By Smera Dania
The relationship between the customers and an organisation is very important for any business to thrive, and it is marketing that plays a vital role in establishing the same. It covers various activities that include modifying or designing new products to meet market demand, determining the need for a product through market research, and fostering relationships with customers amongst rest. Marketing is the most critical lever of companys success. The two approaches to marketing, adopted by firms, which indirectly determine the profits made by a company, and lay a foundation for its internal functioning, are namely, product centricity and customer centricity.
Customer centricity vs product centricity
Product-centric industries focus heavily on product development and innovation with negligible emphasis put on its customers. They believe in the simple principle of producing high volume and offering low cost to their customers. On the other hand, customer centricity is an approach to doing business that focuses on creating positive experiences for their customers throughout their engagement with them. Customer centricity relies on maximizing long-term financial value, aligning a companys development or delivery around its selected customers, and understanding the difference between profitable and not so profitable customers. Although most of the big companies started off as purely product-centric companies, most of them ended up internalising ways of customer centricity.
Although product centricity has been at the core of most businesses running for decades, customer centricity is seen to have garnered a lot of attention recently. Terms like customer experience, relationship management, amongst others have found commonplace in the business environment. However, what is bizarre is the fact that it is largely seen to be associated with only B2C (business conducted directly between a company and consumers) organisations. Customer centricity does not seem to have made its place in the B2B (business that is conducted between only companies) market domain yet in spite of recent studies claiming lack of customer centricity to be a major reason for the loss of revenue experienced by most of the B2B companies.
The centricity in B2B markets
We see a definite presence of customer centricity in B2C markets, and B2B customers want the same experience from their sellers as well. In fact, customer centricity is expected to have a stronger impact in the B2B market as compared to B2C. The reason being, transactions in B2B are more rational and well thought out, and relationships generally continue long past the initial purchase. Trust and customer loyalty form an essential part of such transactions for improved efficiency and productivity. One of the key points that give companies practising customer centricity a competitive edge is the fact that innovation that is core to product-centric companies can be commoditised and matched up easily by other competitors. However, strong relationships with customers cannot be commoditised. Moreover, product-centric companies are more prone to market fluctuations, that is, they are at a higher risk of losing customers to other alternatives on price rise. Companies that have market orientation (core strategy and positioning of the brand is around customers) strategy report much higher revenue growth and competitive edge. For instance, one of the key drivers of Apple in the recent years has been its services. According to investment analysts at Ensemble Capital, if Apple can grow its daily potential revenue by 20 percent from $2.80 (devices+services) to $3.36 and adds an additional 200MM users (~7 percent per year) over the next 5 years, it will have a Total Available Revenue opportunity of one trillion USD from its customer base.
In addition to listing down the benefits that come with becoming customer-centric, what also becomes important is to study the belief held by key stakeholders responsible for initiating the switch. According to new research from Accenture, 86 percent of B2B supplier executives continue to view the overall customer as very important to their strategic priorities. Furthermore, 74 percent of respondents recognise customer experience will play an even more significant role in overall corporate strategy over the next two years. However, in spite of this notion held in the market, only 23 percent of companies are implementing truly effective customer experience programs and achieving higher revenue growth. In another study conducted by the McKinsey researchers, where 700 global B2B executives were asked about the theme that they felt was important in evaluating the brand strengths of their significant suppliers. The subjects considered most important by customers, that is, care about honest, open dialogue with its customers and society were not emphasised at all by the 90 B2B companies in the McKinsey study. This clearly points towards the presence of a firm belief in favour of customer centricity among the stakeholders but a lack of direction for implementation of the same. In spite of the visible benefits and keen interest shown by B2B firms in customer centricity, we still see B2B organisations struggling with bringing customers oriented policies to the core of their strategy. The reason for this failed action remains unknown and is subject to further research.
Fallouts of the lack of customer centricity
To conclude, the comparison between product centricity and customer centricity in the B2B market is seen to have emerged only recently with more organisations in the B2C market shifting to customer centricity. The core strategy of product-centric industries is innovation. However, innovation aimed at a blind spot is not going to give optimal yield. It, therefore, becomes essential for a company to keep in mind the customers needs while making innovations to reap maximum benefits. Along with innovation, the price is another tool that companies use to drive their profits. However, it is not always that price change works in favour of the company. Lack of customer centricity can result in higher price elasticity (more responsive to price change) of its customers which translates into a greater risk of losing them. For instance, more than seven out of 10 business customers are emotionally and psychologically detached from their suppliers; and ready and willing to take their business elsewhere, according to the latest issue of Gallups Guide to Customer Centricity: Analytics and Advice for B2B Leaders.
Hence, if we were to go by the current trends and present empirical data, B2B firms moving towards a more customer-centric environment seems like a step aimed at having improved efficiency, productivity, and financial stability. However, in spite of the firms displaying a strong belief in customer-centric policies, the reason for lack of implementation of the same is something that remains unknown and needs to be explored. But what looks quite certain are the benefits that could be derived by B2B firms by becoming more customer oriented. There are a plethora of basic strategies that firms could probably employ as the initial step towards becoming more customer-centric. For instance, anticipating your customers’ needs, addressing their emotional requirements, and adopting a flexible approach can undoubtedly result in increased profits. Companies can also tap into their customer base using big data to produce insight into customer behaviour and buying patterns, helping to run their operations more effectively and efficiently. In the end, it all boils down to your ability to change the mindset than merely making organisational changes in the company. Change or taking risk is always faced with resistance, and making the switch to customer centricity for firms is no less than taking a risk. However, as Peter Drucker once said, Whenever you see a successful business, someone once made a courageous decision.