CONVERT VALUE TO CUSTOMER TO VALUE FOR THE BUSINESS
You would struggle to find a company that doesn’t talk about customer focus, backed up with boasts about how much attention it pays to its clients. But how many companies pay any attention to customers when thinking about how to earn revenue from them?
This is because customer focus hasn’t made that final step to connect what the customer is actually looking for to the value the company receives. This oversight shrinks opportunity in the market. What does it really mean to make that connection and what does an organisation that has made the leap look like?
On one level, it is about knowing, in detail, what people pay your organisation for. This question can be answered by data, and many companies are collecting and applying insights from data on a vast scale. This is important, but it’s only part of the story.
WHAT IS CUSTOMER SATISFACTION?
If you go a little deeper, you could ask what impact the customer is looking for in your product or service. You should be asking yourself: What makes them satisfied with what you have provided?
After all, people want the impact the product creates, not the product itself. For example, not everyone wants to own a car, but everyone wants mobility and convenience. The problem is that in the past, companies couldn’t sell mobility and convenience, but they could sell cars and the promise it works.
Marketing guru Theodore Levitt hinted at this misalignment between organisations and customers when he famously observed that people “don’t want to buy a quarter-inch drill, they want a quarter-inch hole”.
Technology offers the opportunity to unravel the mystery, take customer focus full circle and consequently, address much of the waste that exists in commerce.
Consider car club schemes like Zipcar or Ubeeqo. Their business model is closer to selling you the ability to go to different places. You don’t own the car or pay upfront for the car. The value the customer receives in journeys is closer to the value the company receives.
For many businesses, customer focus has not reached this point. The final piece of the puzzle is the process by which organisations convert value to the customer into value for the business. It is a trend that is reshaping markets and changing public discourse, whether your business is on board or not.
EVEN GOOD COMPANIES CAN FAIL TO MAKE THE CONNECTION
Why might a business not see this change? An organisation might not appreciate the importance of aligning the revenue model with how customers derive value from their purchases. Somewhere after ideation and new product or service development, many companies forget the promises made to customers and fret over internal constraints.
If your business is focusing on questions like, “What did it cost us to bring this solution to market? How much risk are we willing to tolerate? What is the desired return on our investment?”, then your business could be in this category.
Your organisation needs to see that there is a tension between how it creates better outcomes for customers through its products and services (the solutions it brings to market) and how it creates better outcomes for itself (the revenue model). The greater the quality in the solutions you are providing, the greater the temptation will be for you to blindly adhere to the same tried-and-true ownership model.
Sticking to established revenue models leads to inertia, which can manifest itself as risk aversion, myopia, and a certain degree of hubris. The more companies are accustomed to perpetuating the past by projecting it into the future, the more likely they are to respond reactively to trends in their market instead of initiating them.
Implementing a revenue model that holds the firm accountable to its customers may in fact trigger a flight to quality. However, the companies most likely to benefit from implementing a better revenue model are those that are most likely to cling to existing models.
TECHNOLOGY AND DATA
Until relatively recently, companies had no meaningful information on how customers interact with and derive value from their purchases. While it is hard to imagine taking a customer-focused approach to the task of generating revenue when you have no visibility beyond the moment of purchase, it is also true that the importance of gathering information on consumption and performance was largely ignored or dismissed in the past.
Prior to the 21st century, companies could not observe post-purchase behaviour directly, completely, and in real time. Think of the difference between selling music on CDs and selling music via an online streaming subscription. From the moment a CD is purchased, the music publisher has no idea what happens to the product. By contrast, a 21st-century subscription music service can observe every play, pause and download. In the case of the car club, sensors can tell the business how often customers use its vehicles, for how long, how fast and so on.
Now, through technology, companies can close the loop on customer focus. But subscription-revenue models, like car clubs and streaming services, are only one possible response to the trends I explore in my new book, The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value. Subscriptions may only be a transitional step as companies understand, through data, how they contribute towards a desirable outcome for the customer.
The Australian company Orica, the world’s largest provider of commercial explosives to mining companies, exemplifies how a smart choice of revenue model is critical to sustained success.
Orica makes a living based on the quality of the “broken rock” it delivers. This outcome-based model, which it refers to as Rock-on-Ground contracts, has become a defining characteristic of how Orica manages the business, both internally in terms of innovation and product development, and externally in terms of its ongoing relationships with customers and positioning in the market.
The size of the broken rock that results from a blast appears to correlate well with the value mining companies derive from using explosives, as smaller rocks are easier and cheaper to dispose of.
If Orica were to sell its explosives, advisory services, and other blasting materials under a traditional ownership model, or even under a subscription model, it would risk generating all forms of waste.
For a success-dependent fee, Orica takes care of the necessary planning, provides the appropriate materials, and manages the blast.
Just as important is Orica’s steadfast focus on adopting new technologies to continually optimise how it integrates and performs these tasks. In late 2018, the company released the next generation of its digital platform, BlastIQ, which integrates data and insights from digitally-connected technologies across the drill-and-blast process. Orica claims that the solutions powered by BlastIQ “can deliver predictable and sustainable improvements that can reduce the overall cost of drill-and-blast operations, improve productivity and safety, and facilitate regulatory compliance”.
In other words, BlastIQ “will enable our customers to make better decisions more rapidly, and deliver improved blast outcomes across their operations”. It does that by providing “near real-time, hole-by-hole, blast-related data visually to the multiple users across the drill-and-blast process”.
Orica has reconfigured blast operations in mining around the idea of lean commerce. The adoption of Rock-on-Ground contracts creates opportunities for optimisation that are inconceivable under the local, manual, highly variable ownership models that prevailed to that point.
The difference is that the quality of the outcomes is now not only more quantifiable and verifiable, it is also more predictable. Mining companies can make better decisions on how to conduct any given project, save a considerable amount of time and money, and capitalise on opportunities that might have otherwise been uneconomical.
Orica is not alone. Many companies in many industries around the world are using impact data, skills, experience, and creativity to shift their revenue models away from traditional, inefficient ownership schemes and toward agreements that come closer to reflecting the underlying value that customers derive in an exchange. How can organisations responsibly and effectively achieve this in different market contexts? This is the essence of The Ends Game.
The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value by Marco Bertini and Oded Koenigsberg is out now.