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Differences between Customer Centric and Product Centric Companies

Vivek Jaiswal | Sep 13, 2017 201 views 4 Comments

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This story is a version of a post published here.

Customers don’t know what they want until you show it to them
~Steve Jobs

We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better
~Jeff Bezos

I started today by encountering these two contrasting quotes from probably the best business minds of this century. Both these icons built legendary companies that will be part of every B-School classroom discussions for decades to come. However, if you take a close look at those statements you realise that both these leaders have adopted alternate paths to success, while one believed in developing the best machines the other believed in satisfying the customers’ needs to the best of his abilities. This takes me back in time when I was contemplating the kind of company I would like to be a part of. There were long discussions whether to be a customer centric startup or product centric startup, the merits and demerits of each one, how would this decision impact change the way the DNA of the organisation is fabricated. In fact, I even thought: can a company be both product and customer centric at the same time, or is it one way or the other only? Here are my thoughts:

What’s the difference between customer centric and product centric companies?

A product centric company focuses on developing newer and more advanced products irrespective of the demand that is existent in the market. The demand is non-existent, the utility and the quality of the introduced product creates a new customer segment for the product. The best example of such a product is perhaps iPad, and in my regard Apple, Google, and Tesla are great product centric companies.

A customer centric company, on the other hand, focuses on identifying a key customer segment, their needs and wishes, and then continuously developing products and services to fulfil those needs. Such an organisation would typically expand by increasing the wallet share within its customer segment and by entering into newer markets to target similar customers there. One of the best customer centric companies is Amazon. They identified a customer segment of 20 somethings who are continuously connected to the internet. Then Amazon started off by selling them books online and went on to develop products like Kindle, Fire etc. along with bringing more products these customers could buy from Amazon. Similarly Nike, Zappos, TD Bank, Southwest Airlines are few more examples of great customer centric companies.

People, Process & Structure in Product and Customer Focused Companies

  • Process flow

  • Process Flow

    Image Source: Customer Guru

    Process flow in product centric & customer centric organisations

    In a product centric companies, the product drives everything. There is a natural inclination towards developing and pushing a great product that delivers an amazing customer experience. While in a customer centric company, sales and marketing team play an important role in assessing the customer requirements and conveying it to the product division. There is a natural flow of customer requirements being driven all the way up to the product division which then develops what would instantly delight the customer because it solves an existing pain area.

  • Organisation structure

  • Interestingly, the organisation structure is also quite different in both these types of companies. The divisions in product centric organisations are mostly according to the various products that are being developed, whereas a customer centric organisation is usually flat and very loosely designed to enable proper, flexible & quick communication within various divisions, quicker responses to customers etc. For example, looking at the organisation structure of Apple below, you’d observe that it is divided based on the products like iPad, iPhone and Mac. The people in this organisation are rewarded for the number of new products that are developed or number of new patents that have been achieved.

    Organization Structure

    Image courtesy: Fortune

    On the other hand, here’s the structure of Southwest Airlines. You would observe they created special focus on customer care by allocating a separate branch for it in the form of People & Admin. The employees in this structure are given freedom and are expected to be more autonomous and responsible. The rewards cycle in customer centric companies should be very small and people are generally rewarded for their customer service, for example: Gary Kelly, gives a shout-out on their radios for the employees who have done great work during the week.

    Organization Structure 2

    Image Source: Customer Guru

    While each of the focus has its merits, it also has its demerits too. One of the major criticisms of a product focussed approach is that it blinds the company to what are the new developments, opportunities & requirements from the customers’ perspective. As a result, the company might lose relevance with its customers, which in turn might lead to loss of market share and sometimes even extinction of the company. The examples are aplenty. One of the famous ones is Xerox Corporation. Xerox pioneered the dry printing and copying technology, especially in the offices market. However it turned a blind eye towards the growing need of printers in the home market. Canon took away that entire pie that could have easily been Xerox’s if it wouldn’t have been so product focussed that it lost sight of it’s customers needs. The cases of Nokia & Kodak are other such examples.

The customer centric approach has its share of disadvantages too. One of the major ones’ is that the customer is only going to stay with you as long as you keep your commitments to your customers, and do it better than your competitors. I believe that customer centricity should be in the DNA of the organisation and should be spearheaded by the CEO to be sustainable. If the company has to continue to provide such a service then the costs increase exponentially but by doing it right and making it the company culture, the customer loyalty will always make it worth every penny!

Now that we know that both product centricity and customer centricity have their own pros and cons, the question is whether a company should either be just product centric or just customer centric? I don’t believe so! Businesses have to strike a balance between both the approaches. Take Apple for instance. Along with building great products that deliver unparalleled customer experience, Apple also trains its employees with the ethos – “Your job is to understand all of your customers’ needs — some of which they may not even realise they have.”

