Part I

Part II

As discussed in Part I of this article, companies need to support how customers buy. Part II, focused on the customer buying cycle and how to make it customer-centered. To conclude, Part III will provide examples of how companies have taken the long view of the customer.

A product is a service

I just bought a Nespresso™ machine for my home. Made by Nestlé, it makes espresso and cappuccino so delicious that it is astonishing how easy it easy. Alas, the first unit I bought had a milk foamer that stopped foaming about three months into the happy man-machine relationship. My wife called them up. “Just let us know if this little trick fails to fix the problem. If it doesn’t get you going, just call us. We’ll send you a new machine.”

I was flabbergasted. In the best sense of the word.

Of course, we’d have to send back the old one. But only after we’d received the new one.

Plus, Nespresso sends us pleasant email reminders when they detect through our purchasing habits that it’s time for us to get a new batch of their patented espresso pods. It’s cheap for them to send the email. It’s a service to me because it helps me remember to replenish the espresso larder. And the fact that they call me Mr. Ward is a bonus. It reminds me of the Ritz-Carlton’s vision statement: “We are ladies and gentlemen serving lades and gentlemen.”

So what did I buy? A product? Or a service?

Solving problems

Ultimately most great products get long in the tooth. They have to be updated. Sometimes this is because of silly competitors. (Who needs more than three blades on their face razor?) But most of the time products evolve because the market evolves. That is to say, your customers’ problems and expectations change.

Thus, your product is not a product per se. It is an evolving solution driven by the customer ecosystem. Your success comes largely from the fit between the product you sell and the problem that exists. Yes, you have to worry about your competition and how they evolve their products. And you can soften up your competition by beating them up with your great brand. But, as Kim argues in Blue Ocean Strategy, if you get obsessed with your competition you’ll become just like them, and the only way to compete will be to make incremental changes in operations and value propositions. If you want breakout strategic advantage, you’ll have to do better than chasing your competition.

So putting aside competitors for a moment (after all, if you only chase your competitors you could be following them right over the cliff), this means you have to stay up to date on what problems need to be solved and how your product-as-a-service must change.

Which means you have to talk to the market, have them help you innovate, and give them choices in the way they interact with you. They might as well be sitting in the office next to you, with a sign on their desk saying, “I’m your boss.”

The long view of the customer experience

Recently a colleague of mine suggested a counter-example regarding a university curriculum. He suggested that treating students like customers would lead to grade inflation and non-curricular services that would blur the academic value of the learning experience. Byron Dangerfield writes in Journal of Education for Business (January, 2000), “When strategy is led by students' immediate needs, the results could be lower standards and higher class-average grades. Also, new, more rigorous programs would be scrapped almost automatically,” what Hamel and Prahalad (1994) call the "tyranny of the served market" in the Harvard Business Review article, Competing for the Future.

But Dangerfield also implies the way to resolve this apparent conundrum. “Rigorous course work is good for the long-term perspective, but not good for the short-term perspective, because it means more work and possibly lower grades and lower grade-point averages at the same time.” In my view, the value exchange of the client-school relationship — if measured by grades or other short-term measures — leads to a sub-optimal value for both parties over the lifetime of the relationship — and for a student who gets a degree, that relationship is measured in decades.

Thus, the value exchange for an educational institution needs be framed in a value proposition that includes something more than short-term delight. And the institution needs to follow through on its part of that value proposition: if educational excellence is the rule of the day, then students must see that the rule is in place and that such excellence is making a difference in their experience.

I went to Davidson College, a small liberal arts school near Charlotte, North Carolina. They allowed (and still allow) self-scheduled exams. We could take the exams in any open classroom. What a delight! But the responsibility on us was enormous: we had been inculcated from even before our matriculation in the spirit and law of the Davidson Honor Code. You just don’t cheat, or you’re out of the college. If you saw someone cheat and didn’t report it, you’d be vulnerable to the same expulsion.

For me, the power of the Honor Code far outweighs the benefit of self-scheduled exams. It ought to be no surprise that Davidson College has one of the highest annual fund participation rates in the United States. The long-term value provided by Davidson College to its students is being returned to Davidson College in the form of endowment and annual giving.

