CUSTOMER INTIMACY: GIVE CUSTOMERS EXACTLY WHAT THEY NEED
Companies who practice Customer Intimacy as their core strategy are neither the most innovative or the lowest cost producers in their industries. Their approach is to forge and sustain long-term relationships with customers by providing a level of service other suppliers have a hard time matching.
As with Product Leadership and Operational Excellence, there’s more than one way to implement a strategy of customer intimacy.
The two primary forms we see Customer Intimacy taking are:
- Bespoke (Custom) Products
A good illustration is a tailor who makes made-to-measure or bespoke suits. Such suits are usually much more expensive than off-the-rack suits you could buy at a department store. It takes more time to make a bespoke suit than to buy off-the-rack.
If they’re more expensive and take more time to make, then why do some customers purchase a made-to-measure suit?
By going this route, the customer has much more choice in the suit he or she will purchase. They can choose exactly the quality and pattern of fabric used in the suit. They can have it made in any style they want. They have choice in the accessories such as buttons and pockets they can’t find in off-the-rack suits. Lastly, it will fit perfectly, because the suit is designed around their body shape and size. As a result, made-to-measure suits will wear for many more years than a standard suit. In the long term, the bespoke suit offers better value and satisfaction than off-the-rack.
Here’s a profile of the characteristics of a Bespoke Products strategy:
PRODUCT. You offer made-to-order products to give customers exactly what they need or want. It could be from a range of stock components you assemble or it could be a wide range of components you have access to.
OPERATIONS. Your plant is designed for flexibility to produce a wide range of products based on standard components that can be assembled multiple ways to create unique products
INNOVATION. You focus on optimizing the process used for assembly of the product more so than developing new products. You’ll be looking for ways to reduce labor. You’ll keep your eyes open for new components that might fit with what your customers desire.
PROFITABILITY. You may realize higher profit margins than your competitors because you charge a premium price for making custom products they cannot easily match.
SELLING. You focus on offering customers the best fit for their needs. Your sales personnel are consultative, not price sellers, and adept at uncovering customer requirements or preferences.
PEOPLE. Your employees must be adaptable, flexible and multitalented. You hire a mix of seasoned workers and innovative thinkers. The innovators drive transformation within your company to create new products or services that allow you to take on efficient competitors.
QUALITY. The quality of your products is superior to your competitors’. The materials and/or components are chosen by the customer so they get exactly what they need at the quality they demand.
YOUR EDGE. Customization. Your competitors can’t match your product or your service within their cost structures.
The tailor may be a good analogy for this approach to customer intimacy, but here are some others from different industries.
In the fast food industry, McDonald’s historically has tended to offer standardized products. At Burger King, Harvey’s or Wendy’s, however, you can have your burger dressed the way you like.
In the personal computer industry, HP has tended to sell standard model of desktop and laptop computers. Dell, on the other hand, allows its customers to build their own computer from a menu of options such as memory, hard drive capacity, processor etc.
At the turn of the 20th century, housewives spent more time shopping than we do today. They would go to the butcher’s for meat; the greengrocer’s for produce, the baker for bread and a general store for hard goods.
The introduction of the supermarket dramatically changed the shopping experience by enabling shoppers to purchase a wide range of products from a single store. It was a time saver and, in some cases, they were able to purchase products at lower prices than the individual merchants because the supermarkets had buying power.
So, how can this principle be applied in business?
It’s most likely you will have a network of plants – as opposed to a single plant – producing an array of products that complement each other.
PRODUCT. You offer a comprehensive range of complementary products that can be used together.
OPERATIONS. Your plant could be designed for flexibility to produce a wide range of products. More likely, you operate a network of plants that are focused on specific product types that, together, complement each other, enabling you to offer a complete process solution as a single source. These plants may not necessarily be the lowest-cost for their respective products, but they will be competitive with your specialized competitors.
INNOVATION. Innovation is driven by your close relationship with your customers, who confide their needs in you and ask for your advice. You may require a new process for one solution or product development for another.
PROFITABILITY. You may realize higher profit margins than your competitors because your specialized production equipment or plant scale allow you to be the efficient.
SELLING. You focus on offering customers a complete solution for their needs. While most customers prefer to have multiple suppliers, you emphasize accountability for the overall performance of your solution, which can expedite resolution of problems.
PEOPLE. Your employees must be adaptable, flexible and multitalented. You hire a mix of seasoned workers and innovative thinkers. The seasoned workers probably come from the client industry and bring process knowledge and insights gained from such experience. The innovators drive transformation within your company to create new products or services that allow you to take on efficient competitors. In some cases, you may have an employee embedded in your customer’s organization so you are on the leading edge of customer preferences.
QUALITY. The quality of your products is comparable to your competitors’, but rarely lower than your competitors’
YOUR EDGE. Product Scope and Accountability. Ultimately, it’s your people who enable this. Their empathy for the customer and commitment to service are probably unmatched by your competitors.
To go back to our analogy of the tailor, men’s apparel retailers such as Harry Rosen have taken the concept one step further. They offer their customers bespoke tailored suits but they are not just a seller of suits: they are wardrobe consultants. They can help customers accessorize suits with shirts, ties, shoes and belts that complement the suit.
A classic example of a company using the one-stop-shop strategy is Home Depot.
