At a company I worked at years ago, I was asked to be the liaison between our business unit and a special interest group (SIG) in our company’s users’ group. My main responsibility was being the main point of contact for the SIG’s officers in case they needed any support or information. The benefit to me was direct contact with users of the product for which I was the Product Manager. This offered great potential because as I’ve pointed out in other posts, there’s nothing more valuable than getting first hand feedback from users about their experience in using my product.
 
My introduction to the SIG officers at the users’ group event was polite but reserved. They offered generic praise for my product at the meeting and had few negative things to say. I thought it would be a nice gesture to take them out to dinner because they were visiting from out of state. That evening, the tone of the conversation changed. They were less guarded, laughed a little,
and started to point out a few things about my product that could be improved.
 
Throughout the year, we exchanged emails discussing product issues and I helped them out the best I could. At the next users’ group meeting, the communication was much more open. At dinner that evening, which became a regular occasion, I started to hear for the first time what they really thought. They were more comfortable in sharing their genuine opinions about my product, both pro and con. They talked about my competition and the kind of support they were getting from us. I started to get insights into their “total user experience” that I hadn’t heard from them before. It was a real eye opener.
 
The lesson I learned was how important the relationship is to the quantity and quality of the communication between two people. If a stranger walks up to you on the street and starts asking you questions, you’re probably going to be very guarded and reserved in your answers, assuming you’re willing to talk to that person at all. But if a good friend asks for your impressions
and opinions on a subject, you’re much more likely to open up and convey both information and emotion.

It goes the same for business. You can conduct an internet survey or perform a phone interview but unless you know the person, you need to understand the depth and quality of the information will be suspect. On the other hand, if you have a
long-time relationship with a customer based on a trust that has been earned by honest communication and satisfied commitments, you will have access to the important information, such as, what works well, what let them down, what they
worry about, and how things are changing. Isn’t this the kind of information you need to plan for the future?
 
 
What business are you in? Don’t overthink the question. Go with your initial thought, not the way you think you should answer. Many will define their business by the products they build. For example, “We’re in the accounting software business.” Others will define their business by the customer problem they solve. “We help our customers effectively manage their assets.” The way you answer is a good indicator of whether your business perspective is product centric or customer centric.
 
Peter Drucker, one of my business heroes, said the purpose of a business is to attract, retain, and profitably grow customers. I’m going to focus on the grow part of the definition. The term that’s often applied is earning customer loyalty. Going academic for a minute, Kotler and Keller in their book Marketing Management define it as a deeply held commitment to re-buy or
re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.
 
At the risk of being overly simplistic, here are the basic differences. A product centric view means you build a product, you sell the  product, and then you sell more products to others. A customer centric view means you understand a need in your target market, then you deliver a superior set of user experiences to the target customers in that market.
 
There are significant differences in these two views. A customer centric view is broader in scope. It’s not just the code that’s installed on the server; it encompasses a wide range of interactions between the customer and the company over a longer period of time. Product centric companies view the competition as directly comparable products, while customer centric
companies consider alternative experiences. For example, Borders could have focused on Barnes and Noble with a product centric view or on Amazon and its Kindle as an alternative experience their customers may select.
 
For a product centric company the critical time frame is from the qualified lead to closing the order. The relationship is two-sided. We sell. You buy. We give you product. You give us money. The measurements focus on revenues and margins. The customer centric company considers from the initial contact with the prospect throughout the usage of the initial product and its predecessors. The relationship is a partnership in jointly solving a problem. The measures focus on customer retention, customer satisfaction and lifetime value.
 
What signs should you look for to see how your company behaves in the continuum of these two views? Here are a few questions to ask yourself.
  • What is the quantity and quality of communication with your installed base?
  • How much do you personalize and customize the information to provide the type of content they want, when they want it and in the form that they want it?
  • How good are you at meeting post-sales commitments?
  • Do you carefully manage detailed information about individual customers and all customer touch points?
There are least three advantages to having a higher degree of customer loyalty and value orientation. The first is financial. Studies show that it costs 5X or more as much money to obtain a new customer than to retain an existing customer. Keeping customer acquisition costs down certainly helps the bottom line. Second, loyal customers serve as references which can increase sales success rates and shorten sales cycles. In the exploding world of social media, positive and  negative reviews are shared faster and carry more weight than ever before. Last but not least, are the market insights that can be gained by working closely with loyal customers. You will be able to recognize incipient needs and market trends earlier than your competition providing a an important business advantage.

What about your company? What examples of activities demonstrate an interest growing loyal customers and what benefits have you seen as a result?
 
 
Many companies speak glowingly of being driven by making customers successful, providing a superior customer experience or creating raving fans. Do you want to know what really drives your company? Reviewing your mission statement or reading the positioning on your web site won’t tell you. These may describe what your company aspires to or how your company would like people to think of it. What really drives your company is found in observing behavior from a management standpoint and one of the best places to do that is in your quarterly reviews.
 
The agenda and attendees of the meeting, the depth of discussion and the resulting action items are good indicators of the perspective that really drives your company. What questions does the CEO ask? What data is presented and what topics are only argued on opinions? If you spend a lot of time on new product definition and project schedules, you’re probably product
driven. You’re sales driven if the majority of the time is spent reviewing the sales funnel and planning actions to close specific orders. Close attention to productivity, inventory and supply chain issues points to being production driven. If you are driven by delivering profitable value, important topics will be customer satisfaction measures, customer retention and loyalty, delivering a
whole product, alternatives customers may consider, and improving the total customer experience.

