Fluent Essays

Refer to HBR article “Choosing the right customer”. o In your own words, briefly summarize the article in no more than five sentences. o Do you agree with the notion that all companies should choose a primary customer and prioritize resources to serve the needs of the primary customer? Why or why not? o Application: Discuss the primary customer selection of a company/brand you know. Do you agree with their choice? Why or why not?Note: discussion post not an article formate _choosing_the_right_customer.pdf Unformatted Attachment Preview ,\% r •• V • • * *•: 0 HBR.ORG Robert Simons is the Charles M. Williams Professor of Business Administration at Harvard Business School. He is the author of Seven Strategy Questions: A Simple Approach for Better Execution (Harvard Business Review Press, 2010). CHOOSING THE RIGHT CUSTOMER The First Step in a Winning Strategy by Robert Simons All companies claim that their strategies are customer driven. But the term customer is among the most elastic in management theory. A working definition might be that your customers are the people or entities that buy your products and services and supply your revenue. That includes any number of actors in a March 2014 Harvard Business Review 49 THE BIG IDEA CHOOSiNG THE RIGHT CUSTOMER companys value chain: consumers, wholesalers, retailers, purchasing departments, and so forth. Some companies go as far as to label internal units as customers: Manufacturing is a customer of R&D, for instance, and both are customers of HR. Other definitions dont even require that a customer supply revenue. Pharma giant Mercks most important customers are not the patients who use its drugs or the physicians who prescribe them. Instead, Merck has chosen research scientists in labs and universities around the world as its primary customer. Accordingly, its business model relies on encouraging its own world-class researchers to act like university scientists by conducting basic research, publishing papers, and presenting results at conferences, all with the intent of discovering groundbreaking compounds that can then be commercialized by Mercks marketing and sales group. The business is even configured like a Amazon devotes its resources research university— a simple functional to pleasing consumers, structure in which a even if that means sellers or powerful, centralized unit receives the content providers sometimes R&D bulk of organizational feel shortchanged. resources. Unsurprisingly, perhaps, many executives are reluctant to define their customers as narrowly as Merck has. By not singling out any group as the primary customer, executives can sidestep difficult choices that might turn out badly—a temptation thats particularly strong in new, rapidly evolving markets. Whats more, many business leaders believe that treating all value chain partners as customers improves internal coordination and responsiveness. But by not identifying one primary customer, companies that consider themselves customer focused soon become anything but. Consider the 50 Harvard Business Review March 2014 contrasting fortunes of Yahoo and Google. Yahoo began as a broad-based internet portal supported by proprietary editorial content. To attract users, it hired journalists to write entertainment stories and created utilities such as Yahoofinance.Yahoo movies, and Yahoo sports. Over time. Yahoo executives began to spread resources among many additional initiatives, including social networks, products, media, and advertising. As a result, they underinvested in search, and the website became messy and confusing. Then Google entered the field. From the outset, Google focused on users who appreciated technology and its ability to unlock new opportunities and applications. Like Merck, Google allocated the lions share of its resources (and prestige) to its technologists and engineers, who were given freedom to innovate. The aim throughout the business was to build the best technology in the world—whether in search. Android, or maps. With that sharply focused value proposition and business model, Google quickly leapfrogged Yahoo in the competitive marketplace. The bottom line is this: The strategic choice of primary customer—with special emphasis on primary—defines the business. This is certainly true at Amazon, which serves four very different types of customer: consumers, sellers, enterprises, and content providers. You might think that it considers all four customer groups to be equally important. But the companys choice of primary customer is reflected clearly in its well-known mission to be the worlds most consumer-centric company. Amazon devotes maximum resources to pleasing consumers, even if that means sellers or content providers sometimes feel shortchanged (sellers whose storefronts are hosted on the Amazon platform have been known to sue Amazon for more resources). This unwavering focus on consumers has created innovations such as prime free shipping, detailed product reviews (including negative ones), look-inside-thisbook, and the listing of lower-priced products from off-site competitors. These practices have often been criticized as inherently unprofitable or injurious to Amazons other constituents. But the main results of the companys choice are the ones that count most: unparalleled customer loyalty and stratospheric stock valuations. In the following pages Ill present a truly customer-driven framework that can help executives build winning business models for their companies. The framework lays out four steps: identifying the HBR.ORG THE PROBLEM HOW IT WORKS THE SOLUTION It isnt always obvious who your most important customer is. in fact, for some companies, the most important customers actually supply little or no revenue. Many companies, therefore, try to hedge their bets and treat all their stakeholders as customers. When companies shy away from choosing a primary customer, they may survive for a while. But they risk being pushed aside sooner or later by competitors who clearly identify a primary customer and create a business model designed to satisfy that customer ahead of all others. Adopt a customer-driven strategy that involves four steps: 1 identify the customer group that best fits your companys culture and traditions, most closely matches your existing capabilities, and offers the greatest direct and indirect profit potential. 2 Understand what that primary customer values best primary customer for your business, creating processes to learn what that customer values, allocating resources accordingly, and building an interactive control process to monitor the assumptions that underlie your choice. Step! Identify Your Primary Customer As the cases of Merck, Google, and Amazon illustrate, your most important customers are not those that generate the most revenue but those that can unlock the most value in your business. For some businesses, the primary customer will be the end user or consumer of the product or service. For others, an intermediary (such as a reseller or a broker) will be the criticiil customer to which organizational resources should be devoted. But how can executives be confident that theyre making the right choice? Identifying the best primary customer for your firm involves assessing each group of customers along three dimensions: perspective, capabilities, and profit potential. Lets look briefly at each. Perspective refers to the culture, mission, and folklore of a business, often revealed in stories about important events or people in the companys history. It is the lens through which executives consider opportunities and strategic direction. Steve Jobss obsession with perfection in product design created a legacy that frames the opportunities Apple managers will (and will not) consider. Walmarts Sam Wal- most by tracking purchases and preferences and studying behavior. 