Equity and Leverage

There is some understanding on what differentiates product centricity from customer centricity with regards to focus, but much less with regards to growth.

Let’s have look at the definitions of both business strategies, as provided by Don Peppers, best-selling business author and an expert in customer experience:

Product-centric competition is based on having a product that meets a certain customer need, and then trying to find as many customers as possible who want to have that need met. Success is measured by the number of customers reached. In competitive terms, this would represent the company’s market share.

Customer-centric competition starts with an individual customer and tries to meet as many of that customer’s needs as possible – across all the company’s divisions and business units, and through time. In competitive terms, this would represent a share of customer.

To clarify the difference between the two business strategies, let’s consider the following image:

On the left hand side, the focus of product centricity is on satisfying a particular need of a group of customers, while growth is achieved by reaching as many customers as possible (market share). In term of strategy, this could be seen a strategic penetration of the market (bottom-left of the Ansoff-matrix, products/markets), but all four segments are open for exploration

In the middle, the focus of customer centricity is on satisfying as much needs as possible of a select group of customers (share of wallet), while growth is achieved by finding more customers with similar needs. In terms of strategy, this could also be considered as a market penetration strategy (bottom-left of the Ansoff-matrix, needs/customers), but instead of focusing on the products that offer the most profit, we now focus on the customers that offer the most value (lifetime value or CLV). And here too, all options are open for exploration.

On the right hand side, you can see the Ansoff-matrix, a well-known model for product-market analysis. By adding Customers and Needs (following Malcolm McDonald) to the original Ansoff-matrix it could help us to differentiate between product value and customer value in terms of strategic development. It is not ideal.

Considering the BCG-matrix

Another way of looking at markets is the BCG-matrix by the Boston Consulting Group. The BCG-matrix plots a brand’s market share against the potential for growth in a particular market. If a market has a high potential for growth, but the brand owns just a small market share, the matrix deems this situation as ‘uncertain’ (question mark). If the potential is high, and market share is too, this is deemed to be a ‘star’. Just like the Ansoff-matrix, the BCG-matrix ignores customer value. It was intended to map the potential for a product-centric strategy (PC).

However, we could change the BCG-matrix a bit and plot the share of wallet versus the potential for growth (lifetime value) per customer. This would then provide us with a map of our most profitable customers as well as the most favourable extension of our customer base (CC = customer-centric).

Introducing Profit-mapping

Ideally, we look at both profit havens at the same time: the value per product and the value per customer. Jonathan Byrnes introduced the concept of profit-based segmentation in his book “Islands of Profit in a Sea of Red Ink”. The nice thing about this is that it incorporates both the potential for growth from a customer equity point of view as well as from a product equity point of view.

Plotting the three models together presents us with a nice overview of the many possibilities that both customer centricity as well as product centricity has to offer, and how it can help us focus on the most profitable aspects of our business and develop in a direction that is most likely to help us grow.

Bonus: customer-centric execution errors

The most common error, while executing on a customer-centric growth strategy, is not to focus on a select group of customers, but instead trying to fulfill as much needs of as many customers as possible. This will not just lead to an overall disappointing customer experience, because service now becomes a commodity, but it will also put a huge strain on the available resources of the business.

Secondly, brands that do understand how to apply a ‘selective’ customer-centric strategy – typically based on account-based management and a content-driven approach – often fail to execute on the subsequent growth strategy, that is to search for new customers that have similar needs.

And thirdly, no business can ever sustain, let alone grow, by just focusing on fulfilling the needs of existing customers. You’ll need a complementary strategy and in most cases this is a product-centric one.

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