In developing its product assortment, I think Home Depot strategically positions itself as a home improvement retailer – not just as a hardware store. You’ll find the usual home improvement products found at a retail hardware store – plumbing and electrical components as well as tools and lumber – but customer can also purchase a wide variety of lighting products, ceramic tiles, major appliances, and paints. The scale of Home Depot’s stores is such that they can carry a broader selection in every category than a hardware store could.
Another facet of Home Depot’s strength is in service. Home Depot pioneered the concept of having skilled tradespeople working as associates to be able to give customers excellent advice on materials and how to use them to help them in their product selection. Home Depot can help homeowners with renovation projects such as kitchens or bathrooms with professional designers who work directly with the customer. They also offer installation services for appliances, windows, doors – and, yes, kitchens and bathrooms, too – using contractors who are carefully screened to reassure the customer the job will be done right.
And, if you’re the type who likes to do his own renovations, Home Depot can also support you by renting you professional-grade tools (and provide training, too) to do just about any kind of home improvement project. Great products. Outstanding Selection. Customer service and support. These are the underpinnings of Home Depot’s success.
OPERATIONAL EXCELLENCE. MORE THAN JUST LOWEST-COST
Operational Excellence, as a strategy, involves supreme efficiency in product or service delivery.
The traditional way this strategic option is taught is called “Low Cost Producer”; however, we find this limits thinking too much and we prefer to talk in the broader context of efficiency.
The diagram to the right represents a trinity of trade-offs. A company may produce a product at the lowest cost among its competitors but it may have to compromise on speed or quality to do so. Similarly, a company may focus on fastest order turnaround, but it may require extra costs or lower quality standards to accomplish this consistently.
Let’s focus in the main axis of efficiency: cost and speed. Along the way, we’ll show how quality is impacted.
This is an especially important strategy to use in commodity markets, where there is little product differentiation. Cost (price) and Turnaround are key differentiators. Similarly, this is a good fit for distributors, who have little control over the products they market (other than the assortment) but much more control over fulfillment and price.
- Low-Cost Producer
We’re starting off with Low-cost producer because it’s the most familiar way Operational Excellence is used in practice.
PRODUCT. You probably have a standardized product with relatively few options so you can source raw materials more cost-effectively.
OPERATIONS. Your plant usually has specialized production equipment or is built to produce high volumes that allow you to realize economies of scale. You probably have a very limited range of raw materials you work with.
INNOVATION. Your focus is on process development more so than product development. You’ll be looking for ways to reduce labor and/or materials.
PROFITABILITY. You may realize higher profit margins than your competitors because your specialized production equipment or plant scale allow you to be the most efficient.
SELLING. You focus on value selling. It may not necessarily be by securing business with the lowest price. It could be that you can demonstrate how your product can be used more cost-effectively overall than your competitors’.
PEOPLE. Your employees are dedicated to identifying improvements to your process to maintain your edge over the competition. Engineers and accountants are your key hires.
QUALITY. The quality of your products is comparable to your competitors’, but rarely lower than your competitors’. You might offer a high quality and a lower quality version to give your customers some degree of choice.
YOUR EDGE. Price. You have the potential to squeeze out competitors with higher cost structures.
In an industry (restaurants) known for low margins, McDonald’s has been extremely successful with this strategy by offering basic fast-food meals at low prices. They offer a relatively limited selection of standardized products (don’t think of asking for no mustard on your Quarter Pounder) for which they can source ingredients efficiently. They are able to keep costs low by hiring and training inexperienced employees rather than trained cooks. They also rely on few managers, who typically earn higher wages. These staff savings allow the company to offer its foods for bargain prices.
2. The Fastest
This sub-strategy focuses on being the company that can fulfill a customer’s needs in the shortest time. It’s premised on time being of greater value to some customers than money.
Without a primary focus on product, this is, in essence, a strategy founded on service. In fact, this is a strategy that lends itself well to services or distributors. For example, the fastest oil change, the quickest insurance quote or the fastest way to get from A to B.
PRODUCT. As with the low cost producer, you may have a standardized product that allows you to fulfill orders from inventory or straight from the line. If you are a service provider, your secret may lie in the technology you use to process information.
INNOVATION. The source of innovation is likely to be technology. It could be more efficient information systems so you respond faster to customer needs than your competitors. It could be your manufacturing process involves fewer steps.
PROFITABILITY. You may be able to charge a premium price to some consumers in return for rapid fulfillment and, though you may not have the lowest product cost, your margins are probably above average for your industry.
SELLING. Case studies can demonstrate to potential customers how you’re your service is, without giving away any secrets to your competitors. Help customers understand how your fast turnaround can be a source of competitive advantage for them in their businesses. Focus on industries and customers where there frequently are deadlines to be met: your fast turnaround could be the difference between winning and losing a piece of business.
PEOPLE. Your employees like winning races. You hire engineers or invest in IT business analysts to simplify processes and eliminate unnecessary steps.
QUALITY. Your primary KPIs are probably OTD (On-Time Delivery %), some form of measurement of fulfillment time, and Perfect Order Rates.
YOUR EDGE: Speed.
FedEx is a company that promises faster delivery of packages than anyone else. The pioneered overnight next-day delivery – something the postal system was never able to do consistently. FedEx charges more for delivery than the postal service, but by appealing to the generation of instant gratification, customers are more than willing to pay those premiums because FedEx also has an enviable record for reliability.