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4 Responses to Differences between Customer Centric and Product Centric Companies

  1. Chip R. Bell September 14, 2017 at 6:49 am (183 comments) #

    Fascinating post. One I plan to re-read a few times. Product centric versus customer-centric starts with a frame of mind or perspective. All manner of strategy and organizational design emanates from that view of business. It can influence even the smallest decisions from top management to the front line employee. One exercise I sometimes use in training classes is to divide the class into the two perspectives–One is the plant manager of an automobile factory, the other is the GM of full-service hotel. Groups address several questions: What are your critical success factors, what keeps you up at night, what do you reward/celebrate, how do you keep score (top metrics), and what do your heroes do. The answers between the two types of groups dramatize the differences.

    One of the best illustrations of that difference between an object-focus versus a feeling-focus comes from my friend Shaun Smith of Smith+co in London (and co-author of Bold) who shared his favorite Lexus story and gave me permission to use it in my book Take Their Breath Away (co-authored with John Patterson). The story is from a few yeas ago when automobiles had ashtrays but the principle is still the same. Here are Shaun’s words:

    A BMW owner walked into a Lexus dealership and announced that he was considering changing automobile brands. He had seen an ad about Lexus’ legendary service. But first he had a service question to pose to the Lexus sales person.

    “Earlier this week I took my BMW in for routine maintenance. In the process they removed the ashtray to clean it but forgot to put it back. When I discovered it was missing, I called the BMW service manager. He announced that they had indeed found the wayward ashtray shortly after I left and would be happy to hold it up front in the office for me to pick up at my convenience. Now, how would you have handled this situation?”

    The Lexus sales person replied, “Well, sir, it would not have happened since we have a 54 item checklist that includes replacing the ashtray after cleaning. But, if it had have happened we would not have waited for you to call us.” The BMW owner smiled, left his business card, and departed from the Lexus showroom.

    That afternoon after work the Lexus sales person drove to the BMW dealership, picked up the customer’s ashtray for him, and surprised him with it at the front door of his home!

  2. Andrew Rudin September 14, 2017 at 7:12 am (218 comments) #

    Hi Vivek: Customer-centric and product-centric is an often-invoked dichotomy, but I question its validity today. Your quotes at the beginning of the article are emblematic of how closely the two are related. Both Jobs and Bezos share the view that the corporation is the grand arbiter of how consumer needs will be fulfilled. Whether through products, experience, or both isn’t the issue for them. Inherent in both of their statements is a fervent belief that they understand customer need, and their companies will provide for them.

    Many products have been developed by large companies – and by companies that became large – through the same recognition of nascent, poorly defined market need. (That’s not the same as demand, though the two are sometimes used interchangeably.) And those companies risked capital to develop solutions and technologies for products designed to make things easier, cheaper, more abundant, and more available for consumers and customers. Some succeeded, while many others failed.

    Much of the problem you describe with Xerox and other companies wasn’t so much that they started out as product-centric, but they became that way as their technological innovations matured, and became “cash cows” in the product portfolio.

    That development creates profit (obviously a good thing) for the company selling the innovation, but it also reliably creates protectionist thinking that stifles innovation. Why undermine reliable profit streams and patent hegemony when they’re working so well? That was the thinking in the C-suite at Xerox, Nokia, Kodak, and Blockbuster Video when competitors were tinkering with ways to upend their business. My point: those once-pioneering companies that developed products from blurry notions of unmet market need got complacent, and literally became victims of their own successes.

  3. Gautam Mahajan September 14, 2017 at 10:23 am (175 comments) #

    Vivek, good article. My comment is that organograms and words are not enough but a clear customer culture both top down and bottom up are adopted. This does not happen because the operational/money making objectives overtake the customer thinking. Tasks that are important are relegated to fire-fighting.
    Good thinking. Thanks

  4. Michael Lowenstein September 14, 2017 at 12:24 pm (1294 comments) #

    My colleague, Professor Peter Fader at Wharton, has identified customer-centricity at two levels: “A requirement behind customer centricity is the ability to understand customers at a fairly granular level and to be able to identify the customers or the segments of customers who are valuable from the ones who aren’t. If you can’t sort out your customers — if you can’t look at them and know who is good and who is bad — then you can’t be customer centric. That’s step one.Step two is having an operational ability as well as an organizational capability to be able to deliver different products and services to different kinds of customers.”

    That concept, with which I’m fully in agreement, makes customer-centricity profoundly different from product-centricity, both culturally and operationally. As you note, product-centricity (and, I’d add, sales-centricity or operational-centricity) results in a very different looking company, to both employees and customers

    The challenge with customer-centricity is that, for the vast majority of organizations, it is rarely practiced on an enterprise-wide basis, among all employee groups. To focus on customer experience and value, organizations need to be stakeholder-centric, with employees functioning as ambassadors, committed to the company, its product/service value proposition, and its customers. I’d argue that companies like Amazon, TD Bank, and Southwest Airlines – three companies you identified as customer-centric, are actually stakeholder-centric. Here’s a recent example of Southwest’s stakeholder-centricity playing out in the real world: http://customerthink.com/great-ex-employee-ambassadorship-and-cx-customer-advocacy-story-the-southwest-airlines-rep-and-the-passenger-with-cancer/

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