Old Wine in a New Bottle
As late as 1999, Kodak clung to its belief in the permanence of film cameras, slowing down its foray into digital technology. The company had to fight back its way into the market when rivals from outside photography like Canon and Sony had already established an advantage. Kodak simply did not “get” the customer need for convenience that digital cameras catered to.
Most companies are very good at working on what they do well. They find a way to deliver faster, make their product cheaper or add new, ‘irresistible’ features. They ‘six sigma’ themselves until they are extremely efficient at delivering something customers no longer want. After a while, they work to rejuvenate the product by “repositioning” it, even if nothing much has changed. Unfortunately, this strategy isn’t working so well any longer.
Customers Are Running the Asylum
How did the producer/consumer relationship get changed? How did consumers hijack the value chain? We have to reconcile ourselves to the fact that customers have changed in four ways:
- Customers now depend on other customers, rather than brands. On Amazon, for instance, customer reviews can make or break a product, regardless of what the publisher or manufacturer writes about the offering. Movie viewers rely at least as much on online audience reviews as they do on “professional” movie reviewers.
- When established companies do not meet their needs, online communities and information allows them to find others easily. An example is David Pogue’s NY Times blog campaign to “Take Back the Beep”, a campaign to eradicate the numbingly annoying instructions we helplessly receive every time we leave a voice message (““At the tone, please record your message. When you have finished recording, bla bla bla… Beep)” He is activating tens of thousands to take on the phone companies that have profited from the 17.93 hours of our lives each of us has paid to hear this over and over.
- Social networking also allows people to share their dislike of certain brands with a larger audience than ever before. In 2006, Wal-Mart drew much flak when people found that seemingly independent blogs were actually financed by groups associated with the company.
- In the most interesting (and alarming new development), customers are becoming competitors when existing companies do not produce what they want. Read on…
Skating to Where the Puck Will Be
Companies who miss the real customer need will find that competitors steal a march on them. Spotting the customer need isn’t always easy. After all, rarely does a customer walk up with suggestions for the fantastic new product he or she would like! Companies cannot rely on producing merely what customers ask for at the moment, they must think deeper to identify the underlying need. They cannot just chase the puck, they need to anticipate where it’s going.
Customer need-based innovation comes from a deep understanding of the ‘ultimate benefits’ that customers seek. Marc Bernioff, the founder of the highly successful software-as-a-service, salesforce.com started up his company not to offer customers “better software.” Instead, he understood that most companies wanted to be able to focus on their work instead of dealing with software maintenance and troubleshooting. He therefore designed a product on the premise of “No software” where the user focused on their data and his team would focus on the software!
There are many such opportunities in every market that companies often fail to see. Think of one of the most common sources of information that you may refer to on a daily basis — Wikipedia. Entirely user-built, this free to use resource has effectively put the Encyclopedia Britannica out of existence.
For instance, did you know that freelance or self-employed workers make up fully 30% of the American workforce? This huge segment of working people lack healthcare and other benefits enjoyed by full-time employees. Out of this need gap arose the Freelancers Union, a non-profit organization that offers such coverage and other benefits and now has 63,000 members. In the case of the Freelancers Union, former labor lawyer Sara Horowitz along with other freelancers built a non-profit, self-sustaining cooperative.
When customer-built brands like Freelancers Union emerge, they focus on creating sustainable customer value rather than maximizing profits. This is terribly disrupting for established companies living with the mantra of “maximizing shareholder value”. It’s a totally different business model… but it’s deeper than that – it’s a different (and competitive) business purpose!
Why? What a sustainable benefit-maximizing company is willing to do for its customers is far greater than what the traditional profit-maximizing company will do. And because one company, like Freelancers Union, is willing to go further, it causes a ground-leveling quake as customers all seek to maximize the value for their money.
Why It’s Sellers Who Must Beware!
In a world where word of something truly new and better can sweep across the global internet in a week, companies need to be more oriented towards maximizing value for their customers – even when the economy is tough. Especially when the economy is tough.
What we’re seeing is customers themselves coming together to create a disruption in the market. What they’re saying in effect is, Seller beware! If you don’t cater to our needs, we’ll do it ourselves!
Whether or not companies embrace this phenomenon, it cannot be ignored. Companies that co-opt customers to build brands together will find that they have a better chance of staying relevant. This has already begun in the form of ‘crowd sourcing’ where companies actively invite consumer participation in building new products. Others who focus on superficial repositioning may find that it’s too late when the customer-led or even customer-owned competition leaves them far behind.