“Unexploited knowledge may be your firm’s greatest and most undervalued asset.”
Niraj Dawar, product marketing strategy expert and author of Tilt: Shifting Your Strategy From Products to Customers, sat down with Peter Marquez, VP of Product, to discuss how companies benefit when vendors help them innovate and reduce after-purchase risks and costs.
Dawar outlines how measurement, analysis and benchmarking can improve corporate outcomes and explains the role savvy vendors can play. Dawar and Marquez discuss how a vendor’s market perspective can enhance a customer’s ability to make use of data to reduce operational risk and drive innovation.
Peter Marquez: In Tilt you encourage vendors to shift their attention toward their customers rather than relentlessly focusing solely on products. Why is now the right time for such a shift in focus?
Niraj Dawar: For three reasons. First, take a look at your costs and you will find that product costs are a decreasing as a proportion or revenue while customer acquisition, satisfaction, and retention costs are increasing. But what we measure and manage are products: managers’ attention is directed toward products (product volume, market share, product budgets, product innovation). We should be managing customers. Second, what customers buy and pay for, what they pay a premium for, and what they come back for is the difference in the customer interaction rather than in the product. In other words, customer value increasingly resides in how they buy and consume rather than in what they buy and consume. We need to be much more systematic about managing the how, and not just the what. Finally, I believe that sustainable competitive advantage increasingly comes from aspects of the business other than the product or the factory. Ask yourselves why your customers buy from you rather than from your competitors, and you will come up with reasons such as we are reliable, or we make things easy for our customers, or they trust us. None of these can be manufactured in a factory or packaged and sold on the shelf. These competitive advantages are built into the systems and processes of customer interaction. For these three reasons, I believe we companies need to shift their attention from products to customers.
PM: You have a chapter in the book called “Slashing your Customers Costs and Risk” that talks about invisible costs and how vendors can systematically reduce the risk and cost of the companies they serve. What are some of those costs and risks?
ND: Think about innovation, and images of labs where new products are created come to mind. But if our costs, our customers’ value, and our competitive advantage reside in the customer interaction, that’s where innovation should be happening. How do we systematically improve our customer interactions? To do this, we need to reduce our customers’ costs and risks. Take a very simple example: a customer pays about 30 cents for a can of cola purchased as part of a 24-pack in a supermarket. On a hot summer day, the same consumer will pay two dollars for a cola can from a vending machine in a park. The six hundred percent price premium is due to the delivery of a single serve, chilled can of cola at the point of thirst. The costs we have reduced for the customer include the costs of buying a 24-pack, carrying a can of cola around until thirsty, finding a way of keeping it chilled, and find a place to store the other 23 cans. The difference is in the how, not the what. These types of systematic improvements in can be found in every industry, and to find them, start with the questions: what costs and risks do my customers incur in buying and consuming my products?
PM: What real world benefits do companies see when their vendors are innovating “downstream” to address the risk and cost of utilizing a product?
ND: Take an example: a bank offers businesses a place to store money, and offers working capital loans to finance inventory and receivables. But the bank can really add value by offering much more: it can help companies reduce risk and reduce the costs of borrowing by managing the flow of money, for example by helping to plan payables and receivables to optimize working capital needs. Some banks today offer entire treasury management functions to their clients. By doing this for several clients, banks scale their offering, reduce treasury management costs, some of which they can pass on to their clients. They also build expertise across industries and scenarios that a single client would not have. Client companies benefit from these cost and risk reductions.
PM: Companies that utilize any product, especially software products, generate a great deal of data. In a recent article you talked about “unexploited knowledge”. What types of knowledge would you consider unexploited from both vendors and users?
ND: Vendors know things that their clients don’t know, simply because they have different positions in the value chain. Vendors have three opportunities. First, they can bring solutions to clients from other settings and industries to which the client does not have access. Second, they can aggregate data, for example by benchmarking the client against other players in its industry or other industries, giving the client a “you are here” location with respect to other players. This is particularly valuable, and often a powerful way of influencing client behavior. Finally, vendors can offer predictions, based on aggregate knowledge: to take an example from the book, the explosives seller can not only offer quarries a blast service, but can predict the outcomes of those blasts based on its data from hundreds of prior blasts. So three ways in which the vendor can create customer value from unexploited knowledge are through relaying information, benchmarking, and prediction.
PM: Today Big Data is all the rage, but most companies are not in a position to take full advantage of their data. What role can a vendor play in this equation and how does the user benefit?
ND: It is true that many companies are sitting on gold mines of data, with very little idea of how to exploit it. My advice to vendors is look two steps down the value chain: think through the opportunities for your clients to use their data to create value for their customers: how can they relay, benchmark, or predict to reduce their customers’ costs and risks?
PM: In Peter Thiel’s book Zero to One, he talks about computers being a tool to enable human insight, rather than a replace it. When it comes to data, what role does a vendor’s perspective, connection and expertise play in creating business insight and value?
ND: Every vendor’s perspective is unique. Even if they sell the same product with little differentiation, no two vendors have exactly the same set of clients, exposure to the same geographies or industries, or the same people. It is in this uniqueness that you find competitive advantage that cannot be replicated.
PM: Benchmarking plays a big role in what you call, “extracting value from the big picture” in the book. How does benchmarking relate to the wayfinding practice of adding “You Are Here” to a map? Why should companies value it?
ND: In its early days, when Facebook and Linkedin wanted to encourage people to connect with each other, they prominently displayed the number of “Friends” or “Connections” for each user. The idea was to allow each user to benchmark the number of linkages, to implicitly urge them to establish more. Benchmarking tells the user: “You Are Here” relative to others like you. There are few more powerful ways of influencing behavior than to tell people they are lagging on some dimension relative to their peers.
PM: Tilt: Shifting your Strategy from Products to Customers has received glowing reviews and I’d imagine that many vendors are experimenting with that shift. Correspondingly, what have users and customers told you about this shift in the creation of business value?
ND: The book describes dozens of ways in which companies can make that shift. Some companies already do some of things, but no company does all of those things well. So I find it amusing when senior managers of companies that I consider customer-oriented come up to me and say “I read your book, and have concluded we have long way to go to become customer-focused.”
Using data gathering, analysis and benchmarking, ServiceRocket creates downstream benefits for customers using JIRA or Confluence with its TrustedAdvisor product.
Professor at the Ivey Business School (Canada and Hong Kong), is a renowned marketing strategy expert who has also been on the faculty of leading business schools in Europe and Asia. He works with senior leadership in global companies and has executed assignments for BMW, HSBC, Microsoft, Cadbury, L’Oreal, Manulife, and McCain on three continents, as well as with start-ups in the biotech and information space. He publishes in the Harvard Business Review, the M.I.T. Sloan Management Review and in the leading academic journals. His presscommentary has appeared in the Financial Times, the International Herald Tribune, and the Globe and Mail. He lives in Canada.
Tilt, one of Forbes, “Eight Noteworthy Books of 2014” has been praised by business leaders and readers of all kinds. It explains how the customer-vendor relationship is tilting away from a purely product orientation toward creating value downstream with the customer. With vivid examples from around the world, ranging across industries and sectors, Dawar shows how companies are reorienting their strategies around customer interactions to create and capture unique business value. And he demonstrates how, unlike product-related advantage, this value is cumulative, continuously building over time.