Product centric approaches and customer centric approaches to business design and strategy are diametrically opposed. They are two opposites. Product centric vs Customer Centric. A dichotomy that provides a contrast between the business models of the industrial age, and those required for this age.
The opposing business models
It is a dichotomy because so many leaders today look to the past to see how key products made some of the very large organisations today. When they do this, they ignore how times have changed. But more importantly they ignore how customers have changed. Customers no longer want to be sold to, they want to buy, being influenced by the opinions of their social networks rather than advertising.
These two approaches to business model design are full of opposing ideas.
Let’s look at a few of these ideas so that we can get an idea of what the difference is, so that we can make better decisions about our business model and design.
Product Centric approach
The product centric approach was developed during the age where products were mass produced.
Earlier than this, entrepreneurs relied on networks and relationships to share their products with merchants and local traders.
During the Industrial Revolution (starting in Britain, late 1700’s) entrepreneurs used new energy sources and techniques to achieve mass production. This created a new problem, how to move the product.
Josiah Wedgwood was the pioneer of what we call today, sales and marketing. Wedgwood employed sales people and marketing techniques that are still in use, he was able to build a business that is still recognised today. He was product centric. His problem was about moving product to buyers. It was about educating populations about what was new and what was now available at prices previously unaffordable.
Through the last century, as customers became increasingly dulled by marketing tactics, businesses needed to learn how to intrude into the customer’s space to try and engage them. Many still do this. Pop-up advertisements are still everywhere. Marketing intrudes into our consciousness to try and get our attention, constantly.
This is product flogging. Get the customer attention, then sell them something. A product centric approach.
These product centric businesses tend to look at their assets in terms of what they have.
The office buildings, the factories, the distribution networks. 80% tangible assets recognised by their accounts on the balance sheet. 20% intangibles, being about brand value, or customer value. This is one area where things have very much changed in the last 15 or so years. And yet most businesses (and accountants) are still locked in to the product centric view of the world (two reference articles one and two).
Customer Centric approach
The customer centric approach recognises that customers have changed in five significant ways.
We have moved away from consuming products and seeking experiences, which has triggered a whole new economy that is about the experience the customer has.
Customers have become immune to these marketing-fuelled messages. Customers are resistant to any sales approaches. Today customers buy, they won’t be sold to.
Customers are informed by the significant amount information available to them. They can Google their problems and diagnose their own solutions. They can read reviews from other real people about what the product or services does. Real people share their stories about the experience they had. Today, customers are informed buyers.
Businesses that are recognising these changes have started to see a shift in where the real assets are. 20% on the tangible, physical assets, 80% on the ‘intangible’ assets.
These (previously thought of as) intangible assets. The loyalty of their customers, the positive word of mouth their customers provide are fast becoming the asset of premium value in our current economy. Analysts are turning more to Customer Lifetime Value (CLV) and Customer-Based Corporate Valuation (CBCV) to better determine the value of business.
Product centric approaches to business have their roots in the industrial era, and are fast losing relevance in a new age where the customer is in charge.
Customers won’t be sold-to any longer, they are an informed buyer.
Likewise, customers are willing to provide positive word of mouth to organisations that provide them with a fair exchange of value.
It is the customer centric approaches to business that deliver greater long-term value to the business. Mainly because these approaches recognise the value of customer loyalty and advocacy. And they recognise that the value of a business is reflected within its composition of its customer portfolio.
This article is an extract from, Profit by Design: how to build a customer portfolio full of profitable promoters. There is more information about the book and free downloads here.
To learn more about the Customer centric approach to Business – you can download the Definitive Guide here.
Additionally consider this: Forrester is one of the most influential research and advisory firms in the world (their claim on their website).
Forrester are also trying to raise awareness about this shift that is required for businesses in the Age of the Customer. They say:
“This is not a passing storm after which we will return to a comfortable normal.”
“This new world requires leaders to think and act differently.”
Here is a link to their webpage on the Age of the Customer.
Featured Image by Christiann Koepke on Unsplash