All of these topics, i.e. products, sales, operations and value, should be covered to some degree. The true test is which ones get the highest priority and the most energy. Conversely, which topic gets a cursory review or worse yet gets bumped if you run out of time? So the next time you’ve completed a quarterly review, ask yourself, based on the behavior observed in the meeting, what’s driving your company?
 
 
As a company begins the transition from an inside-out, product perspective to an outside-in, customer perspective, someone inevitably suggests “Let’s go talk to the customers to see what they want”. This is a major step because it acknowledges the importance of understanding the customer’s point of view. The next step is to determine what information to collect and how to
collect it. I’ll describe five levels of customer research and as you would guess, there is a trade-off between ease of execution and usefulness in understanding the potential to create profitable value.
 
The first level is what I call confirming your ideas. Usually a favorite customer is asked “Wouldn’t you like it if we added this feature to the product?” It’s quick and easy to ask and can be done in-person, by phone or using an Internet survey. The problem is it’s a closed question you don’t learn much from it. The customer is biased to agree because there’s no perceived cost to him/her. In reality, this type of question really isn’t research; it’s just collecting data to justify an idea. Unfortunately, you‘d be surprised how often this is the only type of research used for product planning.
 
The next level is more open-ended but still very product focused. It’s usually asked in one of two forms; “What features should we puy  in our next product?” or “What new product would you like us to build?” These questions result in a long list of potential features or products that you can debate and prioritize back at the office with engineering. The challenge is customers aren’t in the business of designing products and they really don’t do a very good job of it. For an in-depth discussion of the pitfalls of letting customers define your product direction, I’ll refer you to Clayton Christensen’s excellent book The Innovator’s Dilemma.
 
The third level of customer understanding illustrates an important shift in perspective. It now moves away from your product and toward understanding the customer’s problem or desired outcomes. A typical interview would start with a simple “Tell me about the problems you have in trying to …” Then a series of probing questions drill down into the real heart of the issue. This line of thought has great potential but there are a couple of challenges. First, customers may or may not be able to articulate their problems. Second, it’s difficult to collect, analyze and communicate this type of information to the engineering team so they can work on innovative solutions to what they learned from the research.
 
The fourth level moves from a direct one-on-one dialog to observation. There are a number of techniques such as shadowing that can be used to learn about the customer’s experience. The strength of shadowing lies in anticipating people’s sub-conscious and future needs which are difficult to obtain using the early methods.
 
The fifth level is becoming the customer. Putting yourself in their position and trying to do what they have to do. You can imagine this is the most insightful and offers the potential for the deepest understanding. Your role changes from interviewer of levels one through three and observer in level four to participant in level five. Granted, this isn’t always possible. You can’t for example, become an
airlines pilot or a brain surgeon for a day. Another challenge is in order to understand the total user experience you have to go beyond just the operational. For a software product this can include evaluating, buying, installing, learning, getting support and all the other interactions with the product and the company. This covers a wide range of activities over a long period of time.
 
The further you progress down the levels, the greater insight you’ll have into what customer’s value, the sum of resulting experiences. Another way to think of it is evolving from what product should we build, or what feature should we add, to what set of positive experiences can we provide.

How far have you progressed on this path and what have you learned by gaining a deeper understanding of the customer?
 
 
In my last post, I reported on the 2010 IBM Global CEO study finding that 88% of all CEOs surveyed picked getting closer to the customer as the most important dimension to realize their strategy in the next five years. This does not mean adding a few more phone lines to customer service or conducting another Internet survey asking how the interviewee rates a particular statement on a scale from strongly disagree to strongly agree. The study states ““This means CEOs must shake up their portfolios, business models, old ways of working and long-held assumptions. They have to address what customers now care about and reassess how value is generated.”

There were three themes about getting closer to the customer in the report. One is the massive shift in information and communication. Customers have never had so much information or so many options. Therefore companies must develop a deeper understanding of their customers in order to provide them with what they really want. Social media is helping companies“listen in” through many channels as customers share their impressions, use and evaluation of the company’s products and services with others. Companies are also collecting more information about consumer behavior than ever before. The big challenge is to translate the gigabytes of raw data into information and knowledge that can drive business decisions.

But it’s about much more than just listening and sifting through numbers. The second theme is placing a priority on user experience. The IBM research shows that “more and more, organizations are working to synchronize processes with the desired customer experience, and shift their metrics to measure that experience.” This is a fundamental shift. Companies are asking themselves how to reorganize, re-engineer processes, and implement metrics not for internal efficiencies but to improve the understanding and delivery of a superior customer experience.

The third theme is co-creation, which may be one of the strongest examples of getting closer to the customer. “The most successful organizations co-create products and services with customers, and integrate customers into core processes. They are adopting new channels to engage and stay in tune with customers.” This dimension of getting closer to the customer brings the vendor and customer into a partnership to mutually solve problems. That’s very different than a vendor sells and customer buys mindset.

In the Reinvent Customer Relations chapter of the report, IBM offers three recommendations:
Honor your customer above all else,
Use two-way communication to stay in sync with customers,
Profit from the information explosion.

To get you thinking about what this means, the study poses three questions:
How will you engage customers in new ways that increase interest and loyalty to generate new demand and revenue sources?
How can you involve customers more effectively and directly in product and service development?
Can you hear the voice of your customers through the vast amount of data? Can you understand and act upon the information?

In the introduction to my blog last week, I said I listen to smart people. What these smart people are telling me is that getting closer to the customer is critical to business success and it includes more two-way communication, understanding and improving the customer’s experience, and can evolve into the co-creation of products.

What kind of priority is your company putting on getting closer to your customers and in what forms is that taking?