3 Adopt the business model that best allows you to satisfy your primary customers needs and preferences. 4 Finally, make sure you have good systems in place to identify and respond to shifts in those needs. ton was famously frugal in his own life. And Amazon founder JefF Bezos is a zealot about delivering a superior experience to shoppers. When [executives of other companies] are in the shower in the morning, theyre thinking about how theyre going to get ahead of one of their top competitors, he told Fortune in 2012. Here in the shower, were thinking about how we are going to invent something on behalf of a customer. Clearly, the choice of primary customer must reflect a companys perspective; othervnse the company will be unable to leverage the energy and creativity of its people in service to the customer. Capabilities refers to the embedded resources of the firm. Somefirmsexcel at technology (Apple, Google, Airbus), some at logistics (Walmart, Amazon, Dell). Others provide superior brand marketing (Ralph Lauren, Nestlé, P&G) or have industryspecific capabilities (original content production at HBO and Netflix, mining at BPH Billiton). Such capabilities, which are built up over time and are often difficult to copy, position a business to serve the needs of certain customers better than others. Dell in its early years built a formidable low-cost logistics operation to support its direct-to-consumer sales model. Today, the company is attempting to change its primary customer by refocusing on CIOs of large enterprises. This pivot has proved difficult for Dell because CIOs look for a set of capabilities—integrated hardware, software, and services solutionsvery different from what end consumers need. Profit potential refers to a customers ability to deliver profits. Techniques such as Michael Porters five forces analysis can provide insight into the relative profitability of various customer types—and help weed out those that would be a poor choice for primary customer. Consider HBO. Cable operators that purchase HBOs content might seem to be the obvious choice. But cable operators have low switching costs—they can easily buy content from March 2014 Harvard Business Review 51 THE BIG IDEA CHOOSiNG THE RIGHT CUSTOMER Customers often dont know exactly what it is they value. Uncovering the full truth about their needs requires systematic research at multiple levels. a variety of producers. Thus HBO would have little market power and would be unable to extract high margins from cable operators. But by targeting filmmakers as the primary customer and devoting significant resources to their needs, HBO can create the unique products that viewers demand, allowing it to charge premium prices that cable operators cannot negotiate. Of course, profit potential isnt always about customers who can pay premium prices; becoming the preferred destination for cost-conscious customers can deliver substantial profits through volume, as Walmart has demonstrated. Linkedin is one successful company whose primary customer clearlyfitsall three dimensions. For more on how it settled on individuals (rather than job recruiters or advertisers), see the exhibit How Linkedin Chose Its Primary Customer. technology or brand or other specific attribute. To complicate matters, customers often dont know exactly what it is they value. Uncovering the full truth about their needs requires systematic research at multiple levels. Lets take the easy part first. Assume you have already chosen the best primary customer and have a good working idea of what the customer wants. Theres still plenty of room for improvement. You can refine your understanding by leveraging todays easy and cheap access to data on customer buying habits, preferences, and search activities. Data analytics is an important tool in uncovering and rapidly responding to changing customer needs. At Google, separate analytics teams for display, search, and maps spend untold hours in their labs with customers studying eye movement and other variables to gauge their reactions to subtle product modifications such as changes in color. Nestlé has a war room where analysts monitor social media to track chatter that relates to or affects the acceptance of its products. The analysts use the intelligence to inform product research and marketing decisions and to evaluate in real time how well their value propositions are meeting the needs of the primary customer. Such data can help you fine-tune a product or a Once youve determined who your primary customer websites functionality to better meet your customis, the next step is to identify which product and ser- ers known needs. Theyre unlikely, though, to help vice attributes the customer values. Within the same you identify what your customers want but arent market and industry, different primary customers getting. For that, you need to actually ask them. may value different things: Some demand the low- Smart companies set up systematic dialogues with est possible price, others want a dedicated service their primary customers. Managers at FedEx, for exrelationship, and still others are looking for the best ample, hold twice-yearly summits where they bring Step 2 Understand What Your Primary Customer Va iues 52 Harvard Business Review March 2014 HBR.ORG How Linkedin Chose Its Primary Customer Identifying your primary customer involves assessing each group of customers along three dimensions: perspective (your companys culture, mission, and folklore), capabilities (distinctive embedded resources), and profit potential (the customers ability to deliver profits). The group that best satisfies all three conditions should be the primary customer. Consider Linkedin. In deciding where to focus, executives had to choose among three kinds of customers that all had the potential to generate substantial revenue: job recruiters, advertisers, and individual members. in a sampling of business customers (thefirmsprimary customer) to ask them where FedEx is doing a good job of meeting their needs and where competitors are doing better. At Germanys Henkel, the worlds leader in adhesives, CEO Kasper Rorsted has created a tops to tops program in which all executives are required to meet regularly with their counterparts at major customers to ensure that their PERSPECTIVE needs are understood and the company is respondünl Purchase answer to see full attachment