Chapter Five

The Product Centric Approach

Customer analytics is a process by which data from customer behavior is used to help make critical business decisions via market segmentation and predictive analytics.
For those companies focused on performance priority, or an operational excellence strategy, it includes implementing their blockbuster idea, using the appropriate metrics and keeping their costs down. We call that product-centricity. Because of current trends, the product-centric approach has lost some of its effectiveness. We will discuss some alternative approaches as there are some cracks in product-centricity strategies. Of course, for some companies, product-centricity is a viable option, but modern approaches that did not exist 15-20 years ago have surpassed the product-centric approach. Furthermore, in some respects, product-centricity is not as progressive as it once was.
Current emerging trends that effect longevity cause companies to weigh the benefits of product-centricity or explore alternative strategies. There are a few factors that take the luster off of the product-centricity strategy including, the idea of commoditization. Commoditization is defined as the process by which goods that have economic value and are distinguishable by their attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition. The company is in a race to achieve the lowest price. A race that is very hard to win.
Manufacturing new products or delivering new services that are steps ahead of the competition can be challenging as time plays a critical role before competitors generate an equivalent idea. Today, as a result of technology, products commoditize faster and product life cycles have become shorter. Companies recognize as soon as they launch something new, they must have the next new "thing" in progress. In the product-centric world, every company would like to count on some kind of natural monopoly as they strive to keep ahead of their competitors for a long period of time. This process also enables them to focus on creating the most efficient operational processes and methods. However, as life cycles shorten and products commoditize, some of the natural monopoly power dissipates.
“The current business reality is stark, three out of four companies on the S&P 500 list today will disappear into obscurity by 2027. What was once a 61-year lifespan for the average firm on the S&P 500 in 1958 narrowed to 25 years in 1980 — to 18 years today. At the center of this trend are the side effects of the transformative effects of the exponential growth found in modern technology.” retrieved from article - Business Success Is Happening Faster Than Ever, But So Is Failure. How to Adapt
“As happens in most industries, value creation is moving up the stack. That is, companies make money in new technology-driven arenas at first by differentiating on performance, engineering, cost, etc. As industries evolve, core infrastructure gets built and commoditized, and differentiation moves up the hierarchy of needs from basic functionality to non-basic functionality, to design, and even to fashion. For example, there was a time when chief buying concerns included how well a watch might tell time and how durable a pair of jeans was. There is still plenty of core technology to be built for the Internet, but the fact that you can now be a fairly sizable Internet company without ever needing to own (or even look at) your server hardware means a much bigger proportion of what companies do is add value on top of what’s here. And one of the most powerful ways to add value is through design. ” Retrieved from: Value is moving up the stack–a article by Evan Williams
Today’s consumers are much more informed and aware, as opposed to their historically passive purchasing behavior. Customers of yesteryear welcomed whatever products or services they received with "oh, that's great, terrific, thank you very much, I'll figure out how to use it." Today's customers are more demanding and savvy. A primary reason for this shift is a direct result of the internet as customers have become fully aware of available options including future options not yet released. Smart customers put pressure on companies and make it harder for them to extract as much value out of the products and services that they deliver.
Technology also lessens the strength of product-centric companies by offering products instantaneously. Companies such as FedEx, DHL, or UPS also help to diminish some of the natural monopoly power that a company has by delivering products almost immediately. Prior to the advent of the internet companies relished the fact that no one else had a product like them and even if they did, customers were just not aware of it. In the off chance that customers were aware of it, for the most part, they would not have access to it.
Because distribution technology delivers everything everywhere overnight, companies today find it laborious as they try to compete with products and services that are available from other regions. This is just one example of how technology diminishes the strength of product-centricity. Not limited solely to technology, part of the decline of product-centricity is attributed to a mindset. More than ever, customers are thinking globally as they seek products and services from other regions. Industry deregulation has also played a part in the weakening of product-centricity. Regulation gave companies monopoly power. When they were the only game in town customers had no choice but to buy their product. But as one industry after another has deregulated, companies are forced into competition with each other. As a result, it is difficult for companies to stay a step ahead. In some cases, it's not deregulation, but it's re-regulation. Clearly regulations are driving markets into competition. This is yet another example of why product-centricity isn't what it used to be.
An important reason attributed to the decline of product-centricity is the customer. As previously mentioned, customers are far more demanding than ever before. In times past, as customers acquired products and services, it was incumbent upon them to put them to use to help them solve the problems that they had. This common practice was perfectly acceptable to both the buyer and the seller. Today's customer is much more resourceful as they no longer seek just one product or service but insist companies offer bundled products or services that they can choose from.
Sometimes companies include products and services that they may not make money on. It is essential that companies be seen as trusted advisors and provide full-fledged solutions to the customer rather than piecemeal products and services together. IBM is a classic example of a company that was solely a product-centric firm which transformed into a customer centric solution provider. In the early days, IBM surpassed their competitors as they developed certain kinds of products including business machines and computers better than anybody else.
By the mid-1990s, they had a revelation they could actually make more money serving as a trusted advisor. When computers and other information technology equipment commoditized, IBM expanded their business by counseling customers on what set of machines and services to buy. IBM profits today from serving as a customer centric solution provider. They equip customers with knowledge so that they can make informed decisions when purchasing products and services. That kind of expertise doesn't commoditize nearly as much as anyone product might. The idea of moving away from selling products to serving as a full-scale solution provider is a significant change that has occurred in the last 15 to 20 years.
Today's technology enables us to collect, manage and use data about customers in a way that we could have never imagined before. Henry Ford was one of the real originators of product-centric thinking. He had no idea how many customers he had and wasn't clear whether he was selling one car to each of ten million different people, or whether he was selling ten million cars to one person. Quite frankly, he didn't know and he didn't care. Because he was product-centric in his thinking, for him, it was a matter of pushing products out the door while keeping volumes up and costs down.
But by focusing on competition, scholars, companies, and consultants have ignored two crucial—and, far more lucrative— strategies: One is to find and develop markets where there is little or no competition—blue oceans—and the other is to exploit and protect blue oceans. “Perhaps the most important feature of blue ocean strategy is that it rejects the fundamental tenet of conventional strategy: that a trade-off exists between value and cost. According to this thesis, companies can either create greater value for customers at a higher cost or create reasonable value at a lower cost. In other words, your strategy is essentially a choice between differentiation and low cost. But when it comes to creating blue oceans, the evidence shows that successful companies pursue differentiation and low cost simultaneously.” Reference: Blue Ocean Strategy-HBR at
Given today's flaws with product-centricity, it is imperative that companies review data regarding their customers. Doing so enables them to understand who is buying what, and for how long. Studying data also helps companies to recognize just what other products customers are buying. Current information systems provide the possibility of developing business models that were once unimaginable and could potentially outperform those of the product-centric approach.
This guide from the smarta website introduces you to various techniques and guidelines for collecting data on your customers: View the Guide