The path is clear for the university. The student (or client) has short-term and long-term value to a school -- and vice versa. To optimize the value exchange, the institution must consider the values at stake. Sure, grade inflation provides short-term delight, but that’s at the expense of long-term value.

Any educational institution worth its salt will appreciate that they are exchanging more than money for an assessed educational experience: They are exchanging values as well. For some schools, the values might be honesty and integrity. For others, the key value may be the call to leadership. And for still others, the values may be faith, innovation, free speech, or the legacy of the great books of the Western world. These values are essential to the brand, to the student’s life and to the creation of long-term value institutional value.

Thus, the apparent counter-example of the university being wagged by the tail of current student preferences makes a poignant point: the real issue is total lifetime customer value. The “tyranny of the served market” can be contained by a culture of values as well as value.

The same applies in the corporate realm. Apple gets a “get out of the dog-house free” card even though its iPod™ Nano is easy to scratch. Why? Its values promote thinking differently. They’re not just selling electronics. They’re making the world more exciting and interesting to live in. You can bet that other computer manufacturers would have been much more ardently terrorized than Apple if they’d produced products with a similar defect.

An over-emphasis on value can box you inside a too-small brand. Christine Augustine, who covers retail trends for Bear Stearns said in HFN’s weekly newspaper. "Wal-Mart's shoppers are buying their non-food somewhere else. How come Target is doing so well?" HFN’s Barbara Thau continues, “[Wal-Mart, the] retailer known for its bargain-basement prices -- and store presentations -- faces somewhat of an uphill battle becoming a credible resource for well-merchandised, trend-right goods.” They’ve stressed value to the point where they can’t convince people to buy aspirational, upscale brands from them.

And it’s not just building in the aspirational component that makes a strong brand. Aspirational marketing, which used to be the next big thing, is still selling a future in the present. There’s an inherent discount in that method. Real brand equity begins today, but grows in value over time. And often the value your brand has for long-time customers is hard to sell to prospects.

In my strategy work with for-profit and non-profit firms, I see this all the time. Focus groups I conduct at non-profits, for example, feature members extolling product and service benefits they never expected. The Women’s Council of Realtors invited me for three sessions recently during which I led their most involved stakeholders through what I call backward projection: Imagine a customer ten years from now saying, “I am glad I’ve been a member of WCR because … “. By filling in the blank, an organization can identify long-term benefits that it should be creating in the market, without getting bogged down in petty political or current budgetary limitations.

The sessions at WCR consistently identified the emotionally supportive network of female realtors as a key driver of value. They also consistently stated flatly that few people would be persuaded to join WCR if it promised an emotionally supportive network. The perception of the WCR brand had matured to the point where it was deeply meaningful to members in ways that will not close the deal with prospects.

The moral is that people buy into your value proposition for reasons that may well differ from the ultimate experience they have. But in all cases you must know and model the complete experience, and optimize it for long-term customer — and firm — value. Apple’s good at this, as is Davidson College and Brooks Brothers.

Ultimately, customers are people, too. They have complex needs and perspectives that shift over time. Pleasing people requires a long-term view — a sales pitch of value and values. That’s part of the customer experience, too.

The IBM Institute for Business Value made three recommendations in June of this year to consumer companies:

• Build a more agile organization that effectively responds to specific customer needs.
• Empower staff to become broad-based business managers to drive business value for both the retail customer and the consumer products company
• Integrate internal insight with that developed by partners to drive more targeted innovation.

I would add a fourth recommendation:

Build a positive customer experience that ensures that customers, looking back on their time with you, appreciate the value and values they exchanged with you -- even if they might not have even contemplated at the beginning of the buying cycle.

The AberdeenGroup study clearly shows this will pay off for you. You don’t have to be a slave to your customer’s short-term whim, and you don’t have to be a slave to your sales team’s demand for current period profit.

But you must understand your customer. Whether your customer is a student, a big box shopper or a gadget freak, he or she is a lot more than a current transaction or a cardboard cutout.

Company: pkward.com