Strategy 3.0 – understanding your customers
by Marcus Sewtz
When we ask our consulting clients at the start of a strategy process “WHAT IS STRATEGY?”, we often get answers like “Earn money” or “Be the market leader”. That's a long way from customers and their needs.
Traditional paradigms don't offer much help either. Sun Tzu’s “The Art of War”, considered the earliest work on strategy, and General Carl von Clausewitz’s landmark work “On War” define strategy as the necessity of deploying all available means and flexibility to achieve an objective.
While a strategy is conventionally considered to mean primarily a plan to be implemented with utmost discipline, modern strategy gurus such as Michael Porter and Jim Collins focus on being better than the competition or concentrating on what the company does best through excellence in management.
This is all well and good, but also somehow abstract and a bit far removed from the customers’ reality. It sort of feels like a one-on-one boxing match between two dinosaurs.
In principle, the question becomes: How effective are these strategic principles in an era in which consumer needs are changing so dramatically in such extremely short intervals due to digitalisation, globalisation and verticalisation? This is particularly relevant to the millennial generation.
Whereas in the analogue era communication was generally one-way with high attenuation, the consumer journey today has become much more complex due to the many new touchpoints and possibilities for individualised communication. Not too long ago, the customer utility was determined pretty much solely by the product alone; today, delivery speed, transaction security, crowd ratings, one-stop shopping and many other factors often determine where and from whom consumers buy.
But wait – wasn’t it always about more than just the product? “Customers don’t buy products or services, they buy stories and magic.” Essentially, the same things that determined our behaviour as social beings when gathered around stone-age camp fires or creating cave paintings thousands of years ago are still relevant today: stories that bring us together and enable us to learn and dream. It’s just that millennials tell each other their stories digitally, delocalised and in real time, and they use a wide range of new communication and consumption channels (SMS, WhatsApp, Instagram, platforms, influencers, etc.). What’s more, they also influence the information and consumption behaviour of the older generations, such as the gen-Xers and the baby boomers. Who would have thought that my 78-year-old mother, who five years ago refused to even go near the internet, would today buy concert tickets for herself and her granddaughter online?
Additionally, this generation, which in just a few years will control the lion’s share of consumer spending, is uncertain and in search of an identity. They have long since lost faith in the institutions, and physiological and security-driven needs are of secondary importance. They value authenticity, sustainability and individualisation – in short, self-actualisation.
But how do we reach these consumers, who don’t actually need anything and who have become much more complex and fickle in their needs and their communication and consumption behaviour? How can we truly be heard amidst all the digital (and analogue) noise directed at them via WhatsApp, Facebook, Instagram, newsletters, apps, flyers, catalogues, blogs, magazines, analogue and digital news, LinkedIn or XING?
The same way as ever: with relevant products, services, information and stories that directly touch the recipients’ emotions or eliminate roadblocks on the road to a positive emotional state. In other words: relevant is whatever is useful and delivers immediate gratification. Consumers appreciate relevant messages and ignore the irrelevant ones.
Most brands and retailers have tried out many approaches in the pursuit of relevance, which increased their own complexity and cost but generally produced little benefit for customers. The reason for this is generally a great uncertainty as to who today’s new consumers actually are, what product, service and lifestyle preferences they have and via which channels they can be reached. How do you manage to be heard amid the digital noise of the consumers’ prevailing attention society? How can you better identify what actually benefits and pleases your customers?
This brings us back to our original question of how strategy efforts work effectively today. We believe that this process must start at the beginning, with the customers, and not with abstract considerations. And it is not enough to depend on the gut feelings of a few individuals within your enterprise. Customer-centred, data-driven and utility-oriented strategy development that considers the entire organisation is needed:
1. It is time for us to rededicate ourselves entirely to our customers and place them at the focal point of our strategy efforts. What needs or problems do they have? What prevents them from satisfying their needs? How can we help them?
2. To understand what motivates their actions, we need validated knowledge. Exploratory interviews and customer journey observations* make it possible to develop initial hypotheses, which form the basis for creative ideas and initial concepts, and later for concrete value propositions.
3. These ideas must be prioritised according to strategic fit with the company and potential for traction. Development should not be pursued too far toward perfection so as not to waste time and money. A digital dummy and an analogue, improvised process – the minimum viable product (MVP) – are entirely sufficient to determine whether customer utility can be assumed, or even proven. Subsequently, only those activities that offer the (target) customers demonstrable benefit are rolled out, according to the principle “fail fast and learn fast”. The logic behind this comes from the realm of venture capitalism, and is astonishingly simple: the faster and more often test cycles can be carried out, the greater the likelihood of generating a successful, utility-enhancing innovation using available means.
4. When the activities complement each other, they become part of a positive feedback loop that ultimately pays off powerfully for the company’s unique value proposition (UVP). Often, tradeoffs are necessary. This means deliberately discontinuing activities that do not harmonise absolutely with the UVP – as is so often the case, a “no” is tougher than a “yes”. A customer-centred strategy is not made up of individual actions, but rather an entire system of activities relating to the UVP.
This kind of strategy development is not a PowerPoint exercise, but a systematic learning process, driven by multiple loops and a high management focus. If pursued systematically, experience shows that it will lead to a utility-oriented, tangible innovation of the business model within six months, and ultimately to a customer-centred culture when the organisation is involved. The cultural change this generally entails is an entirely different challenge. However, that’s a story of its own, as you can read in another article coming soon.
* A small anecdote from the phase where digital games were displacing analogue toys from children’s rooms serves to illustrate the usefulness of customer journey observations. Although it is not clear whether this event actually transpired as told, it at least highlights why it pays off to find out what really benefits customers. As the story goes, Lego believed that larger bricks would significantly reduce the building time, and thus the danger of being replaced by digital games. Because this strategy was unsuccessful, a team was tasked to find further defensive strategies, and discovered a pair of extremely worn skateboard shoes in the bedroom of one Lego customer. The team wondered: Why was this child spending so much time practising skateboard tricks instead of on their game console? The answer the team discovered was as simple as it was profound: The boy had an abiding need to show off his coolest tricks to his friends, and thus obtain social recognition. In response, Lego shrank its bricks, made the models more challenging and offered kids the opportunity to showcase their “construction” skills. This customer-centred strategy secured not only the company’s existence but also its sustained position as one of the most successful companies in the entertainment industry.