12 January 2012

Zimbabwe: Dictatorship of the Customer - Beware

opinion

FEW have ever questioned the legitimacy of the almost universal marketing axiom that the "customer is king". The history of corporates is strewn with countless victims of subtle forms of dictatorship, which I call the dictatorship of the customer. What makes this variant of dictatorship very deadly is that it is benevolent. It fattens the naïve corporate for the day of slaughter.

Customer dictatorship, by leading decision-makers to develop strategic blind spots, ie, neglecting profitable business opportunities, can threaten the very existence of a business in the long-run. Ask Pick 'n' Pay, the once undisputed giant of South African retail. Customer dictatorship explains why Pick 'n' Pay could allow Shoprite to grow into the most dominant retail force in South Africa. Today, long-run can be as little as five years or less. Developing strategic blind spots is a leadership behavioral issue. Addressing behavioral issues is one of HR's undisputed mandates.

Customer dictatorship origins

To help you see the origins of this animal we are calling the dictatorship of the customer, allow me to briefly celebrate the thoughts of one pioneering marketing thinker, Theodore Levitt. Levitt penned a hard-hitting essay entitled, Marketing Myopia. In that seminal piece, Levitt lashed out at the corporates for defining the business in terms of the products they were making. He called this provincialism. He cited examples of why giants of yesterday who, for instance, narrowly viewed themselves as being in the railroad business and not in the transport business failed.

When opportunities arose in air transport, they failed to seize them because their self-imposed boundaries had made them strategically blind. They became also-rans. Levitt argued that the business begins with the customer and not products. Levitt's in-your-face piece spawned a revolution in business, with repentant corporates seeking ways of overcoming their product myopia through customer-oriented thinking.

One of the responses to curing product provincialism castigated by Levitt was the idea that you if you cut up customers into segments you could understand them better and thus make targeted investments in communications and service offerings. Unfortunately, in trying to cure marketing myopia, organisations developed another myopia -- customer segmentalism.

Customer segmentation myopia

In line with the maxim that business begins with the customer, organisations introduced market or customer segmentation.

Corporates began defining their customers according to predetermined criteria such as age, gender, habits, geography, lifestyle, social status, and so on. It became fashionable to hear business executives talking of their focus on the "upwardly mobile urban go-getter male". With a laser focused attention to the needs of these well-defined customer groups, the business was finally becoming the marketing organisation. Therein lay the seeds of the dictatorship of the customer.

With corporates finally "experts" on their chosen market segments, marketing research would be used to fine-tune the business' understanding of the nuances of the customers' needs. At last, here was a fool-proof scientifically-determined winning formula. We were now experts of customer behaviour. So we thought. Then Clayton Christensen zapped us across our corporate faces and made us rethink our approach to segmenting customers. I

n the 1990s, Christensen, who currently tops the Thinkers50 list (annual award top 50 business thinkers), was puzzled that many leading firms fizzled into oblivion, surrendering to upstarts. Initially, Christensen hypothesised big firms collapsed due to complacency. He was dead wrong, according to his research data. To his shock, the big firms that collapsed were actually very innovative, with substantial investments in research and development. They were continuously improving their products and marketing surveys were indicating that their customers were very happy. They were the blue chips. They were not being called blue chips for nothing.

Massive price-to-earnings ratios, stock splits, raving reviews by investment experts in the leading papers affirmed that their business strategies were spot on. To further complicate the puzzle, the executives in the big firms were aware of the new technological developments being introduced by new firms. The biggies even had the capacity to exploit the new technologies but consciously chose not to. It wasn't arrogance. Some executives in those big firms did commission in-depth marketing research to test the acceptance of these new technologies among their established customers. The marketing data was clear.

Customers were saying, 'we are happy with the products you have been offering. We do not need anything new'. This was an open and shut case. Why give our customers what they do not want? After all, isn't the customer king? Unanimously, stared with the truth, unanswerable scientifically-established truth, simple cold and hard facts, executives had no option but submit to the dictatorship of the customer. We cannot be everything to everyone, they consoled themselves.

So the tills keep ringing. Wrong.

Slowly, the new firms, fulfilling the needs of the new market, which the big firms perceived as not being in their segments, begin to attract some customers from the big firms. The big firms respond by redefining their market segment, constricting further and further as they progressively lose their once-loyal customers to new entrants until the segments become too small to be profitable. They ether file for bankruptcy or become victims of hostile takeovers. End of story. End of a giant.

Segment provincialism cure

How could they go wrong, when they had been so market-oriented, innovative and responsive to customer needs? Whereas Levitt lambasted the corporate world for "product provincialism", the corporates swung from product provincialism to "segment provincialism". Segment provincialism makes you an expert of your segment but an ignoramus of the rest of customers.

If we were to be uneconomic with the truth, segmenting customers is an exercise in artificial boundary construction. Segment provincialism divides markets into non-overlapping slices: either you are rich or poor; male or female, and so on. Conveniently, segmentation chooses to ignore the truth that customer needs overlap across these artificial market boundaries.

On the tombstones of many a corporate giant is the epitaph: Died due to segment provincialism at the hands of customer dictatorship.

To escape the tragedy of customer dictatorship, you need to view customers from a buyer utility perspective. Buyer utility refers to the fundamental value customers need. Authors of the Blue Ocean Strategy have found that looking at customers from a buyer utility perspective can help one discover new sources of value to offer customers systematically neglected by current industry or marketing biases.

Buyer utility cuts across the artificial segments business cut up to focus their marketing activities. If one were to use this approach and overlay buyer utility on existing segments, one would discover pockets of customers not being served. If one combines these neglected customers on the basis of buyer utility, a whole ocean of customers are discovered.

Salesforce.com, the world leader in providing Customer Relations Management (CRM) solutions upstaged Seibel, the once undisputed leader in the business. Seibel was a victim of customer dictatorship. Seibel saw itself as providing outsourced data storage solutions for the large corporates. Their customers required customised large scale on-site solutions to manage the massive data they generated. Salesforce.com, a tech start-up, looked at customers from a buyer utility perspective. They considered the buyer utility of convenience. "What if Salesforce.com could come up with an on-demand model of hosting client data?" Marc Benioff, the founder of Salesforce.com mused. Thus Salesforce.com was born using a radical business model, where clients would have their data stored on the service provider's servers and access the data over the web. No servers were to be installed at the client's premises. No software was to be installed in any of the client's computers. Salesforce.com later called this model "software as a service", popularly known as SaaS.

The SaaS model meant that smaller companies could now have access to high tech tools to manage their customer-related activities without having to invest in computer hardware and software. They could also avoid exorbitant annual service fees. SaaS is part of the tech phenomenon called cloud. Medium to small enterprises had never dreamt of having access to sophisticated customer relations management tools. They were the non-consumers of Seibel. Salesforce.com, by seeking to provide convenience, discovered an ocean (not just a niche) of neglected customers. A significant number of Seibel customers could not resist the convenience and affordability brought by the Salesforce.com's model. Luckily, Seibel was swallowed by another tech firm called Oracle.

Beware of customer dictatorship.

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