

Reversing the value chain means you start with the customers’ needs and priorities. Data, customer data, market data, competitive intelligence, these become the essential raw materials.  Some of this data may be at your fingertips and easily accessible. Other data may be buried in your systems. And acquiring some data may require you to execute research that involves surveying prospective customers, conducting focus groups, and creating customer advisory boards.

Reversing the value chain also sets you on the path to identifying the channels that best deliver what your customers need. This may mean you will need to revisit how you go to market and with whom.

Reversing the value chain means you will need to determine the products or services best suited for these channels.  Then you will need develop the resources required to deliver the offerings that will ensure value to the customer.

value-chain

Figure 1: Reversing the Value Chain Contrast the different approaches between the traditional and reversed value chain.

 

Identifying what the customer values needs to take place well before the selling stage. This approach demands that you determine the best strategies to provide value to the customer. In reversing the value chain, the customer’s needs are the factors that guide and drive your business activities. Embarking on the customer-centric journey requires work up front.

Four Components to Ensure Your Transformation Success

Making the transformation means more than changing how you market to your customers.  It means you change how you operate your company.

  1. Customer orientation. To begin, you and your team will need to move from a transactional orientation toward customers to a relationship orientation that encompasses the entire customer lifecycle. This has implications from how you are organized to how you develop solutions to how you market, sell and serve your customers. The focus is no longer on creating discrete customer transactions. Your focus moves to creating ongoing holistic experiences across the customer lifecycle.
  2. Solutions vs. Selling. A customer-centric transformation means you leave the world of selling “products” for the world of solving problems. How well you understand and can profitably solve customer problems serves as the basis for ALL your business decisions.  What you develop.  How you go to market.  The partners you choose.
  3. Front-line vs. top-down driven. Your customer interaction and experiences occur on the front line. The interaction, and therefore the action, is with your sales, marketing, and service personnel. These are the people in the trenches. These are the people directly interacting with your customers – every day. You will need to arm these people with the skills, resources, and authority to manage “moments of truth.”
  4. Engineer or reengineer business processes. This step is probably one of the most difficult and expensive aspects of the transformation. If you want your transformation to be more than window-dressing. You’ll need to “bite the bullet” and possibly rework every business process.

These four steps will require your leadership. It will most likely mean a change in your culture. It will certainly necessitate extensive internal collaboration.  In today’s business climate where the customer is in driver seat, the shift really isn’t optional. Companies that successfully reverse the value chain and make the transformation reap a number of rewards; they create more value for their customers, brand and product.

When you provide superior customer value. When you deliver a level of quality the customer expects to receive for the price paid for goods and services, companies gain the best opportunity to increase their valuation. As a customer-centric company, you will be able to achieve a better competitive position, realize greater market momentum, market share, return on shareholder equity and faster growth. The bottom line – achieve a better competitive position.

© 2016, Laura Patterson. All rights reserved.

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