So far we have focused on the tools of Total Customer Value Management, what Customer Value is, how it is measured and how it relates to business results such as loyalty, market share, profits and stock price. We have learnt all these increase as Customer Value Added increases. We have learnt generally the reasons how Customer Value can be created by incorporating Total Customer Value Management and Customer culture, and what prevents it from taking root.
In this post we will look at the importance of Customer Strategy, its relationship to Business Strategy and Customer Culture.
The starting point of a good business strategy is a Customer Strategy. The Customer Strategy and the shareholder strategy should then be used to build a business strategy/business tactics. And in today’s age both the business and the Customer Strategy should be adaptive to the changing future.
Is Customer Strategy Different from Business Strategy?
Many can ask if a Customer Strategy is redundant. But it isn’t. It is crucial if organizations want to change and become truly Customer-centric. The Customer Strategy focuses on the Customer, what the company can do to improve the Customer parameters and become more Customer-centric and to inculcate a Customer-centric culture. It looks at the Customer’s needs, and how to increase Customer Value for him.
A Business strategy focuses on the market place and the market potential and how to take advantage of it.
This example will illustrate the difference between a Customer Strategy and a business strategy. Take the mortgage meltdown in 2008. The Customer Strategy would have revealed that the Customer wanted mortgage products that would be Customer friendly when interest rates went up or home prices dropped. The market or business strategy showed an opportunity to bundle mortgages and sell them to a larger financial institution, getting back the money the mortgage company had loaned as mortgages, thereby allowing the mortgage company to sell more mortgages. The name of the game was to sell more mortgages, bundle them and sell more, and recycle your funds. So instead of getting $5 on a $100 mortgage for each of the next 30 years, the mortgage company would get the money back, and say $1 in fees. If they could do this 10 times in a year their $100 would fetch $10 instead of $5 in the original strategy.
The quality of the mortgagee was ignored. When banks called in their loans, they found that many Customers were defaulting. The defaults cascaded to the last holder of the mortgage paper, causing a major collapse of the financial markets.
Another example is a coffee shop that looks at increasing clientele by selling reasonably priced coffee compared to other stores, or to look at the Customer need of wanting to feel relaxed and enjoy the ambience, Starbucks style. Each is a result of a different Customer Strategy and requires different tactics and tasks.
A survey of 400 CEOs showed that 33% felt that the number one issue in preventing Customer-centricity was a lack of a clear Customer Strategy and twenty-eight percent felt it was internal silos in their companies.
Building and using the Customer Strategy helps break silos and creates teamwork. This happens because CXOs become integral members of creating the Customer Strategy. They, therefore, are part of the Customer Strategy. The participants assign Customer roles for themselves and their departments. And the Customer role may not be the functional role of the department.
For example the head of finance may be asked to head the strategy that the Customer comes first. All department heads agree to lead certain Customer-related strategies. They become part of the Customer-focused team. And as KPIs (Key Performance Indicators) include Customer parameters, the Customer Strategy becomes a practical road map to building Customer value and creating value for the Customer.
In many companies, the Customer Value Added score and Total Customer Value Management becomes a major part of the balanced score card, and is also reported along with financial results to the Board of Directors. In one company, Total Customer Value Management was the number one item in the balanced score card at 23%. In another it shared first place with new businesses at 18%.
Building the Customer Strategy
The Customer Strategy should become an integral part of the corporate strategy and be led by the CEO. It will help him think about how to change the organizational structure to become Customeric and drive the business with the Customer in the centre. It will help the CEO implement the strategy and think through moving from selling to the Customer to helping him buy to becoming an extension of the Customer by building an inseparable and symbiotic relationship with him.
What tasks will make this happen? How will the company ready itself for disruptive markets, for adapting to changing marketing dynamics? An example is a company that strategizes that they should be the most Customer-friendly physical retailer. What happens when e-selling competition impacts their business? Should they go physi-digi (physical store with a digital program)?
What if another company’s strategy is that their brand should stand out and sell for them? Suddenly, they discover that Customers are buying based on Customer scores or the Customer Value Index and not on the brand. Should not companies, therefore, try to improve their Customer scores or the Customer Value Index?
To do so, first the company has to recognise that the Customer belongs to everyone in the company. That is everyone has a responsibility to and for the Customer.
As we said earlier, the Customer Strategy assigns Customer tasks to various CXOs including non-Customer facing departments. Thus the CMgO (Chief manufacturing officer) may lead the strategy to communicate better with Customers. The head of IT may lead the strategy to understand the Customer better.
Building the Customer Strategy is a top-down methodology to build a Customer culture. To build a bottom up view of the Customer we must build Customer-Centric Circles. The participants formulating the Customer Strategy must understand Customer culture, and how to enhance it.
What Prevents a Customer culture?
- Short term results overtake all other considerations, such as changing the culture
- The executive feels he works for the owners not for the Customers
- Executives are company centric and not Customer centric
- The convenience of the company is more important than the convenience of the Customer
- Executives forget what it is to be a Customer. All executives are Customers and have varied Customer experiences, but they forget this
- It is easier to work on processes and systems than to work on the mind-set, and to be functional managers. Creating Value requires going beyond their functional thinking.
- There is no process or Total Customer Value Management system in place with Customer task for all departments and their executives
What promotes a Customer Culture
- Building a Customer Strategy to bring key executives into the Customer mind-set and for them to take charge of the Customer work
- Customer Centric Circles
- Continuous Customer Improvement Programs’
- Customers’ Bill of Rights
- Systemic changes
- A focus on creating value for employees and other stakeholders, and going beyond functional management (and just a focus on efficiency and administration)
- Executives must spend at least 15% of their time on Customers
- Customer centricity requires a mind-set shift rather than more systems and processes. Mind-sets are difficult to copy
Total Customer Value Management helps all departments and executives to have a Customer focus. It is the foundation of building a Customer culture. Customer Strategy and Customer Centric Circles are building blocks of the Customer culture and a Customer mind-set. This gives the company a great competitive advantage. Do you find your executives talking about how to improve Customer Value? Have you attended such meetings?
Do it Yourself
How much work is done on processes and systems in your company versus mind set changes?
Rate the mind-set of the front line people, of the executives and the top staff on the Customer.
How could you get someone who is loyal to your competitor to become loyal to you? Give a generic answer and another answer specific to the context.
Are companies loyal to Customers? To employees? Should they be?
If they are, what are the benefits and the downside?
Does your company have a Customer Strategy?
Do different CXOs have a lead role in the design and implementation of the Customer Strategy?
Is your Customer Strategy and the business strategy different and how?
Has your Customer Circle engendered courtesy and team work? And understanding each other’s problems
Have you looked at employees in the Customer Strategy?
Do all people understand they are responsible for the Customer? How can we make this happen?
How is your Customer Culture going to be impacted by the Customer Strategy?