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When the Going Gets Tough, the Tough Become Customer-centric

Blackman Kallick Director of Marketing, Stuart Baum, advises how companies can use "customer centric-ity" to thrive during turbulent economic times.

Harvard Business School’s Ranjay Gulati recently spoke at an Association for Corporate Growth–Chicago event entitled “Roaring Out of the Recession: Gulati Dives into How to ReOrganize for Resilience"

For more than 10 years, Gulati researched leading organizations to learn “how companies create value in turbulent times.” His findings and advice can be found in his book (RE) (ORGANIZE) FOR RESILIENCE.

During the meeting, Gulati outlined the first few chapters of his book and provided some action steps for those in attendance.

Some insights from his presentation:

• Fast followers are now following even faster.
• There are fewer and fewer unmet customer needs or open spaces for products.
• Customers have more choices and more access to information, which increases their sensitivity to price.
• During downturns, customers tend to gravitate to needs versus wants.
• In mature markets, the improvements get smaller and smaller, meaning that companies obtain decreasing ROI from their R&D investments.

One of the “aha” moments of his presentation was the “good-enough threshold.“

Gulati explained that, in mature markets, products become “good enough” for many customers, so gaining market share with innovation becomes harder. This means that a fast follower can build a “good enough” product that competes only on price, quickly gaining significant market share.

While this presents an opportunity for companies to enter new markets (look for mature markets with competitors that invest heavily in R&D), it should make companies in mature markets wary of innovation for the sake of innovation. It also causes some companies to use what Gulati terms “the toilet bowl strategy,” that is, the “downward race between cutting cost and lowering price.”

“Instead of only looking for the right places to cut cost,” advises Gulati, “you should also look for the right places to add cost.” Since not all customers are driven by price, he explains, you need to find the “motivators”, that is, those features and benefits that separate your products and services from others. He also said that some “hygiene factors,” such as clean bathrooms, proactive customer service, and financial stability could become motivators in turbulent markets – especially since companies that sell on ever-decreasing price have to cut these hygiene factors in order to maintain margins.

So, what can you do as we (cross your fingers) exit the recession?

If you are in a market where products and services are at the “good-enough threshold” . . . Gulati recommends you ask your current customers (and may we also suggest past customers?) not what they think about your products and services, but how they use your products/services. And how you could make their lives easier. In other words, ask open-ended questions. What they tell you might provide insights into how you can compete against fast followers.

If you are in a market where there is room for innovation . . . understand that you will soon get to the “good enough threshold” and make plans now. What plans? According to Gulati, the companies that tend to maintain margins and value are those with “domain knowledge of their customers.” In other words, the better you understand your customers, the more likely you can keep them satisfied without discounting price.

Some questions to help you along this path:

• Are you in a mature or emerging business?
• Can you define the “good-enough threshold” for your different customer bases and different products/services? And when this will occur, if it hasn’t already?
• Do you survey your most important clients? If so, does this survey include open-ended questions?
• Have you considered watching how a few clients use your products or interact with your service providers? And asking them what happens "before" and "after?" Perhaps you could make their lives easier on the front end. (Think pre-washed and pre-cut vegetables.)
• Do you know why your customers choose your products/services over the competition and what would make them switch? Hint: it is NOT price.
• Do you know what your customers believe is the worst part of using your type of product or service? And what is the best part? (Note that this is a very different question from asking about the worst/best features.)

Show your customers that you do not run a company that waits for them to call you. Call them first. Ask value questions, not feature questions. Help them use your products/services in a way that improves their business and life.

Being customer-centric is about making your customers’ lives better, not about selling them anything. And it’s good for business. Especially in turbulent times.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.