Old Wine in New Bottles

I was in a meeting a few weeks ago when I made an offhand comment about the emergence of customer-centric business models. One of my colleagues challenged whether or not is is actually a new phenomenon — isn’t all of this customer centric talk just “new wine in old bottles” he demanded? Over the past 10 years, we’ve gone through a wave of customer focused management trends — customer satisfaction turned to loyalty, and loyalty turned to retention, and now in 2006, retention has become willingness to recommend. Somewhere along the way, Peppers and Rogers’ 1to1 marketing got web-enabled and was called personalization; Seth Godin made marketing “viral”; and CRM became hot… not… and now hot again. So, I guess my colleague does have the right to ask “what is different this time”?

If you look at customer centricity through the lens of a PEST (Political, Economic, Social and Technology) trend analysis, I believe that there are several factors that are increasing the attractiveness and importance of customer centric business models:

• Political – Increasingly there are more and more restrictions on what you can do with customer information and how invasive you can be with your sales and marketing efforts (e.g. European data protection laws and US federal “do not call” registries), as well as an increased demand on record keeping requirements for businesses (e.g Sarbanes Oxley). Compliance with these laws is forcing businesses to keep better records. However, as an unintended consequence, these laws and restrictions are making companies more creative on how they use and capture customer information. Ultimately, I think the result will be a rise the quality of interaction between many companies and customers.

• Economic — Through globalization, price leadership and operational efficiency business models have become battles of scale since larger players can shape, control and dominate the global supply chain of both goods and services. For example, Wal Mart dictates pricing with many its suppliers and controls supply chain standards. In other industries, such as call centers or software development, there is a tipping point on when it makes sense to outsource (i.e. it probably doesn’t make sense for either the buyer or seller to off-shore 2-3 programming or call center jobs). This is not to say that the small players are not successfully globalizing their businesses; we are certainly seeing a rise in “micro-multinationals” and VCs are even asking to see outsourcing plans in start-up business plans, but these tactics are the price of entry. In the global arena, small players will have difficulty winning with price or operational efficiency business models because they do not have the scale and resources to compete with larger competitors. Consequently, they will need to look elsewhere for a sustainable and defensible competitive advantage — i.e, become more customer focused.

• Social — I think that there are two key social trends that will have a huge impact on customer centric business models. First, Davenport and Beck argue that the most valuable business currency is the customer’s attention in the information age. With the web, mobile, email and traditional media such as TV, books, magazines — coupled with trends like time-shifting and place-shifting — it is becoming increasingly difficult to reach customers with traditional marketing tools and techniques. Secondly, entire communities and business models are springing up that are built on trust. Blogging, Ebay, MySpace and LinkedIn, all rely on the reputations of the community members (who are also authors, readers, buyers, seller, job seekers and hiring managers). In an environment where the customer chooses where to place his or her precious attention, and does so based on a reputation built through a trusted community, companies need to consider how they either foster a community around their products, services or brands, or become active participants in relevant existing communities.

• Lastly, Technology is shifting to enable the true implementation of customer centric businesses. When the first wave of CRM systems went in in the mid-90′s, they were built on inflexible architectures. If you wanted to change your business processes, it was a fairly cumbersome and expensive exercise. As a result, a lot of customer centric programs got stymied by the very systems that were meant to enable them. In the last couple of years with the emergence of services oriented architectures (SOA) and technologies such as web services, customer systems now have necessary flexibility to adapt to new and changing customer centric initiatives. Within the CRM software industry, there has been a wave of consolidation as well. This is undoubtedly causing some of the early (and some of the not so early) technology adopters to reconsider their earlier CRM software decisions, ultimately increasing the pace of adoption of the new technology. As businesses prove success with the new technology, competitors will undoubtedly follow.

Maybe customer centricity is new wine in old bottles, but I believe that the convergence of factors above has created a unique opportunity for a forward thinking companies. However, I also urge caution. Approaching a customer centric initiative with a band-aid mentality will likely end in failure. Becoming customer-centric is not about setting up blog in the name of the CEO that is ghost-written by a marketing intern, nor is it about a shiny new CRM system that just automates the same old broken customer processes. Customer centricity requires vision, execution and investment. Customers are too smart and too well informed not to see through half-hearted compliance with the latest management thinking.